Renewables Influence on the Generation Mix and Gas Demand ... · Renewables Influence on the...

May 2017

Renewables Influence on the Generation

Mix and Gas Demand in Western

Australia

Authors: A. Niklaus, L. Dowling. Acknowledgements: C. Wilson, J. Tan, K. Farnsworth, P. Malhi, R. Petchey.

Renewables Influence on the Generation Mix and Gas Demand in Western Australia

EXECUTIVE SUMMARY

This insights paper explores how increased renewable generation affects the generation mix and, in turn, domestic gas

demand in Western Australia (WA). The impact of new renewable generation on gas generation is the key focus of this

paper because gas is affected to a greater extent by new low marginal cost generation such as wind and solar than the

other dominant form of thermal generation, coal. Gas generation generally has a higher short run marginal cost than

coal, so is not dispatched as readily when lower-cost options are available.

The paper explores changes to the generation mix and gas demand through two approaches, Firstly, by examining the

broad range of variables that affect the market share of the various forms of generation in the South West

Interconnected System (SWIS), since this ultimately affects gas demand. Secondly, a top-down analysis is presented.

This analysis quantifies how increased renewable generation in the SWIS has influenced gas demand historically by

estimating the average change to gas generation (in MWh) as additional renewable generation capacity (in MW) has

been installed. This average change is used to evaluate the effect on gas generation of future levels of renewable

generation up to a hypothetical SWIS-specific Large Scale Renewable Energy Target (LRET) of 23.5%1. From this,

efficiencies are applied to the estimated reduction in gas-fired generation to calculate an estimated reduction in gas

demand.

The effect of coal generation on gas generation is considered in parallel, as the commissioning of the Bluewaters

power station and the recommissioning of Muja AB have also influenced the generation mix over the analysis period.

However, as no new coal-fired power stations are anticipated in the SWIS, potential future effects of coal generation on

gas generation are not evaluated.

The paper is split into several sections. The intent of these sections and key points are detailed in Table 1:

Table 1: Insights Paper intent and key messages

Section Title Section Intent Key Points

The Current

Status of

Generation

in the SWIS

Provides a high level overview of the

current generation mix in the SWIS and the

Wholesale Energy Market (WEM). This is

intended to provide readers with an

understanding of how generation is

dispatched in the SWIS and hence how

changes to the generation mix influence

which facilities are dispatched.

The WEM normally governs how each facility is

dispatched, so the generation mix in the SWIS is

primarily based on economic dispatch (lowest-cost

generators are dispatched first). However, on

occasion higher-cost facilities may be dispatched

ahead of lower-cost ones for system security reasons.

Analysis

Assumptions

Identifies the variables that influence the

analysis in this paper and therefore gas-

fired generation in the SWIS. This is

intended to give the reader a high-level

understanding of how the SWIS and the

WEM interact.

In addition, this section identifies the

assumptions related to these variables that

are used in the analysis section.

Because the WEM and the SWIS are complex and

interrelated systems, there are many factors that

influence any analysis of how changes to the

generation mix, such as more renewables, affect gas

generation and therefore gas demand. These include

renewable generation location, geographical

distribution, facility operating costs and technical

capabilities, potential changes to the WEM,

government policy, and emerging technologies such

as battery storage.

This makes building a bottom-up model to forecast

how the changing generation mix affects gas

generation challenging, as a number of assumptions

would need to be made. Instead, a top-down analysis

based on historical effects has been completed.

1 The SWIS-specific LRET is defined as 23.5% of total SWIS generation (MWh) sourced from renewables, minus specific industry exemptions for emissions intensive

trade exposed industries connected to the SWIS


Section Title Section Intent Key Points

Analysis of

the Effect of

the LRET on

Gas Demand

in the SWIS

Outlines the methodology and results of

the three areas of analysis that cover this

paper, the calculation of a hypothetical

SWIS-specific LRET, analysis of the

historical effect of new coal and renewable

generation facilities on gas generation, and

extrapolation of this historical effect to

estimate the future effect of new

renewables on gas generation. The

hypothetical SWIS-specific LRET is used

as an upper limit to this extrapolation.

To achieve the 2020 LRET target of 23.5%

renewables generation within the SWIS,

approximately 3,770 GWh p.a. of generation from

renewable sources is required. Based on the average

2016 capacity factor of renewables in the SWIS

(36.5%), this would require an additional 703 MW of

renewable nameplate capacity. However, since this is

a federal target, the SWIS-specific value is an

estimate only. There is no obligation for WA to install

any set level of renewable generation within any

timeframe. However, it is expected that the federal

LRET will continue to drive investment in renewables

in WA.

The analysis of historical data focused on the change

to the generation mix between 2011 and 2013 as this

period saw significant growth in renewable capacity in

the SWIS. This analysis indicated that for every 1 MW

of new renewable nameplate capacity installed, a

reduction of 2.76 GWh p.a. of gas generation can be

expected. Higher demand growth over the analysis

period may have reduced the apparent effect of

renewables on gas generation to some extent,

leading to a lower net effect seen in the analysis. The

commissioning of Bluewaters and Muja AB over the

analysis period may have had the opposite effect,

increasing the net effect indicated by the analysis.

However, these effects have not been removed from

the values presented in this paper as it is not

practicable to do so.

Using the 2.76 GWh p.a. reduction, the change in gas

generation and therefore gas demand can be

estimated for various levels of renewable penetration.

For the hypothetical SWIS-specific LRET this equates

to a reduction in gas generation of 2,768.5 GWh p.a.,

equivalent to a reduction in gas demand of between

62.1 and 71.9 TJ per day2 using gas generation

efficiencies published in the 2016 WA GSOO.

Extrapolation past the hypothetical SWIS-specific

LRET was not attempted due to the greater

uncertainty around analysis assumptions at higher

levels of renewable generation.

2 Gas demand reductions are calculated using gas generation efficiencies published in the GSOO for baseload and mid-merit gas generation facilities.


1. INTRODUCTION

This insights paper investigates how gas demand may be affected by changes to the generation mix in the South West

Interconnected System (SWIS). Particular attention is paid to the effect of renewable generation on gas demand as this

is anticipated to be a growing source of generation in the future.

1.1 Purpose

Federal government policy and a continuing reduction in solar photovoltaic (PV) and wind generation capital costs are

leading to increased renewable generation in the SWIS. This influences how traditional thermal generators are

dispatched and will therefore influence the volume of domestic gas required for generation in the SWIS. Generation

within the SWIS makes up approximately one-fifth of total gas demand in WA, so increased renewable generation may

have a measurable effect on gas demand, with this effect being dependant on a number of variables.

This paper aims to provide a better understanding of these variables and quantify how increasing renewable

generation in the SWIS could affect gas demand in WA.

1.2 Scope

This paper focuses on the effect that increasing renewable generation has on the generation mix in the SWIS and, in

turn, how this may influence gas demand up to a hypothetical SWIS Large Scale Renewable Energy Target (LRET).

This is subject to many variables, and to provide an understanding of how these may influence the generation mix,

these are also discussed as part of this paper.

An analysis of how new renewable generation capacity has influenced the generation mix historically is presented. This

analysis is then extrapolated to investigate how an increased level of large scale renewable generation (up to the LRET

of 23.5%) may affect the generation mix and hence gas demand from generators in the SWIS.


2. CURRENT STATUS OF GENERATION IN THE SWIS

2.1 The SWIS, WEM, Dispatch and Current Generation Mix

The Wholesale Electricity Market (WEM) operates in the South Western Interconnected System (SWIS), which covers

the majority of the Western Australian population, is made up of around 7,400 km of transmission lines, and services an

area of over 260,000 square km. The SWIS is characterised by a strong summer peak driven primarily by weather. Unlike

the East Coast, the SWIS is isolated from other networks and is therefore required to be self-sufficient.

The SWIS has 5.7 GW of installed nameplate capacity. Figure 1 shows the fuel mix used for generation in the SWIS in

2016.

Figure 1: Percentage generation by fuel type

2.1.1 The Wholesale Electricity Market (WEM)

The WEM is comprised of:

A real-time dispatch market.

A gross pool market where Market Generators must make all their certified capacity available to the market.

Net settlement, which takes into consideration the net contract positions between Market Participants, and only

settles for amounts that are not covered by Bilateral Contracts or day-ahead trades in the Short Term Energy

Market.

Load Following Ancillary Services (LFAS) which account for the difference between scheduled energy, actual

load, and intermittent generation.

Other Ancillary Services, such as System Restart and Spinning Reserve.

8%

41%50%

1%

Percentage Generation by Fuel Type in 2016

wind gas coal other


Generation facilities in the WEM are generally dispatched based on economic merit, where facilities that bid into the

market at the lowest price are given priority over higher bidders. However, on occasion higher-cost facilities may be

dispatched ahead of lower-cost ones for system security reasons.

2.1.2 The Reserve Capacity Mechanism

In addition to the WEM, a Reserve Capacity Mechanism (RCM) is operated in the SWIS that ensures sufficient capacity

is available during periods of peak demand to meet reliability targets set for the SWIS. Capacity can be provided by

traditional scheduled generators, non-scheduled generators such as wind and solar, and Demand Side Programs (DSPs)

that can curtail load when required.

The RCM is intended to support the recovery of long-term capital costs associated with installing new capacity. As a

result, maximum price caps in the WEM are much lower than in the NEM ($240/MWh or $413/MWh3 in the WEM vs.

$14,000/MWh in the NEM), since peaking generators can recover capital costs through the RCM rather than through

high peak pricing.

For a detailed overview of the WEM and the RCM refer to the Wholesale Electricity Market Design Summary4.

3 $240 price cap for non-liquid fuelled FY2016/17 (updated yearly), $413 for liquid-fuelled May 2017 (updated monthly). 4 Available from: https://www.aemo.com.au/-/media/Files/PDF/wem-design-summary-v1-4-24-october-2012.pdf


3. ANALYSIS ASSUMPTIONS

This section identifies the variables that influence the generation mix in the SWIS and, therefore, gas-fired generation

and gas demand. A commentary around how each variable affects the generation mix is provided. This is intended to

give the reader a high-level understanding of how changes to the variables may affect the generation mix. In addition,

this section identifies the assumptions related to these variables that are used in the analysis section.

3.1 Renewable Generation Mix Different mixes of large scale PV, wind, biomass, landfill gas, and rooftop PV will affect the overall generation mix

differently as their times corresponding to maximum output will differ. A high concentration of one type of renewable

generation relative to others can result in large fluctuations of renewable generation output. Higher levels of LFAS

(normally provided by gas-fired facilities) and dispatch of gas-fired facilities capable of responding to these fluctuations

outside of economic merit order may be required at times to manage this.

The analysis presented in Section 4.3 is an extrapolation of existing data. As such, the large scale renewable

generation mix5 assumed is as per the existing mix in the SWIS. The system load considered in this analysis is drawn

from projections given in the base case of the 2015 deferred WEM ESOO6. This considers rooftop PV growth in terms

of both total sent out generation required and peak load.

3.2 Energy Storage Both large and small scale storage can have positive effects on system security by proving a buffer to steep ramp rates

that may be associated with high levels of renewable generation, and smooth out system peaks. This can reduce the

need for gas-fired peaking and load following generation.

At present the WEM Rules are not designed to consider storage for ancillary services. Due to this and the lack of

certainty associated with any uptake of utility scale storage, its potential effects on gas-fired generation are not

considered in this paper’s analysis.

3.3 Wind Generation Location

The location of wind generation is a significant factor in how much of a contribution it makes to meeting peak demand.

Wind farms near the coast generally have a higher capacity factor during the afternoon when demand is high, whereas

wind farms located inland have a higher capacity factor overnight when demand is low.

This influences the generation mix as where wind contributes significantly to peak demand, it can offset generation

from gas-fired peaking plants. Conversely, where wind’s output is highest during times of low demand, such as

overnight, gas-fired and coal-fired baseload generation may be forced to either curtail generation or accept negative

prices in the energy market to avoid shutting down. Additional fast response gas facilities may need to be dispatched

as a result to manage variability in generation output during these times.

The analysis in Section 4.3 assumes that the influence that geographic location of wind generation has on the

generation mix remains constant.

3.4 Geographical Spread

The spread of wind and solar generation across a network has an effect on how steeply total renewable generation

output ramps up and down. A large concentration of generation in one area will be influenced by changes in weather

conditions at the same time, resulting in steep ramps in generation. By contrast, a spread-out collection of generation

resources will maintain a smoother generation output.

Consequently, the relative geographical spread of renewable generators can have an effect on the amount of LFAS

(typically provided by gas-fired generators) that needs to be maintained to smooth out this varying output.

5 For the purposes of this report, renewable generation mix is defined as the ratio of the various forms of renewable generation relative to each other. 6 The WEM ESOO is published yearly and provides forecasts of electricity consumption and peak demand. Refer to: https://www.aemo.com.au/Electricity/Wholesale-

Electricity-Market-WEM/Planning-and-forecasting/WEM-Electricity-Statement-of-Opportunities


The analysis in this paper assumes that the influence that geographic spread of renewable generation has on the

generation mix remains constant.

3.5 Electricity Market Review Outcomes Reforms to the energy and ancillary service markets are being considered as part of the WA government’s Electricity

Market Review. In July 2016, the Public Utilities Office (PUO) released a final report7 on the high-level design of the

reforms.

The outcomes of these reforms may influence the future generation mix in the SWIS. However, because the reforms

are ongoing they have not been considered in the analysis.

3.6 Government Policy

Assumption

Of the federal mechanisms, targets and schemes outlined in this section, the LRET is specifically considered in the

analysis presented in this paper. The reason for focusing on the LRET is because while other schemes support lower

emitting generation, efficiency improvements, and small scale behind-the-meter generation, the LRET is set specifically

to achieve a greater level of renewables in the electricity sector.

Discussion

The Federal Government has committed to a 26% to 28% reduction in carbon dioxide equivalent (CO2-e) emissions by

2030 relative to 2005 levels. A number of schemes and mechanisms have been put in place to support this, most

notably the LRET and the Small-scale Renewable Energy Scheme (SRES). The LRET is an Australian-wide target

aiming to achieve 33,000 GWh of sent out generation from renewable sources by 2020 (expected to be 23.5% of total

2020 demand). The effect of the LRET in the SWIS is the focus of the analysis in this report and is discussed in detail

in Section 4.1.

The SRES provides an incentive to consumers to install small generation units (classified as no more than 100 kW of

solar PV, 10 kW of wind or 6.4 kW of hydro generation)8. This scheme has supported the significant growth in rooftop

PV in the SWIS and is expected to continue to do so.

In 2014 an Emissions Reduction Fund (ERF) was implemented with an associated Safeguard Mechanism in 2016.9

This fund pays businesses to reduce their carbon emissions in a variety of ways including energy efficiency

improvements in transport and electricity use, so is expected to play a part in reducing electricity demand. However, as

of November 2016, energy efficiency was only a small percentage (2.5%) of the fund’s contracted emissions, with

initiatives to minimise vegetation clearing and planting making up the bulk of the fund10.

The Safeguard Mechanism11 associated with the ERF is a cap and trade mechanism that sets an emissions baseline

for large emitters (over 100,000 t CO2-e), based on their highest level of reported emissions between 2009/10 and

2013/14 for existing facilities. For new facilities, emissions will be capped according to best practice guidelines.

The mechanism also applies to electricity networks (the SWIS and NWIS (North West Interconnected System) in WA),

but unlike other industries the cap covers the sector as a whole rather individual facilities. The cap is set at 198 (Mt

CO2-e). If this is exceeded, caps will be introduced for individual facilities, who would then be required to purchase

carbon credits to make up for any emissions in excess of their baseline values. Emissions for the electricity sector for

the latest reporting period (2015-16) were 178 MT CO2-e. This represents a small increase of 0.9% on the previous

reporting period.12

7 Available at: http://www.finance.wa.gov.au/cms/Public_Utilities_Office/Electricity_Market_Review/Wholesale_Electricity_Market_Improvements.aspx#emop. 8 Refer to the Clean Energy Regulator website for further information: http://www.cleanenergyregulator.gov.au/RET/About-the-Renewable-Energy-Target/How-the-

scheme-works/Small-scale-Renewable-Energy-Scheme 9 https://www.environment.gov.au/climate-change/emissions-reduction-fund 10 https://www.environment.gov.au/climate-change/emissions-reduction-fund/publications/what-it-means-for-you 11 For more information refer to: http://www.environment.gov.au/climate-change/emissions-reduction-fund/about/safeguard-mechanism 12 The 0.9 % increase was predominantly due to an increase in coal-fired generation. For further information refer to the Clean Energy Regulator website:

http://www.cleanenergyregulator.gov.au/NGER/National%20greenhouse%20and%20energy%20reporting%20data/Data-highlights/2015-16-published-data-highlights


To finance new renewable generation and support the development of new technology, there are several other

initiatives in place, including the Clean Energy Finance Corporation (CEFC), the Australian Renewable Energy Agency

(ARENA), and the Clean Energy Innovation Fund (CEIF).

3.7 The Removal of Synergy Capacity On 5 May 2017, Synergy announced the retirement of some generation capacity by 1 October 2018.The retirements

affect the following facilities:

Muja AB units 1 to 4 (240MW)

Mungarra gas turbine units 1, 2 and 3 (113MW)

West Kalgoorlie gas turbine units 2 and 3 (62MW)

Kwinana gas turbine unit 1 (21MW)

Due to the recent timing of this announcement, the removal of Synergy capacity has not been considered in this

paper’s analysis.

3.8 Operating Costs and Performance Specifications of Existing Thermal Generators

As the analysis in this paper is based on an extrapolation of existing data, generator performance, operating costs and

how these influence Market Generators’ participation in the WEM are assumed to be constant. The influence of the

cost of fuel is assumed to be constant across the analysis horizon. Fuel costs are discussed further in Section 4.2.1.

Start-up costs are higher for baseload facilities, such as coal-fired and combined cycle gas turbines, than for open

cycle gas turbines. The time required to synchronise with the network is also generally greater. Because of this, at

times of low demand and high renewable generation, baseload gas and coal facilities may be forced to either shut

down or accept negative prices to ensure they remain online. Where gas-fired baseload facilities choose to shut down

or operate at a reduced output, this will influence gas demand as baseload gas generation consumes a larger

proportion of gas than peaking or mid-merit generation.


4. ANALYSIS OF THE EFFECT OF THE LRET ON GAS

DEMAND IN THE SWIS

4.1 The Large Scale Renewable Energy Target The LRET was introduced in 2001 and revised in 2015 to 33,000 GWh per annum of renewable generation by 2020,

anticipated to be 23.5% of total sent out electricity generation in 2020.

The LRET is funded by requiring Liable Entities13 to surrender large scale generation certificates (LGC) to the Clean

Energy Regulator (CER). LGCs are purchased from approved renewable generators, with one MWh of renewable

generation equal to one LGC.

Liable Entities pass the cost of LCGs on to electricity consumers. Emissions Intensive Trade Exposed (EITE) industries

are provided with exemption certificates that can be traded with liable entities to offset the additional cost imposed by

the LRET scheme.

4.1.1 Required Renewable Generation to Achieve the LRET in the SWIS

To provide an understanding of the amount of renewable generation required in the SWIS to meet the 2020 federal

LRET, an estimate of the SWIS contribution (the hypothetical SWIS-specific LRET) has been calculated.

Methodology

To calculate the hypothetical SWIS LRET, an estimate of generation in 2020 and expected LRET Exemption

Certificates awarded to industries connected to the SWIS were calculated.

Because the LRET is a national scheme, these exemptions are estimates only. As such the hypothetical SWIS LRET is

an approximation. The process for obtaining this (in terms of GWh) is detailed below. It should be noted that there is no

obligation to meet this target and the incoming WA Labour Government has ruled out a state based LRET14. However,

it does provide a useful baseline to understand WA’s contribution to the federal target.

The methodology for estimating the hypothetical SWIS-specific LRET is as follows:

1. The amount of sent out generation in 2020 was estimated using known generation data between 1 October

2015 and 1 October 2016 factored up by a growth rate of 0.9% per annum15 to 2020.

2. This was multiplied by the LRET percentage (23.5%) to give a SWIS LRET without taking exemptions into

account.

3. The MWh value of exemption certificates issued to industries in the SWIS was estimated using industry and

company specific data provided on the Clean Energy Regulator’s website16 17.

4. Weightings were applied to the exemptions based on an estimate of the percentage of industry share in the

SWIS relative to Australia18.

5. Exemptions were then summed and as exemption certificates are based on 2016 data, the growth rate of 0.9%

p.a. was applied to achieve a 2020 estimate.

6. The WA specific exemption data calculated in steps 3 through 5 was subtracted from the value calculated in

step 2 to give the hypothetical SWIS LRET.

13 Liable Entities are defined as the first receivers of electricity in a network with an install capacity of over 100MW 14 https://thewest.com.au/politics/state-election-2017/wa-labor-walks-away-from-national-green-energy-target-ng-b88393984z 15 As forecast in the 2015 Deferred WEM ESOO 16http://www.cleanenergyregulator.gov.au/RET/Pages/Scheme%20participants%20and%20industry/Industry%20assistance/Industry%20assistance%20published%20information/2015-exemptions-for-emissions-intensive-trade-exposed-activities.aspx 17 http://www.cleanenergyregulator.gov.au/RET/Scheme-participants-and-industry/Industry-assistance/Industry-assistance-published-information/Emissions-intensive-trade-exposed-activity-summaries 18 Where production data was available, this weighting was based on the ratio of production relative to the SWIS, where this was not available a weighting of 7.4% was

applied (the percentage of SWIS electricity generation relative to Australia)

http://www.cleanenergyregulator.gov.au/RET/Scheme-participants-and-industry/Industry-assistance/Industry-assistance-published-information/Emissions-intensive-trade-exposed-activity-summaries

http://www.cleanenergyregulator.gov.au/RET/Scheme-participants-and-industry/Industry-assistance/Industry-assistance-published-information/Emissions-intensive-trade-exposed-activity-summaries


Results and Discussion

This analysis indicates that the total renewable sent out generation in the SWIS required to meet the 2020 LRET is

3,773 GWh. For comparison, sent out renewable generation in the SWIS for the 2015-16 capacity year was 1,587

GWh. 3,773 GWh equates to a total nameplate capacity of approximately 1.2 GW, or 0.7 GW more large scale

renewable capacity than what is currently installed, assuming a capacity factor of 35.5%19.

4.2 Analysis of the Historical Effect of New Renewable Generation Facilities

This section provides an analysis of how new renewable capacity has influenced gas-fired generation in the SWIS

historically. The results of this analysis are used in Section 4.3 as the basis for estimating the effect of new renewable

capacity in the future.

4.2.1 Methodology

To complete this analysis, a table of renewable facility nameplate capacities and commissioning dates was developed;

refer to Appendix A. This table was distilled down into four time periods, as shown in Table 2, to provide an insight into

the period where the majority of current renewable capacity was installed in the SWIS, between March 2011 and

October 2013. In that period an additional 299 MW of renewable capacity was installed.

Table 2: Renewable installation by time period

In the three years directly before and after this (start 2008 – end 2010, and start 2014 – end 2016) there was very little

new renewable capacity installed. This allowed the historical values for gas generation before and after this large

addition of renewable capacity to be compared to gauge the effect this additional renewable capacity had on gas-fired

generation.

To make the comparison, average monthly gas generation values for the periods looking back three years (2008

through to 2010) and looking forward three years (2014 through to 2016) were calculated. Averages across the three

year periods were used to minimise the influence of year-on-year weather fluctuations on the analysis. Table 3 displays

these averages and gives an indication of the change in gas generation between the two periods.

211 MW of renewable capacity was installed prior to 2008. However, analysis of its effect was not included because of

limited data availability and a different dispatch methodology post market start (the WEM commenced operation in

2006).

Table 3: Three-Yearly Averaged Monthly Gas Generation

Figure 2 displays yearly averaged monthly generation to give an indication of the change in gas and renewable (solar,

wind and biomass) generation over the analysis period. A clear decrease at an increasing rate can be observed in gas

generation over the period 2010-13 and, conversely, a sharp increase in renewable generation.

19 35.5% is the average capacity factor for all large scale renewables in the SWIS in 2016.

Facility Installation Time Period New Renewable Nameplate Capacity Installed (MW)

2003 – 2007 Inclusive 211

2008 – 2010 Inclusive 1.6

2011 – 2013 Inclusive 299

2014 – 2016 Inclusive 2.6

Time Period Three-Yearly Averaged Monthly Gas Generation

(GWh)

2008 – 2010 Inclusive 719.03

2014 – 2016 Inclusive 650.19


Figure 2: Historical Monthly Gas and Renewable Generation, Averaged Yearly across 2008 - 2016

In addition to renewable generation, this change in gas generation may have been influenced by changes in gas price,

growth in electricity consumption and the commissioning of two coal-fired power stations over the analysis period.

The Bluewaters power station was commissioned in 2009, Muja B was recommissioned in 2013 and Muja A in 2014.

The influence of the commissioning of Bluewaters likely contributed to the decrease in gas generation prior to 2010

seen in Figure 2. The influence of Muja AB is less clear, most likely because Muja AB operates less often, so has a

smaller impact on the generation mix.

Figure 3 below illustrates the dispatch quantities by month of gas, coal and renewable generation in greater detail, plotting

the change in generation levels of these over time. This shows a trend towards increasing renewable and coal-fired

generation and decreasing gas-fired generation. The trendline of gas and coal indicate that coal is increasing 60% faster

than gas generation is decreasing over the same time period. The sum of the slope of gas and renewable almost perfectly

cancels each other out, which could suggest that greater renewable generation is having a larger effect on gas demand

than competition between gas-fired and coal-fired baseload generation. However it is more likely that both new renewable

and coal-fired generation have had an impact on gas generation.

0

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2008 2009 2010 2011 2012 2013 2014 2015 2016

GW

h P

er

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Gas Renewable

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Figure 3: Levels of Gas, Coal and Renewables over time

Between 2008 and 2016 electricity consumption has grown by approximately 1.5% per annum. This corresponds to an

increase in monthly generation from 2008 to 2016 of approximately 180 GWh. This growth may have reduced the impact

of new coal and renewable generation on gas generation over the analysis period. Future growth in consumption is

expected to be slower, approximately 0.9% per annum20.

This higher demand growth over the analysis period may have reduced the apparent effect of renewables on gas

generation to some extent, leading to a lower net effect being seen in the analysis. The commissioning of Bluewaters

and Muja AB over the analysis period may have had the opposite effect, increasing the net effect indicated by the

analysis. However, these effects have not been removed from the values presented in this paper as it is not practicable

to accurately do so. Instead, this analysis assumes that the counter effects of load growth and new coal-fired generators

on the analysis cancel out.

To consider the influence of gas price over the analysis period the maximum non-liquid bid price for the STEM21 is

used as a proxy for gas price, as individual gas contracts by facility are not available. The maximum non-liquid bid price

is based on Market Generators’ estimated short run marginal cost of operation (closely tied to fuel price).

Figure 4 plots the maximum STEM price between 2008 and 2016. The most relevant years are 2008 to 2010 and 2014

to 2016 as these are the two three-year periods that the analysis uses to calculate a percentage change to gas

generation based on renewables nameplate capacity increases.

20 Refer to Appendix G of the 2015 Deferred WEM ESOO 21 For more information on the maximum STEM price refer to: https://www.aemo.com.au/Electricity/Wholesale-Electricity-Market-WEM/Data/Price-limits

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1

201

6-0

4

201

6-0

7

201

6-1

0

201

7-0

1

GW

h P

er

Month

Aggregate Monthly Dispatch

Coal Renewable (Solar, Wind, Biomass) Gas


Figure 4: Maximum STEM Price based on AEMO’s estimate of the SRMC of the highest-cost generating works

in the SWIS fuelled by gas by Financial Year 2008 – 2016

As the averaged prices are relatively consistent between the two periods ($299 for the 2008 to 2010 period and $274

for the 2014 to 2016 period) changes to gas prices are assumed to have a relatively small influence on the change to

gas generation. As a majority of gas contracts span longer terms than one year, actual price variation for gas supplied

to gas generators is most likely less than the variation suggested by Figure 4.

4.2.2 Results and Discussion

Figure 3 illustrates that the increased level of renewables coincides with reduced gas generation rather than coal. This

is expected because gas generation usually has a higher cost per MWh than coal. Although the variability of

renewables can lead to greater use of open cycle gas turbines to respond quickly to load variations, this accounts for

only a small amount of total gas generation. Base load gas generation facilities make up the bulk of dispatched gas

fired generation, and these are generally priced out of the economic dispatch model by renewable generation before

coal-fired generation.

The reduction in monthly average gas generation seen between the two three-year periods defined in Table 3 of

section 4.2.1 is 68.85 GWh per month (826.2 GWh p.a.).

Dividing this value by the increase in renewable nameplate capacity between the two three-year periods (299 MW)

gives a historical gas generation reduction of 2.76 GWh p.a. for every MW of new renewable nameplate capacity

installed.

The historical effect of renewable and coal generation on gas generation is further illustrated in Figure 5. This show the

percentage change in the generation fuel mix between 2010 and 2016.

$286

$276

$336

$314

$323

$305

$330

$253

$240

$230

$250

$270

$290

$310

$330

$350

FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016

Maximum STEM Price

Decrease in oil price and

repeal of carbon price.


Figure 5: Dispatch by fuel type 2010 vs. 2016

4.3 Potential Future Effect of Renewables Penetration on Gas Demand

4.3.1 Methodology

The analysis in this paper adopts a top-down approach when projecting the potential effects of increased renewable

generation on gas demand in the SWIS. It is expected that the level of large scale renewables, particularly wind and

solar, will continue to increase in the future. To gain an understanding of how this may affect gas-fired generation and

gas consumption, the historical reduction calculated in section 4.2.2, 2.76 GWh p.a. of gas generation per MW (0.001

GW) of new renewable capacity installed, is used. Applying this to various levels of renewable generation, up to the

nameplate capacity required to reach the hypothetical LRET for the SWIS, provides an estimate of how future

increases in renewable generation will affect gas consumption in the SWIS.

The assumptions around gas price, new coal-fired generation, and load growth on the analysis in this section are

consistent with those outlined in section 4.2.1.

4.3.2 Analysis Results

Table 4 provides estimated average monthly reductions in gas generation for various increases in renewable capacity22

up to a level consistent with the hypothetical SWIS LRET.

Table 4: Forecast reduction in gas-fired generation for various levels of installed renewable nameplate

capacity in the SWIS

Total renewable nameplate capacity installed in the SWIS (GW)

0.712 0.812 0.912 1.012 1.112 1.214

Post 2010 new renewable nameplate capacity installed (GW)

0.5 0.6 0.7 0.8 0.9 1.002

Reduction in gas generation from 2008-2010 monthly average (GWh)

115.1 138.2 161.2 184.2 207.2 230.7

To convert the reduction in gas generation values outlined in Table 4 to reductions in gas demand, an average

efficiency needs to be applied. The efficiency values applied in the 2016 Gas Statement of Opportunities (GSOO) are

outlined in Table 5. The average efficiency for generation offset by renewable generation will most likely lie somewhere

22 This reduction is calculated by multiplying the post 2010 new renewable nameplate capacity values by the historical reduction value (2.76 GWh p.a. per MW of new

renewable capacity) then dividing by 12.

4%

48%

48%

0.3%


wind gas coal other

8%

41%50%

1%


wind gas coal other


between the mid-merit and baseload values, since peaking gas turbines only operate occasionally. Therefore, their

effect on overall gas demand is much smaller than mid-merit and baseload facilities.

Table 5: Assumed gas generator efficiencies

Generation Type Efficiency

Baseload Gas-Fired Generation 44.0%

Mid-merit Gas-Fired Generation 38.0%

Applying these efficiencies to the values in Table 3 for reduction in gas generation suggests that at the hypothetical

SWIS LRET renewable generation level, a reduction in gas consumption of between 62.1 TJ and 71.9 TJ per day could

be expected23.

23 Reductions in gas consumption are calculated by converting the monthly reduction in gas generation value (230.7 GWh) to a daily value, multiplying this by the GWh to

TJ conversion factor (3.6), and then dividing by the efficiency values in Table 5.


5. IN SUMMARY

The incentives from the Commonwealth Government and a reduction of capital costs for renewable energy creates

financial incentives for increased levels of renewable generation in the SWIS. Increased renewable generation has an

effect on how thermal generators are traditionally being dispatched and influences the volume of domestic gas

consumed by gas-fired generators in the SWIS.

The LRET is the key incentive that is driving investment in renewable generation. This was introduced in 2001 and

revised in 2015 to 33,000 GWh per annum of renewable generation by 2020, anticipated to be 23.5% of total sent out

electricity generation in 2020.

To gain an understanding of the contribution the SWIS is making towards this target, and to analyse the LRET’s

potential effect on gas demand in the SWIS, a hypothetical SWIS LRET was calculated along with an investigation of

the historical effect of new renewable capacity on the generation mix. Using these, projections were made to estimate

the future effect of new renewable facilities on gas generation and gas demand in the SWIS. The results of this

analysis are detailed below:

The total renewable generation in the SWIS required to meet the 2020 LRET is approximately 3,773 GWh per

annum.

This is more than double the current sent out renewable generation in the SWIS (2015-16) and is equivalent to

a total nameplate capacity of approximately 1.21 GW of large scale renewable generation, 0.7 GW more than

what is currently installed.

Analysis of the historical effect of new renewable capacity on gas generation indicates a reduction in gas

generation of approximately 2.76 GWh per annum for every new MW of renewable capacity installed.

Projecting this forward to the hypothetical SWIS LRET gives a reduction in gas generation of 2,768.4 GWh per

annum.

This suggests that if the level of additional renewable nameplate capacity required to meet the 2020 LRET (0.7

GW) was installed tomorrow, a reduction in gas demand relative to current levels of between 62.1 and 71.9 TJ

per day24 could be expected.

These results are subject to the assumption that a number of variables remain constant. These are fully defined in

Section 3 of this paper. The top-down nature of this analysis means that the impact of some variables is not fully

explored. These include the influence of new coal-fired generation over the analysis period and changes to average

yearly load growth. These influences are discussed in Section 4.2.1

The analysis in this paper suggests that in the SWIS under the current market structure, gas-fired generation is

affected to a greater extent by increasing levels of renewable generation than the other dominant form of thermal

generation, coal.

24 Gas demand reductions calculated using gas generation efficiencies published in the GSOO for baseload and mid-merit gas generation facilities.


6. GLOSSARY

Terms used within this paper are defined below. For a full list of defined terms used in the WEM refer to Chapter 11 of

the WEM Rules25

Ancillary Service: A service that is required to maintain Power System Security and Power System Reliability,

facilitate orderly trading in electricity and ensure that electricity supplies are of acceptable quality.

Bilateral Contract: A contract formed between any two persons (excluding System Management) for the sale

of electricity by one of those persons to the other.

Capacity Factor: The percentage actual generation relative to the maximum theoretically possible based a

facility’s nameplate capacity (eg: a capacity factor of 100% for a facility with a nameplate capacity of 100 MW

would be 100 MW x 8,760 hours = 876,000 MWh per year)

Demand Side Programme: Means a Facility registered in accordance with the WEM Rules.

Generation: The electrical energy produced by a facility (in MWh). This is typically used in this paper when

quantifying the percentage share of a type of generation in the SWIS.

Generation Mix: the proportion of generation associated with the particular generation types (wind, coal, gas,

etc.)

Load Following Service or LFAS: Load Following Service is the service of frequently adjusting:

o the output of one or more Scheduled Generators; or

o the output of one or more Non-Scheduled Generators, within a Trading Interval so as to match total

system generation to total system load in real time in order to correct any SWIS frequency variations.

Market Generator: A Rule Participant registered as a Market Generator.

Market Participant: A Rule Participant that is a Market Generator or a Market Customer.

Nameplate Capacity: The maximum theoretical output of a facility (in GW or MW).

Ramp Rate Limit: Means the Market Participant’s best estimate, in MW per minute, on a linear basis, of a

Facility’s physical ability to increase or decrease its output from the commencement of a Trading Interval, and

includes a DSP Ramp Rate Limit.

Short Term Energy Market (STEM): A forward market operated under the WEM Rule in which Market

Participants can purchase electricity from, or sell electricity to, AEMO.

South West Interconnected System (SWIS): The electricity network extending between Kalbarri, Kalgoorlie

and Albany that serves the majority of Western Australia’s population.

Wholesale Electricity Market: The West Australian electricity market, established under section 122 of the

Electricity Industry Act.

25 https://www.erawa.com.au/rule-change-panel/rules


7. APPENDIX A

Table 6: Renewable installation by facility, type, and time period

Participant Facility Registration Year-Month

Type Nameplate Capacity MW

Alinta ALINTA_WWF

Facilities installed between 2003 and 2007

Wind

89.1

EDWF Manager Pty Ltd EDWFMAN_WF1 80

Landfill Gas and Power Pty Ltd

RED_HILL

Biogas

3.8

TAMALA_PARK 4.8

Perth Energy Pty Ltd

ATLAS 1.1

ROCKINGHAM 4

SOUTH_CARDUP 3.4

Waste Gas Resources Pty Ltd HENDERSON_RENEWABLE_IG1 3

Synergy ALBANY_WF1

Wind

21.6

KALBARRI_WF1 2008-08 1.6

Mt.Barker Power Company Pty Ltd

SKYFRM_MTBARKER_WF1 2011-03 2.4

Collgar Wind Farm INVESTEC_COLLGAR_WF1 2011-05 206

Synergy GRASMERE_WF1 2012-03 13.8

Greenough River GREENOUGH_RIVER_PV1 2012-08 Solar 10

Denmark Community Wind Farm

DCWL_DENMARK_WF1 2013-03 Wind

1.44

Mumbida Wind Farm MWF_MUMBIDA_WF1 55

Blair Fox Pty Ltd BLAIRFOX_KARAKIN_WF1 2013-06 5

BLAIRFOX_WESTHILLS_WF3 2013-10 5

CleanTech Energy BIOGAS01 2015-09 Biogas 2

Synergy BREMER_BAY_WF1 2015-11 Wind 0.6

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