“Feel the flow”: changing interconnection dynamics post Liddell

Interconnection in the National Electricity Market is playing an increasingly important role in balancing supply and demand as locational constraints, high renewable penetration zones and fossil fuel failures or retirements are changing the nature of electricity flows in the market.

Already this summer we have seen the risk that NSW faces when the supply/ demand balance tightens. On Saturday (4 Jan), bushfires caused transmission outages at two substations which connect VIC and NSW in the Snowy region, thereby reducing available capacity (via interconnection or Snowy generation) in NSW. This caused very tight supply/demand balance resulting in a spike in the spot price and also prompted demand response and the reserve trader to be activated to ensure that the energy system remained balanced.

While the circumstances surrounding this event are extreme, we are seeing more credible contingency events being invoked restricting flows on interconnectors and even islanding events, it is a reminder of the value that interconnection offers in terms of energy security and the impact it can have when unavailable. It does make us ask the question – how will interconnection flows change in a post-Liddell world?

Liddell’s exit in 2023 will remove baseload from the supply mix, however, the remaining black coal units in NSW can be expected to increase production to cover this. At higher demand levels however, NSW will need energy from other regions for additional supply. QLD to NSW flows are already flowing strongly south and while there may be some headroom, NSW will likely require additional generation from VIC when local supply of relatively cheap energy runs low. Post Liddell, given recent interconnection trends, NSW or VIC may be short of energy at peak times and see much higher prices, especially if future interconnection flows follow similar trends seen in VIC when Hazelwood retired.

We see from Fig.1 showing VIC to NSW interconnection flows that NSW is providing more and more support to VIC (with overall net flows in 2019 flowing from NSW to Victoria), intimating that VIC has less generation available for export to support NSW post the withdrawal of Liddell. VIC has traditionally been an exporter of the excess electricity generated from brown coal into both SA and NSW. In the five years between 2015 to 2019 VIC total annual exports have reduced by ~8,000GWh, making VIC a net importer. A ~5,000GWh drop occurred between 2016-2017 when Hazelwood left the market, however, a further reduction of ~3,000GWh occurred in the past two years, of which some is due to changing flows between VIC and SA which has seen exports from VIC to SA reduce dramatically (from 78% to 34% of time).

With the pipeline of renewable energy projects, there is a growing need to unlock these renewable energy zones and remove constraints allowing for more energy to flow across regions and provide support. Transmission upgrades are key to achieving this and AEMOs recently released draft 2020 Integrated System Plan highlights actionable upgrades.

The timing of major transmission augmentation, renewable projects HumeLink and retirements will influence future interconnector flows and by VNI West extension, power price outcomes. These topics (and others) are examined as part of our Benchmark Power Curve service to be released shortly.