Part 2.4 Resolving the Megaproject Paradox: 100% Digital Smart Grid Transition of the Australian NEM by 2030

The most succinct description of the Megaproject Paradox: 'It's an absolute certainty that things won't go as planned'! ? John Noonan 2016

Creating the Organisation Digital Twin is essential for Megaproject Paradox resolution. Owners invest US$Billions in the Preparation Phases of the Megaproject Life Cycle. An investment designed to secure expert estimates of predictable simultaneous Time to Construct and Cost of Construction for Final Investment Decision (FID). Paradoxically, the estimates and predictions are always wrong. The consequence is NPV losses measured in the US$Billions per Megaproject or cumulative global Megaproject losses measured in the US$Trillions per annum. The Megaproject Paradox articles introduce an agile method to resolve the Paradox. The Noonan Method introduces the Organisation Digital Twin to turn massive NPV losses into massive NPV Profits.

In 2019, Australia's National Electricity Market (NEM) is one of the largest interconnected electricity systems in the world. It covers 40,000 km of transmission lines and cables, supplying 9 million customers. The NEM is the largest and most complex manually operated machine in Australia. A disruptive 100% transition is underway in 2020 from the old "Centralized, Manually Operated, Analogue NEM" to the new "Distributed, Automated, Digital NEM". The transition is based on a Distributed Digital Smart Grid model which should be complete by 2030. The transition is a Megaproject in progress and picking up speed. South Australia (SA) is leading the transition with a cumulative total of 61.3% of Total Electricity in 2019 coming from Renewable Energy and Storage. Australia's transition is not a particularly aggressive timeline when it is considered that the UK intends to complete the same transition by 2025. However, unlike the UK, Australia in 2020 has no Nuclear Generation and probably never will.

Fig 1: SA RE & Storage Transition Q2 2005-Q2 2020 - 2019 Total 61.3% Renewables

Australia's transition is replacing manually operated analog technology on the old NEM with automated digital grid-forming control system technology on the new NEM. The transition will require Legislation, Regulation, and the Organisation change governing the NEM to evolve in parallel with the technology. Use of the Organisation Digital Twin for modeling the new NEM allows the definition of Governance of the NEM as well as its technical design. The Organisation Digital Twin enables planning using appropriate modeling of the new Distributed Regulatory Organisation that must evolve to manage the Distributed Digital Smart Grid. This article discusses the technology change required for the transition and informs the Legislative and Organisation governance change process, discussed in Part 2.5, that must proceed in conjunction with the technology transition.

By 2030, more than 100% of Australia's Electricity Demand will be met by a hybrid mix of Renewable Energy (RE) Generation and Storage. Already by September 2020, Renewable Energy passed the 50% Generation mix on the NEM for the first time in history. The imperatives for disruptive transition are primarily Grid Economics (reducing the cost of Energy to Australian Industrial and Residential consumers), Reliability (reducing blackouts and brownouts), and simplified operation (digital automation replacing manual operation). The Cost of Energy is a key component in making Australian Industry competitive on a global scale and reducing unemployment and underemployment in Australia. Reduction in carbon pollution with a positive impact on Climate Change goals is a side effect of the 100% disruptive transition to a Distributed Digital Smart Grid.

Most new Distributed Digital Smart Grid assets are less costly, more reliable, easier, and quicker to Build, Own, Operate and Maintain than old Grid assets. The new Distributed Digital Smart Grid is based on a disruptive transition from old centralized fossil (& overseas nuclear) fueled power stations, Interconnection, Transmission, and Distribution Networks to 100% distributed RE-Generation Farms (Solar and Wind), and new Interconnection, Transmission, and Distribution Assets paired and enhanced with Storage.

A Poll in March 2019 in SA by the Australia Institute shows that a majority of South Australians support a 100% transition to RE (the Distributed Digital Smart Grid) by 2030. The transition is popular in SA across all major political boundaries from far right to far left, including the Coalition, Labor, Centre Alliance (CA), Greens, and Pauline Hanson's One Nation (PHON), and across all age ranges.

Fig 2: 2019 - Majority of SA supports a 100% Renewable Energy Target by 2030

In June 2019, in recognition of the popularity of SA's transition to a 100% Renewable Energy Target by 2030, the SA Liberal govt said it expects SA will be “net” 100% renewable by 2030. By the end of 2019, SA generated a cumulative total of 61.3% of its Electricity from Renewable Energy and Storage. SA is heralding the most dramatic shift towards wind, solar, and storage technologies of any major grid in the world. SA's Energy and Mining Minister flagged new developments to be announced soon to encourage grid-based storage and electric vehicles in SA. SA's announcement signals that despite the change of govt from Labor to Liberal in 2018, the pace of clean energy transition will accelerate over the next decade and not decline. It confirms SA's state govt is looking to go far beyond the already remarkable predictions by AEMO, that SA could deliver the equivalent of 100% of its annual demand from wind and solar by 2025 or 2026. Effectively a “gross” 100% renewables target.

Studies investigating technical impediments to a 100% Distributed Digital Smart Grid transition by 2030 have found there are no technical impediments. Impediments to the transition are all political, organizational, and related to people issues within the NEM Supply Chain. Existing Australian domestic fossil-fueled Generation (there is no Australian Nuclear Generation) will all eventually shut down through the 100% transition. Operating and maintaining old fossil-fueled generation will not remain commercially viable compared to new distributed, modular RE-Generation alternatives paired with appropriate Storage. Australia will become a massive exporter of RE with Hydrogen potentially being a major part of that export mix, see Part 2.5. This article considers how and why the transition from the Old Grid Model to the New Distributed Digital Smart Grid Model will take place. It is a story of technological progress in the early 2000s requiring appropriate parallel Legislative progress and NEM Organisation Change enabling the political transition to be completed.

Fig 3: Australian RE Projects Construction Boom at December 2018

The transition will inevitably be completed. Completed despite fierce, deceptive, well funded political resistance by private monopolies, CARTELs, and other vested interests. Resistance comes predominantly from the fossil-fuel lobby, the coal mining lobby, and the existing NEM participant lobby, including Generation, Transmission, Distribution, and Retail participants on the NEM. In 2019, prior to the May Federal Election, Associations in Australia are in some cases lobbying politicians against the transition in conflict with the Associations' own membership acting to individually support the transition.

The harder vested interests resist the disruptive transition from the old Grid to the new Distributed Digital Smart Grid, the more likely the Megaproject Paradox will arise in their respective businesses. The Megaproject Paradox will negatively impact all vested interests including Govts (Federal, State, and Local) that support old Grid vested interests. Vested interests working against the commercial imperative and the community's wishes for the Distributed Digital Smart Grid transition to proceed are doomed to failure by the Megaproject Paradox.

1. The Megaproject Paradox

Fig 4: Construction Industry Institute (CII) 2012 Project Performance Assessment

The Megaproject Paradox guarantees expert estimates of Megaproject Cost and Schedule are wrong across the entire Megaproject Life Cycle. The CII curve identifies only 5% of 975 Infrastructure Megaprojects performed as required from the Owner's perspective. Owners require that during the Construction Phase of the Life Cycle, a project must simultaneously achieve Cost and Schedule parameters as predicted at the time of Final Investment Decision (FID) by the end of the Planning Phase of the Life Cycle. The same test for success from the Owner's perspective can be applied to any Phase of the Megaproject Life Cycle, including Initiation, Planning, Construction, Asset Management, and Decommissioning and Remediation. The 100% disruptive transition of the NEM to Distributed Digital Smart Grids is a Megaproject in the Asset Management Phase of the Life cycle.

The reasons for the Megaproject Paradox are many. Not the least being political interference with the progress of a Megaproject. For the Australian NEM interference originates from the people working in companies participating in the old Grid economy. These people fill Associations and Companies that confuse short term vested interests with long term vested interests. Often short term vested interests will inspire Industry Associations to misrepresent a disruptive transition caused by Megaprojects. A classic example of repeated dramatically wrong predictions by a so-called Industry Expert Association, the World Energy Outlook's International Energy Agency is shown in the graph below regarding Solar PV growth.

Fig 5: Annual Solar PV Additions vs WEO IEA Predictions 1995 - 2018

Associations, like the Minerals Council of Australia (MCA), or the Australian Petroleum Production & Exploration Association (APPEA), often end up representing a very small number of people and a smaller number of companies resisting the transition. Associations experienced at wielding reasoned, plausible, yet misleading arguments based upon myths. Myths designed to protect incumbent vested interests and achieve Regulatory Capture of the Governments, Federal, State, and Local, that they seek permission from to access, and export resources.

Regulatory Capture designed deliberately to stand in the way of any disruptive transition to protect the short term vested interests of one or a handful of companies. Short term vested interests opposing the progress of a Megaproject towards its goals are always at the root cause of the Megaproject Paradox and must be overcome. The Megaproject Paradox and examples of corporate failure like Kodak, Nokia, and Blockbuster teach us that resistance to a Megaproject's disruptive transition is futile and actually works against these Companies' and Associations' long term vested interests.

2. Political Resistance Giving Rise to the Megaproject Paradox

Political resistance to any economically compelling automated digital technology-based business transition by major incumbents in any market is a sure sign the incumbents are attempting to avoid change. Resistance to change fuels the impact of the Megaproject Paradox in Megaprojects where the transition is happening. Major incumbents investing massively to avoid change in their own markets are most likely to suffer the most disastrous Megaproject Paradox consequences. Two sayings related to disruptive transitions are often heard. From the major incumbents' perspective, the phrase "Too big to fail" is heard. The reality is captured in a second phrase, "The bigger they are, the harder they fall" as GE demonstrated in 2019. The consequences for incumbents resisting rather than embracing a disruptive automated digital technology-driven transition are many and varied. Kodak is an often-quoted example. But there are many, more recent others, such as Nokia, Blockbuster, and even AT&T in relation to its sloth in embracing Mobile Telecommunications.

Kodak's resistance to the Digital transition in its own Film based business saw it going out of business within 10 years of its best-ever financial result, a consequence of the Megaproject Paradox. Kodak went out of business because it could not manage the transition opportunity from Film-based Photography to Digital Photography. The Paradox is that Digital Photography was a technology invented by Kodak, and Kodak tried to kill it. Ultimately, Digital Photography killed Kodak because Kodak could not overcome its own internal resistance to change.

In 2019, a good example in the US and Australia of major incumbents investing heavily to resist change is the real agenda of the Oil and Gas Majors on Climate Change. The Greenhouse Effect was first identified by Exxon Mobil in a Memo to Management in 1982 as a major issue that needed to be addressed by the company. In 2019, 37 years later, their investment in Lobbying against Climate Change in the US, identifies that Exxon and most other Oil and Gas Majors cannot overcome their own internal resistance to change. Exxon's fall from grace was heralded in August 2020. Exxon Mobil, which joined the Dow Jones Industrial Average in 1928, is being removed from the blue-chip stock market index.

Shell's 2019 declaration that it intends to become the world's largest Electricity Company may yet be the notable exception among the global Oil and Gas Majors. Announcements like Shell's decision to re-brand a UK Household Utility as a 100% RE Utility, and its decision to acquire German Battery Maker Sonnen are strategic for Shell. Both announcements have a significant impact on hastening the 100% transition to Distributed Digital Smart Grids for Residential Scale RE Electricity Generation and Storage in Europe and Australia. Shell's reactions to a RE powered 100% transition to Distributed Digital Smart Grids in 2019 indicate Shell is taking the Megaproject Paradox transition on Oil and Gas Majors seriously. Despite its work in Europe and Australia, serious challenges for Shell remain. Shell was the second-largest Oil and Gas Major investor in lobbying against US Climate Change in 2018. Internal resistance to change is something that Shell still needs to overcome in the US. With strong starts in Europe and Australia, Shell's success in dealing with the Megaproject Paradox and its own resistance to a 100% transition to Distributed Digital Smart Grids will ultimately be judged by how it deals with internal resistance to change in the US.

Fig 6: Major Oil & Gas Expenditure Lobbying Against US Climate Change

In 2019, an Australian example of political interference by vested interests hoping to resist rather than embrace change can be seen in the Australian NEM. The Australian NEM is the largest and most complex manually operated machine in Australia. The transition from the old NEM to the new NEM based on an automated Distributed Digital Smart Grid model is a Megaproject in progress. A hybrid mix of RE-Generation and Storage is rapidly changing the NEM. The South Australian (SA) region of the NEM already has the most ambitious target of the 6 NEM Regions for the transition to a 100% Distributed Digital Smart Grid. SA has a target of generating 75% of its Electricity from RE by 2025 combined with a first for Australia, a 25% Storage target by 2025. SA is setting itself up extremely well to embrace the next Renewable initiative, the establishment of Australia's first Battery Electric Vehicle (BEV) target.

Fig 7: Australian Energy Exports by Fuel Type

In the context of the scale of Australia's Energy and Fuel Exports, vested interests in protecting Domestic markets as opposed to Export markets must be placed into perspective. Australia is a country that is similar in size to the mainland US with a relatively small population (25 Million in 2020). Australia has massive, relatively unlimited Energy and Fuel resources to play with for global exports. The Australian Domestic market for Energy and Fuel is small on a global scale and small by comparison to Australian Exports of Energy and Fuel. Owners of Australian vested Energy and Fuel Export interests should not confuse the scale of their Exports with the best interests of Domestic Energy and Fuel consumers.

Fig 8: Australian Black Coal Exports Dwarf Domestic Use

If vested interests in export Energy and Fuels are confused with and harm the interests of Domestic Australian Energy and Fuel consumers, a massive Australian political backlash along with an early arrival of the Megaproject Paradox can be expected by the Owners or vested export interests. Specifically, the scale of Domestic Coal consumption and the jobs involved in Domestic Coal Consumption in Australia is tiny compared to Coal Exports and the jobs involved in Coal Exports. Similarly, the scale of Domestic Gas Consumption in Australia is small and declining compared to LNG Exports and the scale of jobs involved in LNG Exports. Companies with vested interests in Coal and LNG would be well advised to treat Domestic Coal and Gas clients with special care to keep them onside. Not doing so will bring onerous and unexpected political consequences in Domestic Coal and Gas Markets for Owners of vested interests. Any consequences will have a counter-intuitive and damaging impact on Coal and Gas Export Markets. It is in the best interests of Coal, Oil, and Gas Owners to hasten the Australian Domestic Transition to Renewable Energy. Then all of Australia's Coal, Oil, and Gas is free to fill export contracts, and a new Export commodity, Hydrogen, will be developed in Australia.

Fig 9: Australian LNG Exports

In early 2019, prior to the Federal Election, the Owners of vested interests in Coal, Oil and Gas do not see it that way. The Minerals Council of Australia (MCOA) representing the Coal Industry, or Energy Networks Australia (ENA) representing the Gas Industry, or the Australian Petroleum Production and Exploration Association (APPEA) representing the Oil and Gas Industry all lobby against the "New Grid" transition in Australia. They do so by providing lobby funds to Political Parties and individual Politicians to spread myths supporting the "Old Grid" while resisting the "New Grid" transition. They actively promote Australian Taxpayer investment in new Coal Fired Power Stations despite overwhelming evidence of Coal's global decline as fuel for Electricity Generation. Associations employ retired politicians, like Labor's Martin Ferguson and the National's Ian Macfarlane, to add power to their lobbying activities. These tried and proven tactics are used to give time to "Old Monopolies" to transition control to "New Monopolies" in an orderly manner as much as possible Owned by the same vested interests.

Fig 10: Friends in high places - Australian Fossil Fueled Political Donations 2017-18

Considering the "Old NEM" economy, in 2019, GE stands out as a classic example of a victim of the Megaproject Paradox and a dire warning to the 2019 Scott Morrison run Australian Coalition Govt. In the transition from "Old" Electricity Generation Technology to "New" (Renewable Energy) Electricity Generation and Storage Technology, there are going to be many corporate casualties along the way. A report by the Institute for Energy Economics and Financial Analysis (IEEFA) said GE had lost a "simply staggering" $193 Billion (172 Billion Euros) in just three years to 2018 - amounting to almost 3/4 of its market capitalisation. The IEEFA said GE and its principal shareholders misjudged the falling price of renewables as the world transitions to cleaner energy and suffered from a collapse of the gas turbine and thermal power construction markets. "GE assumed wrongly that demand for natural gas and coal would continue to track global economic growth," they said, accusing GE of "an epic failure of corporate governance." GE lost billions by 'misjudging' renewables. There will be many more corporate and govt victims of the Megaproject Paradox during the transition. The 2019 Australian Federal Coalition Govt would be wise to follow the lead of the 2019 South Australian Liberal State Govt.

Instinctive reaction from existing utilities and other vested interests need to be overcome and quickly in Australia. The opportunity for Australia is to embrace RE Technologies of all types and become a global leader in their application, manufacture, sale, export and implementation.

3. "Lessons Learned" from Prior Disruptive Energy Transitions

3.1 Transition from Biomass to Coal, Oil and Gas in the 1800s

Biomass was the first source of energy for the human race. People commenced using Coal as a fuel around 1,000 BC. With the arrival of the Industrial Revolution in the mid-1700s, coal began to replace biomass as the primary source of energy. During this period, steam-powered engines with coal-fired boilers were used to power ships and trains for Transport. By the 1800s coal-fired boilers were used to generate electricity and coal replaced charcoal as the fuel source for Steel Furnaces. Coal was also used to produce Town Gas in the early 1800s for street lighting, residential lighting, heating, cooking and industrial use. In 1859, the first crude oil well was successfully drilled. With it followed the use of crude oil products for lighting, heating, transport, industrial fuels and Electricity Generation. By the late 1800s, Electricity became a dominant source of energy, kicking off an amazing century of disruptive innovation of electrical and electronic products. By the early 1960s, coal had become the primary fuel for Electricity Generation. Town Gas was replaced by the discovery of large Natural Gas resources by the late 1960s, and the first Gas-fired thermal Power Stations were built for Electricity Generation. By 2019, mankind's use of and demand for Electricity continues to mature with the innovation of ever more sophisticated digital Information Technology and Telecommunications and Transport devices.

Fig 11: Electrical and Electronic Technology Adoption in the US

3.2 Transition from Coal, Oil and Gas to Renewable Energy (RE) in the 2000s

By 2019, coal, gas and diesel fired Power Stations provide the bulk of Electricity Generation in most countries. But a rapid disruptive transition toward 100% RE Generation and Storage is happening with Australia leading the way and South Australia leading the way within Australia.

Fig 12: Australian PV, Wind & Storage (Including Pumped-Hydro) Pipeline 2019

3.2.1 Hydroelectricity Generation and Storage

RE-Generation at Utility-scale was first created using hydroelectricity. People have been harnessing water to perform work for thousands of years. The Greeks used water wheels for grinding wheat into flour more than 2,000 years ago. Hydroelectricity has been used as a centralized Electricity generation option in the US since the 1880s. By 2019, the largest Power Station in the world is the Three Gorges Dam hydroelectric Power Station rated at 22.5 GWatts of Generation Capacity.

Fig 13: 22.5 GWatt Three Gorges Dam - World's Largest Power Station in 2019

Pumped Hydro storage has also been used on a significant scale in many countries around the world. In the 2000s, new pumped hydro Storage options for National Grids like the NEM are being planned and built to enable the transition to 100% RE Generation and Storage. Much of the 2019 Australian Storage Pipeline is Pumped Hydro storage.

Fig 14: Path to 100% Renewable Energy in Australia

The last remaining missing link in SA's transition to 100% Renewable Energy may well be the Deep Storage provided by Pumped Hydro storage projects in SA. ARENA has supported feasibility studies into Snowy 2.0, as well as the plan to make Tasmania the “Battery of the Nation”. At the smaller end of the pumped hydro scale, ARENA has also provided funding to investigate expanding Origin’s Shoalhaven scheme, support the delivery of the Cultana seawater system near Port Augusta, as well as Genex’s Kidston project at an old gold mine.

3.2.2 Wind Generation

Wind Generation was the second (behind hydroelectricity) Utility-scale RE Generation option to inject competitive tension on traditional national grids. People have been using wind energy for thousands of years. People used wind energy to propel boats along the Nile River as early as 5,000 BC. By 200 BC, simple wind-powered water pumps were used in China, and windmills with woven-reed blades were grinding grain in Persia and the Middle East. Farmers installed thousands of windpumps as they settled rural properties around the globe. In the late 1800s and early 1900s, small wind-electric generators were also widely used. Politically motivated Oil embargoes by the Middle East in the 1970's motivated western govts to provide incentives to develop RE Generation options and Wind Generation benefited from this investment. In 1990, less than 1% of US Electricity Generation came from wind. By 2018, more than 6% of US Electricity Generation comes from wind, both offshore and onshore.

Fig 15: Evolution of Wind Turbine Heights and Generation Capacity

In Australia, at the end of 2018, 100% of Australia's Wind Farms are onshore, with 84 wind farms in operation totalling 5.679 GW capacity. The following figures are based on capacity and generation at the end of 2018. Proposed figures are updated to March 2019 and include Australia's first proposed Offshore Wind Farm.

Fig 16: Australian Wind Capacity to end of 2018 and Proposed Capacity to Mar 2019

SA provided 35.2% of Australia's wind power in 2018, meeting 41% of SA's electricity needs in 2018. By the end of 2011 wind power in SA reached 26% of SA's electricity generation, edging out coal-fired power for the first time. At that stage, South Australia, with only 7.2% of Australia's population, had 54% of Australia's installed wind capacity. By the end of 2016, all Coal-fired Generation in SA had shut down, leaving nothing but RE-Generation and Gas-fired Generation to meet 100% of SA's Electricity needs.

3.2.3 Solar Photovoltaic (PV) Generation

The photoelectric effect was first observed in 1839. But it was not until 1954 that the first practical photoelectric solar cell was invented at Bell Labs. The invention caused the New York Times to predict that solar cells will eventually lead to a source of "limitless energy from the sun". It has taken 60 years for that prediction to eventuate, but by the early 2000s Solar PV Cells started to compete seriously with fossil-fueled Electricity Generation.

Fig 17: The plummeting Cost/unit of generation for Solar Photovoltaic (PV) Cells

The efficiency of Solar PV Cells continues to improve, growing from 6% efficiency for the first commercially available cells manufactured in 1954 to a record 34.5% efficiency by 2016 and growing. The cost to manufacture Solar PV cells continues to plummet as mass production techniques are refined and the technologies used to grow Solar PV efficiency continues to be refined.

Fig 18: Australians install 2 Million Rooftop Solar PV Systems by End of 2018

By the end of 2018, Australias had installed 2 Million Solar Systems on residential rooftops around the country. In Australia by the end of 2018, 1 in every 5 households has a rooftop Solar System. Rooftop solar delivered 4.2% of Australia’s total generation in 2018. The average rooftop system size also increased, from 6.39 kW to 7.13 kW, reflecting the falling cost of systems overall and the growing number of small to medium businesses installing solar. 

Fig 19: Cumulative Australian Annual Solar PV Installs 2010-2018 by State

By the end of 2018, Australians have installed a cumulative total of 8.133GWatts of Rooftop Solar PV Electricity Generating Capacity.

3.2.4 Battery Storage

The first lithium-ion battery was invented in 1980. Demand for lithium-ion batteries began to grow with the sale of Sony consumer electronic devices powered by rechargeable Lithium-ion batteries in the 1990s. Demand for rechargeable Storage has continued to soar with the production of rechargeable consumer electronic devices, Battery Electric Vehicles (BEV's) and Residential and Utility-Scale Storage products for the "Old Grid" in the early 2000s. Storage of Utility and Residential Scale Electricity has become a mature and diversified market for the first time in the early 2000s. With maturity and diversification, new battery technologies have been developed to compete with Lithium-ion. By 2019, national electricity grids worldwide are racing to install Utility and Residential scale storage solutions. Adding storage to national grids increases the stability and reliability of grids. Storage dramatically reduces Blackouts and Brownouts as a common occurrence on traditional national grids. Major Power Outages on National Grids were a common occurrence long before RE Generation and Storage came along. Utility-scale Storage promises to make the impact of Blackouts and Brownouts on the "Old Grid" a thing of the past as the transition to new more redundant and reliable "Digital Smart Grids" is completed.

Fig 20: Trend Data for Battery Pack $/kWh in 2019

There are unique Virtual Power Plant (VPP) applications for distributed modular Battery Storage and Solar PV Generation across NEM connected Assets on a "Digital Smart Grid". Battery Storage Assets provide innovative storage options that surpass the concept of discrete centralised Utility-Scale Storage Assets like pumped hydro facilities. A VPP broadly refers to an aggregation of widely distributed residential or Utility scale Storage and Solar PV Generation Assets. These Assets can be coordinated using software and communications technology to deliver services that have traditionally been performed by a conventional power plant. VPPs can deliver multiple services to increase the potential ‘value stack’ delivered to consumers. Services include participating in markets for both energy and Frequency Control Ancillary Services (FCAS), as well as entering into network support agreements with network service providers (NSPs). Currently, VPP value stacking in the NEM is in the very early stages of development.

Fig 21: Virtual Power Plant Service Proposals on the Australian NEM in 2019

3.2.5 Cost Analysis of RE-Generation versus Fossil-fueled Generation

By 2019, it is inevitable that modular, distributed RE-Generation and Storage at utility and residential scale, will replace 100% of existing traditional centralised fossil-fueled Electricity Generation. The "Old" Electricity Generation, Transmission, Distribution and Retail Models are in disruptive transition to new "Digital Smart Grid" Models. The primary driver of change in 2019 is that new RE-Generation and Storage has become cheaper to construct than any new fossil-fueled Electricity Generation construction options. By the early 2020s, construction of new RE-Generation and Storage solutions will become cheaper than continuing to operate existing fossil-fueled Electricity Power Stations.

Fig 22: Lazard LCOE Analysis for Wind v Solar PV v Coal & Gas to 2018

Lazard's annual Levelized Cost Of Energy (LCOE) analysis shown above, and BNEF's graphic below identify common sense reasons why the transition to RE-Generation and Storage is irresistible. Two key reasons are:

1. Construction of RE-Generation and Storage is cheaper to build and more reliable to operate and maintain than new fossil-fueled Electricity Generation options in 2019. By the early 2020s, constructing new RE-Generation and Storage solutions will be cheaper than continuing to operate and maintain existing fossil-fueled Power Stations. By early 2019, studies show that new local wind and solar plant could replace approximately 74% of the US Coal fleet at an immediate saving to customers. By 2025, this number grows to 86% of the Coal fleet.
2. RE-Generation is powered in one way or another by the Sun and its weather, tidal (gravitational) effects and geothermal effects on the earth. This will continue for the duration of the earth's existence, around 1.75 Billion years absent some disaster like rogue asteroid strikes or nuclear holocaust. People no longer need to exploit a limited fossil-fuel supply chain extracted from the Earth.

Fig 23: Tumbling Solar PV, Wind and Battery LCOE Global Benchmarks

However, "Old" oil, gas, coal and nuclear companies are extremely well subsidized in 2019. None of these companies is prepared to relinquish a stranglehold on Govt subsidies without a significant political and commercial battle. Resisting a 100% transition to the "New" RE-Generation and Storage "Digital Smart Grid" tidal wave that is coming to replace them, is reminiscent of old battles fought and won.

Fig 24: Renewable Energy Generation versus Finite Fuel Generation on Earth

4. "Lessons Learned" from Past and Present Energy Battles

4.1 Gas versus Electricity in the early 1800s

In first world countries, at least two internal political and economic battles over Electricity Generation, Transmission and Distribution standards have been fought and settled in the 1800s. The earliest political and economic battle was fought in the early 1800s between advocates of Gas versus Electricity. The strongest advocates for one technology over another were always investors in competitive companies that either exclusively sold Gas or Electricity. By the early 1900s, Gas (for heating and cooking) and Electricity (for lighting and power) found ways to commercially coexist. Industry, commerce and residential users found a place for each of the technologies for their respective strengths. By the early 2000s it is common for Private and Public Utilities to provide both Gas and Electricity to clients.

4.2 Late 1880s War of the Currents AC v DC Resurfaces again Early 2000s

Once Electricity had established its dominance over gas in appropriate markets such as lighting and power in the late 1800s a second battle ensued. The "War of the Currents" was fought most famously between Edison and Westinghouse in the US from 1880 through to the 1890s. Edison (DC) and Westinghouse (AC) both advocated very strongly for their respective Electricity Generation, Transmission, Distribution and Retail technologies because they owned the patents and commercial interests associated respectively with their technologies.

Fig 25: The New Current Wars in the Early 2000s

The War of the Currents saw underhanded practices where one advocate was prepared to bribe so-called experts to mislead and deceive the public with fabricated criticism of the opposing technology. A technique which is being repeated in the early 2000s by advocates of "Old" fossil-fueled Generation in an attempt to delay the 100% Transition to "New" RE-Generation and Storage underpinning the "Digital Smart Grid". By the late 1800s, the War of the Currents was won by AC proponents because all early generation Electrical Infrastructure consisted of AC powered devices. The invention of the Transistor, Solar Cells and Integrated Circuits in the late 1940's and 1950's brought a rapid evolution of the Digital Generation of Electronic devices including LED lighting, all driven by DC power. By 2019, most electrical infrastructure in homes and businesses are DC powered. Conversion from AC to DC happens repeatedly in each DC powered device, bringing with it consequential electric efficiency losses.

Fig 26: Typical Electrical Efficiency Losses associated with AC to DC Conversion

In the early 2000s, a "New Current War" is brewing again between DC and AC. In 2019, the war is developing at the Microgrid level and at the Transmission level. The outcome will evolve into peaceful coexistence of DC and AC Grid components during the transition. DC Microgrids will find an appropriate niche in the Distribution market to harmoniously coexist with the "Old" Distribution Grid for efficiency reasons. Distributed Solar PV generates DC electricity and batteries store DC electricity. Most if not all appliances and Electronic equipment in the home are or can be DC powered. Each time there is a conversion between DC to AC or back from AC to DC, there are losses associated with the conversion. It is plausible that Residences and Industry could be DC powered in future, avoiding conversion losses where possible. Linking multiple "Digital Smart Grid" Assets together with DC Microgrids will enable local Electricians to manage and maintain DC Microgrids. There are significant costs and time delays associated with accessing the small number of "Old Distribution Grid" staff such as Linesmen. Because DC Microgrids will be low voltage grids, typically behind the "Old Distribution Grid" point of connection, it is plausible that Local Govt bodies will become involved in regulation, operation and maintenance of DC Microgrids.

Fig 27: Typical Electrical Efficiency Gains in DC Microgrids

About 5% of energy generation on the "Old Grid" is lost as it travels from a power plant to consumer. AC Transmission and Distribution lines aren’t perfect conductors. So energy is lost as charge travels, and losses increase with distance. A major source of grid energy loss is in multiple transformers at various points on the Transmission and Distribution Grids, in Power Stations, in Substations and on Poles. Transformers step up and down voltages to levels that are safe and sufficient to transmit and distribute Electricity to meet consumer needs. Each time Electricity is stepped up or down across a Transformer Electrical efficiency losses occur.

Fig 28: Breakeven distance for AC v DC Transmission Grids as a Function of Power

DC Inter-connectors have already established their niche in the "Old" Transmission Grid. DC is the most appropriate technology for carrying high power over long distances with minimal losses. In future, "Old Transmission Grids" will be complemented by High Power DC overlay grids. Meshed or multi-terminal DC Grids will become available as HVDC switch-gear technology becomes accessible in the market. These new HVDC meshes will add complexity and different coverage models to the "New Transmission Grid".

While DC is unlikely to replace AC as the dominant form of electric power any time soon, DC is now more economical than AC for overhead lines exceeding 800 km and undersea or underground lines exceeding 50 km. In 2019, DC is the ideal choice for especially long connections and connections to isolated power plants and consumers. As a further disruption to the "Old Grid", back-to-back DC connections allow asynchronous power grids to be connected, providing increased price stability and protection against blackouts.

4.3 Oil Embargoes and Climate Change late 1900s and early 2000s

Transnational Energy Politics emerged in the 1970s as the first driving force for the transition from fossil-fueled Electricity Generation and Transport to RE-Generation of Electricity. Repeated Middle-east Oil Embargoes in response to wars in Israel resulted in the first major oil shortages in western countries. The reaction in the US was to begin subsidized investment in the development of RE technologies for Electricity Generation, Storage and for Transport.

Climate Change brought on by the Greenhouse Effect was identified as a possibility in the early 1800s. The Paris Agreement within the United Nations Framework Convention on Climate Change (UNFCCC), deals with greenhouse-gas-emissions mitigation, adaptation, and finance, starting in the year 2020. The Paris Agreement's language was negotiated by representatives of 196 state parties and adopted by consensus on 12 December 2015. The Paris Agreement has become a global political driver for all countries to migrate away from fossil-fueled Energy Generation and Transport to RE solutions. Despite the Paris Agreement, Australian State Politics and support for continued Domestic use of Coal for Electricity Generation in Queensland and NSW have perverted the Federal Govt's attempts to develop a National Energy Policy.

Fig 29: Australian Political Criticism of 2019 Student Climate Change Protests

5. "Old Grid" Model Transition to the New "Digital Smart Grid"

The "Old Grid" Model can be broken into at least 4 discrete components. Electricity (i) Generation, (ii) Transmission, (iii) Distribution, and (iv) Retail. It is necessary to consider each of these discrete components to understand the 100% Transition from the "Old Grid" Model to the New "Digital Smart Grid" Model.

5.1 "Old Generation" Model

By 2018, on average the US was generating around 18% of its Electricity from RE sources while Australia was generating around 16% from RE sources. The "Old Generation" Model still provided 82% of Electricity for US and 84% for Australian residents and industry. The "Old Generation" Model is characterized by the following Assets and Operations:

1. Centralized fossil (or overseas nuclear fueled) Power Stations that take anywhere from hours (Baseload) to 5 minutes (Peaker Power) to switch on/off and synchronise with the "Old Grid", all manually controlled.
2. Centralized fossil or nuclear Power Stations take Years and in some cases a Decade or more to plan and construct. Once constructed, Centralized Power Stations require the support of a costly fuel supply chain. They are costly to maintain and operate. Fossil and Nuclear fueled Power Station Capacity Factor (CF) deteriorates with age.
3. Long Distance High Voltage AC Transmission lines connecting Power Stations to last mile Distribution Grids
4. Relatively short distance Medium and Low Voltage highly redundant and reliable AC Distribution Grids connecting end users to Power Stations.
5. Generation is manually turned on/off "Just In Time" to meet a well understood daily load curve profile.
6. The "Old Grid" is subject to Blackouts and Brownouts on numerous occasions per annum due to failures in any one of the Generation, Transmission or Distribution components or due to the failure of "Old Grid" Management.

Coal Fired Power Stations continue to generate the bulk of Australia's Electricity in 2019.

Fig 30: Snapshot of the Australian NEM Electricity Generation Mix August 2018

However, Coal's share of Electricity Generation in Australia is in decline as it is elsewhere around the world. By 2019, Coal's use as a fuel for Electricity Generation in Australia remains a key Generation characteristic of only two states, Queensland and NSW. Victoria has implemented a strategy to end Coal-fired Generation by 2030 and replace it with RE-Generation and Storage. WA has a small fleet of Coal-fired Power Stations which it plans to close in favour of RE-Generation and Storage. SA, Tasmania, NT, and ACT have zero Coal-fired Power Stations and will never build one.

Fig 31: Coal-fired Power Stations are in Global Decline in 2019

The "Old Generation" Model was built and operated to ensure that just enough centralised Power Station Capacity is manually turned on at any given time to meet a well characterized and predicted daily load curve. Baseload Power Stations are typically the oldest, slowest to start and cheapest to operate Power Stations on the "Old Grid", and often the most unreliable prone to unplanned outages. Fast start (15 minute - half hour), newer, more reliable and expensive to operate Peaker Power Stations are designed to be quickly switched on/off for short periods of time to deal with "Peak Load" conditions that arise for short periods of time on a daily basis. Blackouts and Brownouts are commonplace on Grids using the "Old Generation" Model. They are commonplace for two key reasons.

1. Mismanagement of the "Old Grid" by the accountable Grid Operator and manually operated centralized Power Stations subject to unplanned outages.
2. Natural Disasters including Extreme Weather Events that cause damage to "Old Grid" Assets.

Part 2.3 provides a detailed analysis of a State Wide Black Start of the entire SA Region of the NEM in 2016. The 2016 SA Black Start was due (99% accountable) to Mismanagement of the NEM by the Australian Energy Market Operator (AEMO) and its NEM Participants at the same time as an Extreme Wind Event (1% accountable) in a remote part of SA. It is no surprise that the SA NEM Region responded by adopting and implementing a rapid transition to the "New Generation" Model. Implementing an automated "Digital Smart Grid" in the SA Region of the Australian NEM overcomes the instability of mismanagement of the manually operated "Old Generation" model NEM by AEMO.

5.2 "New Generation" Model on the "Digital Smart Grid"

As of August 2017, the number 1 and 2 "New Generation" Technologies being constructed worldwide are (i) Solar PV Generation, and (ii) Wind Generation. Mass Production of the components making up these technologies is becoming increasingly refined. Consequently the efficiency and capacity of the technologies will continue to improve and their cost to acquire, construct, operate and maintain will continue to plummet. Coal has been pushed into 3rd place in 2017 and its decline in the "New Generation" mix will be rapid.

Fig 32: New Global Installs of Wind and Solar PV Surpass Coal November 2017

From 2017 onward, the scale of growth in new installations of both Solar PV Generation and Wind Generation is growing exponentially. Eventually, Solar PV and Wind Generation will eclipse all other Generation technologies shown in the graph above. Ultimately, only 100% RE-Generation Technologies will remain on National Grids. If a spinning reserve is used for Industry or Commerce, it will be provided by Hydrogen fueled Generators. Hydrogen will be produced exclusively by Electrolysis of seawater as there is no waste carbon produced. The Electrolysis process will be powered exclusively by Solar PV, Wind and Storage.

Fig 33: New Installs of Wind and Solar PV Generation Growing Exponentially

Design of Utility Scale and Residential Scale distributed, modular RE-Generation paired with appropriately matched modular Storage is a feature of the "New Generation" model. RE-Generation and Storage will exist on every building and piece of Infrastructure on the "Digital Smart Grid" underpinning the "New Generation" model. The "New Generation" model differs from the "Old Generation" model in key ways.

1. RE-Generation and Storage is price/performance modular, distributed and scalable from Residential installations through Commercial and Industrial installations to the largest Utility Scale Installations. Ultimately all RE-Generation and Storage Paired buildings and Infrastructure (Assets) will be Net Generators for the Grid, if connected to the Grid.
2. RE-Generation and Storage Paired Assets will be location independent of the Grid allowing for flexible Off-Grid infrastructure in appropriate cases.
3. All New "Digital Smart Grid" Assets will be connected to the NEM by Smart Meters and automatically controlled fast acting (sub-second) isolation equipment.
4. Paired RE-Generation and Storage Assets are much faster and cheaper than fossil or nuclear fueled Power Stations to construct, commission and make operable and maintain. At the residential or commercial level, paired RE-Generation and Storage take days to construct, commission and make operable. At Utility Scale, paired RE-Generation and Storage takes months to construct, commission and make operable.
5. Paired RE-Generation and Storage Assets respond automatically to load and frequency fluctuations on the "Digital Smart Grid" in sub-second, typically millisecond time frames, with little or no manual intervention.
6. Paired RE-Generation and Storage (except Hydrogen) Assets typically need no fuel supply chain and no manual operation. Consequently, they cost significantly less than traditional fossil or nuclear fueled Power Stations during the Asset Management Phase of the Generation Life Cycle.
7. Paired RE-Generation and Storage Assets deliver abundant Electricity in the "New Generation" model on the "Digital Smart Grid". Each Asset on the "Digital Smart Grid" is a "Net Generator" of Electricity. The operational characteristics of the "Digital Smart Grid" is that load is manually switched on/off to consume excess Electricity rather than curtailing RE-Generation.
8. Every Asset on the "Digital Smart Grid" can be automatically "Islanded" in the event of an "Old Grid" style Blackout or Brownout. Natural Disasters including Extreme Weather Events will always damage "Old Grid" Assets. "New Generation" model Assets underpinning the "Digital Smart Grid" will enable Assets to continue self-powered operation for the duration of any "Old Grid" style Blackout or Brownout. Once the "Old Grid" is revived, "Digital Smart Grid" Assets automatically reconnect to the grid, without manual intervention.

As the "New Generation" model distributed, modular, paired Generation and Storage Assets are deployed, the average daily demand profile on the NEM is changing across the day. As the most advanced NEM Region transitioning to the "Digital Smart Grid", SA demonstrates how the "Old Generation" model demand curve is changing in early phases of the transition.

The SA Region of the NEM average daily demand curve has changed significantly with the deployment of Solar Panels on SA "Digital Smart Grid" Assets from 2011 - 2018. Increasing amounts of distributed, modular Storage is being rapidly deployed across the SA NEM as of 2018. It can be expected that average demand on the SA Region of the NEM will reduce to zero for extended periods of the day by the early 2020s. By 2030, the capacity and efficiency of Solar PV Panels and Storage modules will increase and their cost decrease significantly. It can be expected that by 2030, average demand from the SA Region of the NEM is reduced to zero for most of, if not the entire day.

In 2019, the "New Peak" on the SA average demand curve occurs at midnight for historical reasons. That is the time the Electric Hot Water Heater Tariff cuts in. The midnight Peak could be moved to the middle of the day by simply changing Tariff regulation, thereby flattening the Duck Curve. The hot water Peak could be 100% eliminated. Alternately, Electric Hot Water Heaters could be transitioned to a combination of Solar Hot Water heaters and/or Electric Heat pumps, removing the artificial 2019 "Peak Load" from the "Digital Smart Grid" entirely.

Fig 34: Average Grid Demand (Load) in SA by Time of Day 2011 - 2018

The "New Generation" model is based on distributed, modular, scalable paired RE-Generation and Storage Assets, connected using Smart Meters and designed for Grid fail-safe operation. Every "New Generation" model Asset is a "Net Generator" on the new "Digital Smart Grid". Smart Meter connection of all Assets on the Grid will automatically monitor the status of the Grid at sub-second intervals at all times. Should the "Old Grid" fail, due to blackout or brownout, each "Digital Smart Grid" Asset will automatically isolate itself from the "Old Grid" and continue to operate as a "Power Island". In "Power Island" mode, each "Digital Smart Grid" Asset will continue to monitor the "Old Grid" status at sub-second intervals. When the "Old Grid" is manually revived, "Digital Smart Grid" Assets will automatically reconnect to the "Old Grid" without manual intervention.

Fig 35: Streetlights with onboard Solar PV & Wind Generation & 5 days Storage

Gradually, individual infrastructure components such as Street Lighting will become net Electricity Generators and either become entirely off-grid infrastructure or "Net Generation" Assets for the "Digital Smart Grid" in the same way as buildings become "Net Generation" Assets. Off-grid Infrastructure will become increasingly common. For example, off-grid lighting allows for greater flexibility and lower cost location of lighting compared to AC grid-tied streetlights.

Fig 36: Australia's Pumped Hydro Storage Potential Future Installations

"Digital Smart Grids" will have a dramatic impact on the "Old Generation" model. Centralised Utility-scale Generation will continue to exist, but it will become 100% RE-Generation. All centralised fossil and nuclear-fueled Generation Assets will shut down as regulated Grid Assets. New RE-Generation and Storage options will change not only the "Old Generation" model, but they will also have a major impact on the "Old Transmission and Distribution" business models.

5.3 Digital Smart Grids: The "New" vs "Old" Distribution Model

The "Old Grid" last mile Distribution Model has evolved from the late 1800s and is oriented around manual operation and maintenance in much the same way in 2019 as it was in the 1800s when first developed. "Old Grid" Distribution Networks incorporate Distribution Poles and Wires in every Street in towns and cities, with a cross-linked mesh of Distribution Substations supporting the "Old Grid" load. "Old Grid" Distribution Assets are designed with the expectation that every electrified residence and piece of infrastructure is a "Net Load" for the "Old Grid". The "Old Grid" has been designed and built to allow for "Just In Time" supply of Electricity to be switched on/off to every user on the "Old Grid". "Old Grids" are subject to regular Brownouts and Blackouts taking out entire suburbs, or even cities and sometimes entire States when they fail. The momentum around "Old Distribution Grids" is very expensive and slow to plan, design, construct, operate and maintain.

New "Digital Smart Grids" will be designed for a significantly different Power Distribution Problem. New "Digital Smart Grid" designs will cater for the supply of "Abundant DC Generated and Stored Electricity" to the "Old Grid". Every residence, commercial and industrial building and even infrastructure poles (Assets) on the "New Smart Grid" is a "Net Generator" of Electricity for the "Old Grid". Commencing in 2018, SA leads the world with the subsidised rollout of 40,000 Residential Batteries. These batteries can be deployed as a Virtual Power Plant (VPP).

Fig 37: 2018 World's Largest VPP deployed on 40,000 SA Residences

Hybrid RE-Generation and Storage technologies are designed and constructed for each "Digital Smart Grid" Asset in such a way that demand is reduced to zero from the last mile of the "Old Grid". Each building attached to the Distribution Grid has RE-Generation and Storage designed to cater for 100% of the Asset's Electricity use for extended days at a time, ultimately forever. Each "Digital Smart Grid" Asset is designed to be a "Net Generator" on the new "Digital Smart Grid", connected using Smart Meters and automated sub-second isolation equipment. "Digital Smart Grids" automatically measure average daily "Generation Curves" as opposed to average daily "Load Curves", allowing Major Loads to be switched on/off to consume excess RE-Generated Electricity rather than curtailing RE-Generation.

Fig 38: Residential Isolation from Grid Using Rooftop Solar and Tesla Powerwall

"Digital Smart Grids" provide for the fail-safe operation of all Assets on the "Digital Smart Grid" in the event of "Old Grid" style Blackouts or Brownouts. Assets on the "Digital Smart Grid" use Smart Meters combined with Isolation equipment connected to the "Digital Smart Grid". This connection design enables each Asset connected to the "Digital Smart Grid" to be constantly and automatically aware of the status of the "Old Grid" to monitor for Grid Blackouts or Brownouts. Upon detecting an "Old Grid" Blackout / Brownout, each "Digital Smart Grid" Asset is automatically isolated from the "Old Grid". "Digital Smart Grid" Assets continue to power themselves for the duration of the "Old Grid" failure. "Digital Smart Grid" Assets continue to monitor "Old Grid" status during the Blackout / Brownout. Upon detecting the revival of the "Old Grid", all "Digital Smart Grid" Assets automatically reconnect to the "Old Grid". In this way, "Digital Smart Grid" Assets remain operational during "Old Grid" Blackouts / Brownouts.

New localized DC Microgrids will evolve as a lower level of Distribution on the new "Digital Smart Grid". Microgrids linking multiple "Digital Smart Grid" Assets connected together behind the "Old Distribution Grid Meter" can be developed. Doing so can make more efficient use of Solar PV (DC) Generation and Storage connected to every new "Digital Smart Grid" localized Asset within a Microgrid. As Microgrids develop, it is expected "Old Distribution Grid" AC connections will reduce to a more concentrated set of connections to a network of DC Microgrids. The advantage of using DC Microgrids is that Distribution can be achieved over much shorter distances at lower voltages and at greater efficiency (fewer losses). DC Microgrids will significantly reduce new Distribution Construction, Operation and Maintenance costs and make maintenance of DC Microgrids easier and less costly than "Old AC Distribution Grids". New Microgrids will be developed using Direct Current (DC) as opposed to the Alternating Current (AC) available on the "Old Distribution Grids". Microgrids will inevitably revive the Current Wars of the late 1800s. The "New Current Wars" in the early 2000s will see DC Microgrids ("Digital Smart Grids") evolve and find a hybrid niche to coexist with the "Old AC Distribution Grid".

Fig 39: WA “Virtual” Batteries for households in areas of high rooftop solar uptake

In late 2020, the Australian east coast NEM has followed in the footsteps of WA's decision earlier in 2020 to implement "Community Batteries" to capture excess Rooftop Solar Generation. Two of Australia’s biggest network operators, Ausgrid and United Energy, have outlined plans to invest in community-scale battery storage. Ausgrid services a large part of the Sydney metropolitan area, and the region to the city’s north. It has identified the locations of the first 3 community batteries, boosting the capacity of the local grid to absorb rooftop solar, and avoiding the need for network upgrades. United Energy services south-east Melbourne suburbs and beyond and has a slightly different approach. United is proposing 30 “pole-mounted” batteries rather than bigger ground-mounted installations. The pole-mounted batteries will serve much the same purpose

5.4 Digital Smart Grids: The "New" vs "Old" Transmission Model

The "Old Transmission" model was developed to carry High Voltage AC Electricity from centralized fossil, hydroelectric, and nuclear-fueled Power Stations to distant last mile "Old AC Distribution Grids". Transmission companies were also involved in the development of Interconnectors between National Grid Regions to allow greater reliability and support of loads across National Grid Regions. Complexity in manual Management of National Grids like the NEM has demonstrated that Interconnectors can actually reduce reliability (see Part 2.3 and the cause of the SA NEM Region Black Start) of a National Grid.

The "New Transmission" business model is built around the bottom up designed "New DER Generation" model. The "New DER Generation" model requires massive Utility-scale Storage Assets or Deep Storage, from Pumped Hydro Storage to enable a 100% Transition to the new "Digital Smart Grid" on a nationwide basis. Pumped hydro Storage Assets are limited to appropriate geographical regions. The "New Transmission" business model will be designed and developed to allow for the connection of distant pumped hydro Storage Assets to "Digital Smart Grid" Distribution Networks. The requirement for "Old Grid" Inter-connectors in the new "Digital Smart Grid" model is likely to reduce to zero. On the new "Digital Smart Grid", Interconnection between National Grid Regions will evolve organically as the "Digital Smart Grid" organically grows across the Nation.

The "New Transmission" business model will be dominated by the connection of numerous very large Pumped Hydro Storage Assets to last-mile distribution grids. A defining characteristic of the "New Transmission" model will be the dramatic growth of HVDC Transmission Infrastructure across the NEM. Another key feature will be the addition of appropriately designed and scaled Utility-scale Storage to both the Transmission and Distribution Grids, including Interconnectors, adding "Virtual Transmission and Distribution" lines to the NEM.

5.5 Most Advanced Australian Transition In 2019, SA NEM Region

The transition to the new "Digital Smart Grid" model is working well in SA in 2019. SA is still in the early phases of transition from the "Old Grid" to the "New Grid" but is further advanced than any other NEM Region in Australia.

Fig 40: 2019 Solar PV and Wind Pipeline by Australian State

On average in 2018 47% of SA's Electricity was generated from RE sources compared to an average of 16% across Australia. By 2019, 54.6% of SA's total power generation came from variable renewable sources. In the "New Grid" model, every grid-connected Asset will gradually become a "Net Generator and Store" of Electricity.

Fig 41: Hornsdale Power Reserve (HPR) - World's Largest Battery as of Mar 2020

By December 1st 2017, the largest Utility-Scale Battery (100MW/129MWh) in the world, the Hornsdale Power Reserve (HPR) was installed and made operational in SA within 90 days of commencement of construction. From December 2017, HPR has demonstrated to the Australian NEM that Utility-scale Storage has a great deal to offer a National Grid. The services offered by HPR include:

• Reduced if not total eradication of curtailment of Wind Generation by storing excess Wind Generation from the Hornsdale Wind Farm allowing for time shifting of energy supply. 30 MW for 3 hours (90 MWh) is used by the Wind Farm owner for load management to store energy when prices are low and sell it when demand is high

Fig 42: HPR First Full Discharge (100MWatts) into NEM December 2017

• Sub-second delivery of Frequency Control and Ancillary Services to the NEM. HPR Ancillary services are services necessary to support Transmission of electricity from NEM seller to purchaser. There are obligations on Transmission Participants within control areas to maintain reliable operations of the interconnected NEM Transmission Grid. Frequency control refers to the need to ensure that the grid frequency stays within a specific range of the nominal frequency (50Hz). A mismatch between electricity Generation and Demand causes variations in frequency. HPR Frequency Control services are required to bring the frequency back to its nominal value and maintain Grid frequency within range as demonstrated repeatedly since HPR was installed in 2017.

Fig 43: HPR Frequency Control Response to Loy Yang Coal Unit Unplanned Outage

• Sub-second load balancing of the Grid preventing load-shedding blackouts while other generators are started in the event of sudden drops in the wind or in the event of unplanned outages of major spinning Gas or Coal-fired Generators across the NEM

Fig 44: 500MWatt LoyYang Unit Unplanned Outage, HPR Picks up Load in msecs

• Provides the same grid services as peaker plants, but cheaper, quicker, and with zero-emissions, through its battery system. In 2018, NEM saved an estimated AUS$40M in Gas-fired Peaker Power expense in HPR's first year of operation.

Fig 45: HPR Provides Peaker Power Services in msecs with zero emissions

• HPR can also provide Black Start recovery if called upon.

Following the success of HPR, a growing number of Utility-scale batteries were completed across Australia in 2018 including:

• A 30 MW/8 MWh Transmission Substation Battery to store both adjacent Utility Scale Wind Generation and Residential Scale Solar Generation was constructed on the Yorke Peninsula in SA at the Dalrymple Substation and made Operational in 2018.

Fig 46: Dalrymple Substation ESCRI-SA 30MW/8MWh Battery

• A 30MW/30MWh Storage facility at the Ballarat Energy Storage System (BESS) was made operational in 2018. BESS is unique in Australia as it is located in a network terminal, rather than adjacent to a wind or solar farm. BESS sits in a junction of 4 major Transmission lines. Like HPR, BESS is able to respond to changing grid needs within milliseconds, providing grid services such as frequency control, helping meet peak demand and unlocking congestion on the grid.

Fig 47: Ballarat Energy Storage System (BESS) 30MW/30MWh Terminal Substation

• The Gannawarra Energy Storage System is a 25MW / 50MWh Tesla Powerpack battery retrofitted to the 50MW Gannawarra Solar Farm located west of Kerang in north-west Victoria. It is the first integrated solar and storage project in Victoria and among the largest in the world. The Ganawarra battery enables some of the solar plant’s output to be time-shifted into the evening for Victorian peak demand periods.

Fig 48: Ganawarra 25MW / 50MWh Battery attached to Ganawarra Solar Farm

• In the Pilbara Region of WA, Alinta has installed a 30MW/11MWh battery storage facility. The battery is located next to a 180MW Newman Gas-fired power station supplying the Roy Hill iron ore mine majority owned by Gina Rinehart’s Hancock Prospecting. Its combination of high power, low energy, is designed to allow one of the gas generators at the Alinta facility to be switched off, because the Kokam battery will jump in to provide inertia, frequency, voltage and operating protections. Gas-fired Power Stations combined with batteries is a “killer application” because of the ability to allow gas generators to be switched off rather than operate as “spinning reserve”.

Fig 49: 30MW/11MWh Newman WA BSS attached to Gas-fired Power Station

• NT unveiled its first grid-scale battery storage facility, with a 5MW/2.5MWh system unveiled in Alice Springs. The Battery improves the integration of solar and provides support for \new and existing Gas-fired Generators.

Fig 50: Alice Springs NT 5MW/2.5MWh BSS Supports Utility-scale Solar

From 2019, Utility-scale batteries will be added to every Australian Electricity Generation site (RE or fossil-fueled), every substation, every industrial end user, and smaller batteries to potentially every Transmission, Distribution and Lighting tower or pole, and certainly every SA residence.

Distributed pumped hydro will form massive (by comparison to HPR scale) backup Storage and underpin 100% National "Digital Smart Grids". Transmission Grids will evolve ONLY to connect pumped hydro to the new "Digital Smart Grid". Distribution Networks will change massively with only point connections to community DC Microgrids managed by and potentially owned by Local Govt to the last mile.

Batteries are partitionable for different applications, again HPR is an example. Part of HPR is reserved for State Govt usage. The other Part is used by AEMO for Frequency Control and Ancillary Services (FCAS) and other NEM Services. HPR supports more than the local SA NEM Region. It supports disruptions across all NEM Regions, as far away as Qld, NSW, ACT, Vic and Tasmania. The same model could also be used for Residential Storage. Part of each Residential Storage system could be reserved for local use in the event of Blackout/Brownout of the "Old Grid". Part of the Residential Storage System could be used as a large scale, widely distributed Virtual Power Plant (VPP). In 2019, there are numerous VPP Project trials scheduled for the NEM all around Australia.

Fig 51: VPP Projects on Australian NEM as of early 2019

In summary, Batteries (and other forms of Electricity Storage) will become as commonplace on the Grid, if not more commonplace than Transformers. Consumer Electronic devices will be built with batteries inside rather than power supplies so that they can be connected to DC microgrids. Batteries will comparatively cost about the same or less than transformers across the scale of use. The Grid will need HPR sized Batteries attached to every Generation Station, whether they be wind, solar, hydro, gas, coal, diesel, biomass, geothermal, tidal, wave, Hydrogen or other, or Substation. The Design size of a Utility-scale battery will grow with the size of the Generation Station or Substation. HPR can be used as a scale model for Utility-scale Battery design purposes.

A report by energy consultancy Aurecon on HPR found that the money it saved NEM consumers in 2019 jumped to $116 million, from $40 million in 2018. It’s a massive payback for NEM consumers. The SA state govt only had to inject $4 Million per annum for 10 years under its underwriting agreement for the battery. Financial results have shown the $96 Million total investment is also delivering a handsome return for its owners, Neoen Australia.

Almost all of the savings delivered by HPR came from its role in the Frequency Control and Ancillary Services (FCAS) markets. FCAS network security was previously the domain of fossil fuel generators. In SA the Gas fossil fuel generators controlled the market like a cartel.

Fig 52: HPR's FCAS Ability to Reduce NEM Pricing in R6, R60, & R5 markets

Fig 53: HPR's Ability to Consistently Reduce FCAS Pricing Post Installation in 2017

HPR has been so successful in its first 2 years of operation that in late 2019 its owner began an expansion Project. HPR has been expanded by 50% going from 100MW / 129MWh to 150MW / 193.5MWh by Feb 2020. Testing and commissioning of the expanded HPR commences in March 2020, with a view to having it operating in the Q2 2020. The security of the overall NEM grid will be enhanced when the HPR expansion is complete. HPR will then deliver deliver “Inertia” or “Grid-forming” services for the first time in 2020.

Having “Grid-forming” inverters means the inverter can play an active role, rather than just faithfully following the frequency as inverters in wind and solar farms and batteries are currently required to do. There are 4 key advantages of "Grid-forming" Inverters over "Grid-following" Inverters. Grid-forming Inverter Control allows for:

• Control of Voltage Magnitude and Frequency
• Instantaneous load balancing without manual coordination control
• Can operate standalone
• Can achieve 100% Penetration

Some actual benefits of "Grid-forming" Inverters added to HPR allows for (a) Automated greater Frequency Control with reduced residual inertia, (b) Automated faster dynamic Frequency Control in response to unexpected load drops or unplanned Generator outages, and (c) Automated superior Frequency Control in response to unexpected load drops avoiding load tripping events.

AEMO has identified that the SA NEM Region requires 6,000 megawatt-seconds (MWs) to maintain a secure operating level of inertia. It is anticipated that HPR as expanded could provide up to 3,000MWs of inertia. HPR will have the potential to supply half of SA’s inertia needs and help slow the rate of change of frequency. A crucial tool in helping the AEMO manage the grid.

5.6 "New" v "Old" Retail Model - Australia's East Coast Gas Dilemma in 2019

Political battles are being fought in Australia in 2019 over more than just Coal. ENRON used private monopoly tactics illegally in the US in the early 2000s to increase its share price. ENRON increased its share price by constructively causing energy shortages to increase the price of energy in states like California. ENRON went out of business and some of its executives were jailed as a consequence of ENRON's tactics. The largest of the "Big 5" global Management Consulting Companies, Arthur Andersen, was forced to shut its doors due to complicity in illegal ENRON energy scams.

Fig 54: ENRON Prosecutions and Whistleblowers

On Australia's East Coast in 2019, ENRON style tactics are being used by Gentailers to constructively cause a shortage of Gas in the East Coast Market (not WA). The constructive Gas shortage falsely inflates the price of Gas on Australia's East Coast (not WA). The result is the highest priced wholesale and retail Gas in the world. In 2018, Australia became the largest exporter of LNG in the world, displacing Qatar. As the world's largest exporter of LNG, it is impossible for Australia to be facing Gas shortages unless the Gas companies are misbehaving. Australian Domestic gas shortages on Australia's East Coast in 2019 is a fabricated situation caused by the absence of regulation of Australian Gas Resource by Federal and State Govts on the East Coast. Criminal rorting of Australia's Gas Resource by private monopolies conducting anti-competitive tactics must not go unpunished on Australia's East Coast.

Fig 55: Quarterly Household Energy Price Index

The inflated Gas price forces the false situation on Australia's East Coast where Gas Fired Power Stations generate Electricity at higher costs than East Coast Coal-fired Power Stations. The result in states like SA where 100% of its Power Stations are Gas-fired, is the highest priced retail electricity in the world. In 2019, only on Australia's East Coast (not WA) is the price of Electricity from Gas-fired generators more expensive than Coal-fired Generators. In 2019, everywhere else in the world, Gas-fired Electricity is cheaper than Coal-fired Electricity.

Fig 56: Retail Electricity Prices on Australia's East Coast, Highest in the World

In 2019, share-held monopoly Gentailers like AGL have the temerity to dictate ENRON style practices to Australian Govts, Voters, Residents and Industry. Lack of regulation of Gentailer Electricity and Gas markets by East Coast Australian State and Federal Govts is the problem. Federal and State Govt regulatory inactivity has been compounded by Coal lobbyists from NSW and Qld (MCoA), and by ex-Federal politicians like Labor's Martin Ferguson lobbying on behalf of the Oil and Gas Industry (APPEA). Upon leaving parliament, Ferguson promptly went to work as a well-payed lobbyist for the Oil and Gas Industry. Ferguson's activity was focused on ensuring that no East Coast State or Federal Govt would follow in WA's footsteps and establish Domestic Gas (DOMGAS) Reserve Legislation. DOMGAS Reserve legislation is a characteristic of all other first world nations that export significant amounts of gas, except for the East Coast of Australia.

In the 1970s WA established a DOMGAS Reserve Policy. This policy declared to any Oil and Gas Company that wanted to build LNG Export Plant in WA, that 15% of any gas produced by WA based LNG Plant would be injected back into WA's Domestic Gas Pipeline. The result of the WA Govt's wisdom in establishing DOMGAS legislation in the 1970s was amazing. Oil and Gas Majors responded by investing massively in WA LNG Export Plant development. This investment boom commenced from the late 1970s on, continuing in 2019 and well into the future, as described in Part 4.1.1 and Part 4.1.2.

WA's DOMGAS Reserve Policy ensures the following benefits to WA

1. WA's Domestic Gas pipeline is overflowing with Gas.
2. Gas is available to WA Industry and residents at the lowest price in Australia and at competitive prices compared to the rest of the world.
3. Gas-fired Electricity generation in WA is cheaper than Coal-fired Generation.
4. 90% of Australia's Gas Exports in 2019 come from the Carnarvon and Browse basins off the WA north-west coast.

WA elected a Labor Govt in 2017 when it promised to keep Western Power in Govt hands rather than sell it off as happened in SA, Victoria and NSW. The WA Govt in 2019 has established a Coal exit strategy that will see the small fleet of WA Coal-fired Power Stations shut down in favour of a much larger and growing fleet of cheaper, more reliable Gas-fired Power Stations.

By comparison, on Australia's East Coast, a farcical Gas situation exists in 2019. The main East Coast gas reserves are the central Australian Moomba Reserve and the Bass Strait Reserve between Victoria and Tasmania. Three neighbouring LNG Export Plant were built on Curtis Island off Gladstone in Qld, on the pretext that the Gas resource for those 3 plants would come from fracking in southwestern Qld. When fracking did not produce the volume of gas required, Santos and Exxon promptly built pipelines from Moomba and Bass Strait to Curtis Island to supply the 3 plants with raw Australian Natural Gas.

Companies like AGL exploited the situation to AGL's commercial advantage, both in the export and domestic gas markets. AGL pre-sold gas commitments from Australia's East Coast Gas Reserves to overseas clients in such a way that it generated false Gas shortages on Australia's East Coast in 2017 onward. At the same time that Australia displaced Qatar as the largest gas exporter in the world. AGL constructively created a false shortage of Gas in the Australian East Coast market, allowing AGL to use its private monopoly tactics to constructively sell Gas to Australian Industry and Residents at upwards of 3-7 times standard global Gas price. AGL then had the temerity to suggest an outrageous solution to the false Gas shortage for the Australian East Coast community. AGL proposed resolving the false Gas shortage created by AGL, by charging Australian consumers AUS$Billions to build multiple LNG Import terminals on Australia's East Coast. Import terminals to import Australia's own gas at vastly inflated prices back from other countries who had purchased Australia's Gas at AGL's cheap export price.

Any average Oil and Gas trader knows that such Import Terminals are not required to resolve the false Australian East Coast Gas shortage. The constructive Gas shortage can be resolved by two simple govt regulatory actions.

1. Regulate Australia's East Coast Gas Resource in Moomba and the Bass Strait to ensure at least 15% of Australia's Gas (mirroring WA DOMGAS Reserve Legislation) stays in the Domestic Gas Pipeline to meet East Coast Domestic Gas needs at reasonable prices.
2. Require AGL to acquire Gas from other countries, such as Qatar or the USA, to meet its contractual commitments to its overseas markets.

Fig 57: Comparative Corporate Revenue per Employee

AGL's ENRON style tactics have allowed it to falsely establish ridiculously overinflated wholesale and retail Gas prices on Australia's East Coast from around 2015 on. AGL ensures that its own Gas-fired Power Stations on Australia's East Coast purchase over-inflated wholesale Gas prices from itself as fuel for its Generation plant. Thereby constructively inflating Retail Electricity prices from Gas-fired Power Stations to the highest prices in the world on Australia's East Coast. AGL's share price benefits from this constructive practice and is arguably over-inflated as well.

Australia's Regulators have sat on their hands and watched this activity take place without lifting a finger to stop the practice. What are the reasons for the inactivity of the Regulators? The real issues with Coal and Gas in Australia are the "Out of Control" lobbying of politicians by a very small group of lobbyists and vested interests, from Coal Miners to Coal-fired Power Station owners to Industry associations like the MCOA, ENA, and APPEA. These politicians (serving and retired) use their power to bully regulators into inactivity to support their vested interests.

The NSW State and Federal Elections in 2019 will hopefully begin to resolve the corrupted inactivity of Australia's Regulators on the East Coast. AGL needs to be investigated for anti-competitive practices in the Australian Energy Market, and AGL executives criminally investigated and prosecuted for deploying ENRON style tactics in Australia. AGL's Tax and Audit consultants need to be held to account in the same way Arthur Andersen was held to account in the US for ENRON's activity. AGL's ridiculous suggestion that Australia needs expensive East Coast LNG Import Terminals can be overturned with the flick of a legislative pen in SA and Victoria.

Introducing WA's 1970s DOMGAS Reserve Legislation in SA and Victoria in 2019 would eradicate the need for LNG Import Terminals on Australia's East Coast. East Coast DOMGAS Reserve legislation should have similar if not more onerous protection of Australia's East Coast Gas resource in the Bass Strait and Moomba compared to WA's protection of its gas reserves.

6. Hydrogen Export and Regulation

DOMGAS Reserve Regulation is an incredibly important legislative tool to get right for the entire Australian Nation in 2019. The East Coast of Australia must fall into line with WA in preparation for a major new Export from Australia, Hydrogen. The regulation applied to Hydrogen must reflect a similar regulatory framework applied to LNG. The H2 Export potential and associated Regulatory Framework is discussed in Part 2.5.

Fig 58: The South Australian Hydrogen Economy

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Resolving the Megaproject Paradox: ? Part 1.1: Creating the Digital Megaproject ? Part 1.2: Creating the Organisation Digital Twin ? Part 1.3: Digital Shipyards ? Part 2.1: Digital Oilfields ? Part 2.2: Peak Fossil Fuel Demand ? Part 2.3: Failure of a National Electricity Market ? Part 2.4: Transition to a 100% Digital Smart Grid ? Part 2.5: Developing a Hydrogen Export Economy ? Part 3: Creating a New Owner ELT Management Tool ? Part 4.1.1: Rule Number 1 - Megaproject Strategy ? Part 4.1.2: BROWSE JV Strategy Case Study ? Part 4.2: Rule Number 2 - Culture ? The Megaproject Paradox Facebook Page ?

The Noonan Method for Megaproject Risk Mitigation, Noonan Megaproject Parameters, the Organisation Digital Twin, and the "Resolving the Megaproject Paradox" series of articles are copyright of JNC Pty Ltd. John consults to Mega-corporations with deca $Billion annual revenues or Owners of deca $Billion Megaprojects. John speaks publicly and consults to clients dealing with Megaproject Paradox issues. Typically issues are related to corporate Strategy, Culture, Structure and Behaviour. John assists ELT's achieve financial and schedule goals. Some information in the articles is sourced from the CII 2012 Performance Assessment Report, Internet-based information including Wikipedia, and News and Television articles. Some references are quoted in the articles, or directly linked to video or other internet links. Reference information is public domain. Noonan Method innovation proposes the Megaproject Organisation Digital Twin Model to resolve any Megaproject Paradox issues using scenario planning techniques.

John can be contacted at ... [email protected] or +61 (0)414 610 933