Wind and solar small caps are sending projects into a national energy market that is increasingly rickety, says the outspoken boss of the Energy Security Board (ESB).

ESB chair Dr Kerry Schott told the Australian Energy Week conference, in Melbourne, this morning the state of the National Energy Market (NEM) had worsened since their last review in December.

“The subtitle of this address is continuing chaos, and that begs two questions: what is causing this and why hasn’t it been fixed?” Schott said.

“We’re very concerned about security in the system and… this has got worse rather than better.

“On strong but agile governance we thought it was pretty dreadful [in December].

And, “on satisfied customers we feel that the retailers need to go away and read the Hayne Royal Commission on banking.”

Yet new projects are still being planned or built apace in the NEM, an area covering Queensland, NSW, Victoria, South Australia, the ACT and Tasmania.

In mid-May the Clean Energy Council said 92 projects were under construction or due to start soon, and that didn’t include projects that haven’t reached financial close yet.

The small caps trying to make a living

There aren’t many small cap renewable energy generators – Stockhead monitors just six of them and a lonely grid operator – but they are forging ahead regardless of the hurdles being placed in front of them.

They’re a mixed bag of success.

Windlab (ASX:WND) lost an investor over grid connection risks last year, US-focused New Energy Solar (ASX:NEW) has begun to dip its toes into the Australian market after struggling to find anything investment grade, and Ausnet Services (ASX:AST), as a network owner, is about to feel the government’s ire now energy retailers have been beaten into submission.

Renu Energy (ASX:RNE) wanted to tap the market for $5.5m in April, but after extending the offer was only able to come up with $733,500.

Among the optimists are Pacific Energy (ASX:PEA) which had an “outstanding” first half of FY19 after a new acquisition delivered solid earnings; Genex Energy (ASX:GNX) has Queensland government and NAIF backing as well as support from EnergyAustralia, JPower and a Chinese hydropower company; Tilt Renewables (ASX:TLT) fended off a takeover bid last year from two major shareholders and since then its shares have continued to rise.

The pillars are crumbling

The market they’re selling power into is weakening, Schott says, blaming the rapid and heavy increase of large scale solar and wind projects being connected to the grid, and the even faster growth of rooftop solar.

The other factor is the lack of any federal policy to comprehensively ensure the country has enough dispatchable power – the kind that can be switched on or off to order – instead leaving that to market regulators and operators and the states.

She says the Australian Energy Market Operator (AEMO) is intervening more and more often in each state to protect system security – in other words, to make sure the new variable renewable energy doesn’t blow up the grid.

Projects in weak sections of the grid mean power generated by wind or solar is not being allowed into the network in order to ensure security.

Piecemeal attempts by states to manage their internal grids are creating ructions, from South Australia’s Tesla battery to NSW’s state plan in November last year to upgrade its own transmission network, and Victoria’s launch of two grid batteries.

And the massive take up of rooftop solar – around 2 megawatts (MW) of new panels are being installed every year – is creating management problems, Schott says.

Not only do more than 30 per cent of households in Queensland, West Australia and South Australia have rooftop solar, in the two eastern states there are days when supply from these panels outstrips demand.

There are plans afoot to keep the whole system intact though.

AEMO launched its Integrated System PLAN (ISP) last year which is intended to ultimately manage the whole grid in the NEM while rule maker the AEMC has been bringing in a raft of changes to help manage the market and give the companies operating within in transparency.