Once again, bad luck for renewables. The AEMO put out their report for the first quarter of 2019. Despite a massive growth in renewables, power prices are still not falling as predicted.
The report highlights that record high spot wholesale electricity prices were set in Victoria and South Australia, and nearly in everywhere else as well:
• Victoria and South Australia’s quarterly average spot wholesale electricity prices of $166/MWh and $163/MWh were their highest on record.
• Victoria and New South Wales recorded their highest underlying energy price on record, while Queensland, South Australia and Tasmania recorded their seconded highest energy prices on record.
These record highs were not just billion dollar price spikes, but the actual underlying energy prices as well.
Looks like a trend here:
The news gets reported but somehow coal and heat get the blame?
Perry Williams, The Australian
Power prices in NSW and Victoria soared to their highest level on record in the first quarter of 2019, with the jump blamed on high coal and gas tariffs and searing summer temperatures which cut output from hydro-generators.
Significantly, solar partly soothed grid pressures over that period with rooftop units soaking up some of the demand.
Nice theory, but intermittent energy is a burden on the grid that forces up the prices of all the baseload providers. It simply eats into their profits, but doesn’t reduce their costs, so they charge more the rest of the day.
Again, coal gets blamed:
Coal, often cited as the cheapest form of generation in the market, also contributed to the cost hike, with 800MW of supply moved to a price above $100/MWh in the first quarter after being offered below $100/MWh last year.
Firstly, the cheapest form of generation by far is brown coal, which we are cutting back the fastest. Black coal is often twice the price. And if black coal is charging even more (and it appears to be), it’s partly to compensate for the “intermittent burden” on the grid, and partly because it can. Less competition means … less competition.
It was of course, bad luck that the snowy hydro dams are so low. But relying on hydro to get us through very hot summers was never going to be a great idea in Australia.
Gas prices were also high, but then, if we didn’t need so much gas, the gas prices might not be as high. And if we used some of our 300 years supply of coal instead, we wouldn’t care less about the gas price.
Cheaper prices are just around the corner, except when they aren’t
More bad news (for consumers). The traders buying futures contracts don’t see prices coming down.
• Forward wholesale prices also continued their upward climb: the price of calendar year (Cal) 2020 electricity swap contracts traded on the ASX rose between 12-23% over Q1 2019 and have risen by 49% in Victoria since July 2018.
The reason that the salad-days of electricity are gone — not enough Brown coal:
Prices leapt when Hazelwood brown coal power closed. They jumped, and never came back down.
In our auction system, generators bid, say 1GW at $50. The AEMO says “yes please” to all the cheapest bids until the demand is met. That final “highest” accepted winning bid, sets the price that every successful bidder gets paid. A few short years ago, brown coal used to win bids and set low prices like, even, $13/MWh. Now there just isn’t enough brown coal generation to supply all the demand very often. So the winning bids are set by black coal instead, and they are at far higher prices. Remember, all the generators get paid at the highest wining bid price too, even if they offered to do it for less. So if we close even more brown coal plants, it’s happy days for all the other generators. Not so for consumers.
See the graph below to understand bidding better. Loy Yang (bottom left) a brown coal plant in Victoria, put in the cheapest bid on this graph from 2014. Bayswater and Liddell are black coal putting in higher bids. Typically the AEMO will need to accept all the bids in the sweep from the left up to say 25,000MW. As demand rises for MW (the horizontal axis) the AEMO has to accept higher and higher bids.
Notice back in 2014, there were many bids in the $10 – $20MW/h range. When there was surplus brown coal power, these would set the winning bid price. When the grid is “stretched to the limit” prices may spike to $14,500/MWh (right off this chart).
Below, see the spectacular change in the last year on the Australian grid which is now at 56,000MW total capacity.
The rapid rise of solar power has replaced both hydropower and black coal in the middle of the day. Black coal plants, will naturally have to charge more for the other hours of the day so they can still cover maintenance, staff, capital and all those other costs that don’t go away as solar power kicks in.