Battery Storage in SA is Not That Simple

Recent involuntary load shedding across South Australia, Victoria and New South Wales has led to a discussion on the current operation of the National Electricity Market.

On 9 March 2017 Atlassian co-founder Mike Cannon-Brookes tweeted that Tesla’s battery division could solve South Australia’s power problems in 100 days. This would occur by building ten 100 megawatt hour battery farms which Tesla confirmed that they would be able to provide in the requested 100 days. Since then, other battery providers have offered to provide quotes for a similar product. Since the tweets started, Mike Cannon-Brookes has received several offers to help with funding and on Friday 10 March asked Tesla for seven days to sort out politics and funding.

Battery storage has come a long way over the last four years and is widely considered a potential solution to integrating renewable generation into the grid. The capacity of the proposed solution would be more than sufficient to meet the supply shortages seen to date in South Australia. During the last brown out in, 100 MW for one hour would have prevented involuntary load shedding.

The problem in the short term is how to integrate the batteries into the market. Batteries work on direct current while most of the market works on alternative current. This means that the batteries would need to include an inverter. It is not certain that the current prices quoted would include this. The quote also doesn’t include local costs such as connection to the grid and installation. There are other potential issues with integration of batteries in the market. It is uncertain how a utility scale battery would register and comply with strict frequency standards.

The proposal has sparked renewed debate on the role that technology can play in solving the issues we are facing in the current energy market.

Powerlink’s revised revenue proposal to the AER

In December 2016, Powerlink submitted a Revised Revenue Proposal to the Australian Energy Regulator (AER) for the 2018-2022 regulatory period. This was in response to the AER’s Draft Decision which was released in September 2016.

Powerlink’s Revised Revenue Proposal at a glance

  • The Revised Revenue Proposal is focused on responding to consumer concerns over electricity prices by driving increased efficiency and delivering cost reductions.
  • Powerlink continues to align with the AER’s guidelines and approach to meet the needs of customers while allowing for the continued delivery of reliable supply of electricity.
  • The AER’s Draft Decision accepted most of Powerlink’s January 2016 Revenue Proposal, including operating expenditure forecast and rate of return methodology.
  • The key element which was not accepted by the AER was forecast capital expenditure required for network investment. 
  • Powerlink has not accepted the AER’s Draft Decision and the Revised Revenue Proposal responds to matters raised by AER and includes a revised capital expenditure forecast.

Key Points of Powerlink’s Revised Revenue Proposal Include:

Electricity prices

  • 31% reduction in indicative transmission price in the first year of the regulatory period. This reflects a 3% increase from Powerlink’s January 2016 Revenue Proposal. (The cost of high voltage transmission represents approximately 9% of total delivered energy costs for a typical Queensland (QLD) residential electricity consumer)
  • Translates to between $25 and $41 savings (2.9%) for the average QLD residential household annual electricity bill. An increase from the $22 to $37 savings outlined in Powerlink’s 2016 Revenue Proposal.
  • Price Growth remains within CPI over the balance of the regulatory period

Maximum Allowed Revenue (MAR)

  • Original proposed MAR $4.02B (smoothed) – AERs Draft Decision proposed a reduction of 7.4%
  • Powelink’s Revised Revenue Proposal for MAR is $3.74B
  • 7% lower than Powerlink’s January 2016 Revenue Proposal for the 2018-2022 period
  • 0.6% higher than the AER’s Draft Decision due to revised capital expenditure forecast

Forecast Capital Expenditure

  • Original proposed forecast expenditure $957.1M – AERs Draft Decision proposed a reduction of 19.3%
  • Powerlink’s Revised Revenue Proposal for total capital expenditure forecast is $886M
  • 7% lower than Powerlink’s January 2016 Revenue Proposal for the 2018-2022 period
  • 15% higher than the AER’s Draft Decision

The costs/revenue and percentages have been referenced from both AER and Powerlink published documents.  There may be minor differences which could be the result of rounding and / or advising costs in smooth, nominal or real terms.

AER’s Final Determination is due to be released by 30 April 2017.

You can find more information regarding Powerlink’s proposal and the AER’s decision here.

We are experts in the National Energy Markets. Find out how we can save you money on your energy charges by contacting us here or on 07 3232 1115.

Markets move again on Hazelwood closure

Workers at Engie’s Hazelwood Power Station were today called to a meeting to be advised of the closure of the plant in March 2017.

Hazelwood has been producing low cost baseload for more than 50 years in Victoria.

The brown coal power station has been producing approximately 20% of Victoria’s energy demand and has helped make Victoria the cheapest state in the national electricity market for wholesale electricity.  This is no longer the case with both Queensland and New South Wales now cheaper in Q217 and Q317.

While the largest increases have been evident for Victoria, there has also been an impact on prices in New South Wales and Queensland. Most of the increases have been contained to 2017 prices with smaller increases in 2018.

There is often immediate market movement following announcements like these followed by a return to usual levels. Uncertainty drives volatility in prices which adds a premium to the forward prices.

The 2017 prices are expected to hit resistance today or tomorrow and then settle down over the next week or two. 2018 and beyond may increase slowly across the next couple of weeks as the market digests the news. As there is more time to adjust positions further out, longer term pricing tends to move more orderly than near-term pricing where there are strict limits on trading.

Engie is expected to make a formal announcement at their 2pm press conference.

Edge Energy Services will continue to monitor the market closely and report on impacts relating to this closure.

If you have any questions please contact your Portfolio Manager by email or on (07) 3232 1115.