Coal state leading the way to renewables

Last week in Queensland the weather was perfect. It was perfect for those at the beach during school holidays but also perfect for renewable energy.

As everyone in the NEM knows, Queensland is better known for its dominant coal generation, at times pumping out 80% of Queensland’s power supply. With the clear skies and just enough wind, Queensland became the renewable state.

Last week, Queensland’s demand was supplied by over 66% renewable energy. Solar was the largest contributor of renewable energy with wind coming in second.

Previously we have seen the state powered by 50% renewables but the 66% hurdle is a positive message for end users impacted by the reliability and behaviour of the thermal generators.

The Palaszczuk government announced their 10-year-energy plan which involved introducing two new pumped hydro mega-projects in regional Queensland and a green conversion of its coal-fired power generators. The Palaszczuk government also has recently announced upping the target of 50% renewable energy by 2030 to 70% by 2032.

Despite this increase in target, until recent years coal has remained dominant in Queensland. The government has all but ruled out the early retirement of any of the state-owned coal-fired power stations, following pressure from unions. Some could say the slow uptake in renewables is due to supply chain issues, registration, connection and construction delays while other may say it results from the government owning a significant portion of the existing thermal and non-thermal generation that is reaping high returns due to the spot and forward energy prices.

AEMO’s recent Integrated System Plan (ISP) shows the NEM will contain over 80% capacity coming from renewables by 2030. While the renewable industry in Queensland has been slow to grow recently more federal funding is being used to rewire the nation by connecting renewable energy zones (REZ) to end users. With the rewiring in place developers are less restricted in building and financing renewable projects and producing renewable energy.

Industry is also looking for renewable energy to meet their sustainability targets which leads to a market for new renewable projects. AEMO indicated there are thousands of MWs of renewable projects waiting to be built.

If Queensland followed the latest ISP, the state would require an additional 30GW of energy from renewable sources and the storage required to make it useful for end users when the sun does not shine, or the wind does not blow.

Today’s announcement by the premier outlined the $62B plan for Queensland energy and jobs. The plan includes:

  • 70% of Queensland’s energy supply from renewables by 2032
  • 80% of Queensland’s energy supply from renewables by 2035
  • Two new pumped hydros at Pioneer/Burdekin and Borumba Dam by 2035
  • A new Queensland SuperGrid connecting solar, wind, battery and hydrogen generators across the State
  • Unlocking 22GW of new renewable capacity – giving Queensland 8 times the current level of renewables
  • Publicly owned coal fired-power stations to convert to clean energy hubs to transition to, for example, hydrogen power, with jobs guarantees for workers
  • Queensland’s publicly-owned coal-fired power stations to stop reliance on burning coal by 2035
  • 100,000 new jobs by 2040, most in regional Queensland
  • 11.5GW of rooftop solar and 6GW of embedded batteries
  • 95% of investment in regional Queensland
  • Building Queensland’s first hydrogen ready gas turbine

With this announcement by the Premier, Edge look forward to more renewable generation entering the market resulting in savings for end users and the planet.

If procuring renewable energy is one of your company goals, Edge2020 can help you build a PPA to support your sustainability strategies. Contact us on 1800 334 336 or info@edge2020.com.au

 

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.

High Demand contributes to record prices in Northern States

Increased electricity demand in both Queensland and New South Wales during January 2017 has had a significant impact on electricity prices for this period.

Queensland maximum and average demand was 8 percent higher than January 2016, while New South Wales was 9 percent higher compared to the previous year.

Higher demand helped in setting record prices for both states. The Queensland spot price averaged $197.65/MWh for January 2017. The previous record for January was set in 2013 when the price was $155.90/MWh. New South Wales reached $82.69/MWh eclipsing the previous January record of $66.95/MWh set in 2001.

Higher spot prices are currently expected to continue for the foreseeable future with forward contracts for both regions currently trading above $80.00/MWh on the Australian Stock Exchange.

If you want to discuss your energy arrangements, get in touch with expert energy consultants by contacting us here or on 07 3232 1115.

Why the recent price spikes in Queensland Electricity?

Background

The average spot price for the QLD region on Saturday 14 January 2017 was $1,472.95/MWh. 2017 had already seen warm weather and an increasing volatility before Saturday however this was the first day where the 24 hour period averaged more than $1,000/MWh. This report will explore some of the reasons for the high prices on this day.

Temperature and demand

Temperatures for January have been above average in general. The lowest maximum temperature recorded so far this month has been 26.8 degrees on Tuesday 3 January 2017.This was followed by the highest maximum so far of 35.6 degrees on Thursday 12 January. Saturday 14 January had a maximum temperature of 35.0 degrees in Brisbane.

Figure 1: Minimum and Maximum Temperatures for Brisbane

The increase in demand started as soon as the maximum temperatures were above 30 degrees. This also coincided with more people returning to work and putting more pressure on air conditioned load in office buildings. Normally we would expect to see a reduction in demand on weekends but demand on Saturday 14 January was as high as many of the previous working week days.

Figure 2: QLD regional demand

The sustained period of heat meant that residential customers were turning their air conditioners on as soon as it got warm, or even leaving them on overnight. With minimum temperatures remaining around 25 degrees, it was warm from the start of the day creating a large air conditioned load during the day. The humidity levels accompanying these high temperatures also mean air conditioners require more electricity for cooling. There was a fair amount of solar PV contribution but by 6:30 PM this had largely all fallen away.

Demand for the day looked more like a working week day. In fact, it looked almost identical to the demand profile of the previous Wednesday (11 January 2017).

Figure 3: QLD demand

The price had been high on the Wednesday at $166.49/MWh but this was still a lot less than the $1,472.95/MWh experienced on the Saturday.

Interconnector

It was only Queensland which experienced unusually high prices. Prices In all other regions in the NEM were within the expected range for January.

Figure 4: Average NEM prices 14 January 2017
 

A study of the main interconnector between QLD and NSW shows that it was at times affected by lightning activity and de-rated due to heat. As part of normal operation it is also reduced by an amount which means that QLD can lose its largest generating unit (usually Kogan Creek Power Station). With Kogan Creek Power Station generating near capacity for most of the day, the interconnector was reduced.

Figure 5: Flow limit from NSW into QLD on main interconnector

The interconnector limits are somewhat optimised with load and prices which is why we see it moving around a lot on high priced days. Overall, the interconnector performed similar (or even slightly better) on Saturday than Wednesday.

The interconnector played a role but it was not the main difference on the day.

Available generation

QLD is one of the few states which still enjoys sufficient generation. The two year outlook produced by the market operator consistently shows there are no expected situations where generation is unable to meet demand even during high temperatures.

Figure 6: Available generation

Available generation on Saturday was very similar to Wednesday and there were no material changes to the mix of generators available (coal / gas / hydro etc).

Price setters

The market clears by every generator receiving the price of the lowest priced bid which can satisfy demand. There was a change in the price setter on Saturday compared with previous days. Using Wednesday 11 January to contrast we can see a number of differences.

Figure 7: Price setters by region

On 14 January more than half of all spot prices were set locally in QLD compared to less than 25% on 11 January. The prices set locally were much higher than the prices set interstate.

If we look at the technology type we can also see that coal dominated the market on 14 January displacing other sources, in particularly Hydro. With the higher prices it was easier for peaking plant (distillate and diesel) to dispatch setting prices more often.

Most of the prices (56%) were still set by coal which has a modest running cost. The fuel mix on its own doesn’t explain the higher prices unless we look at the actual behaviour on the day.

Bidding behaviour

For most participants there is a trade-off between price and dispatch. The more volume is bid in low price band, the higher the dispatch volume but also the lower the price and vice versa. Generally what we see is participants covering their contract position by bidding in at the cost of generation and then competing for dispatch, market share and prices above this.

Most of the participants in QLD seemed to have the same bidding strategy on Saturday as they had adopted the entire month. Only Stanwell and InterGen seemed to have changed their approach on the day [1]

[1] A number of other participants changed their bids, these were mainly intermediate or high priced (peaking) plant. It is typical behaviour for them to rebid if the prices unexpectedly are high

Figure 8: Stanwell bidding and dispatch

On Wednesday 11 January Stanwell provided ~2,500 MW at prices less than $60/MWh. On Saturday 14 January they had changed their bids so they were only offering ~2,200 MW at this bid band. During the day, Stanwell rebid their four Tarong Power Station units saying that demand was higher than originally expected, the prices were different than expected or that a peaking plant (Mt Stuart) had come on line. On all occasions, Stanwell moved volume from cheaper price bands to higher price bands making higher prices more likely.

The only other QLD generator which made less volume available was InterGen who reduced their available generation to 670 MW on Saturday compared with 760 MW on Wednesday.

Figure 9: InterGen bidding and dispatch

InterGen owns the coal fired Millmerran Power Station which has two units. There were a few problems with the station on the day with baghouse issues (differential pressure was too high) and steam purification for reuse. There were also a number of rebids which related to the headroom on the main interconnector being lower than expected and the prices being higher. InterGen used this as an opportunity to put more volume in higher bid bands. It must be said that when the first spike occurred in the morning, InterGen added cheap volume to have maximum possible dispatch. They did not do so for subsequent price spikes.

It should be noted for absolute clarity that as far as Edge is aware, all bids (including initial offers and rebids) were made within the market rules. If there had been more competition in the state, others could have bid in their volume to be dispatched ahead of Stanwell and InterGen. This competition would mean that the prices may not have increased and both Stanwell and InterGen would have lost out on dispatch.

Will Q1 2017 continue to see high prices in QLD?

Prices were already high, but increased on Saturday 14 January 2017. With warm weather bringing high demand there is an opportunity for participants in QLD to reduce their output and increase prices when the interconnector is at capacity.

The only real difference between Wednesday and Saturday is that Saturday is an off-peak period and Stanwell could have a different contract position during off-peak. This means that it may be more profitable for Stanwell to reduce generation and increase prices during off-peak. This could continue throughout the quarter. It is worth noting that the main competitor (CS Energy) didn’t decrease their generation. Stanwell would not want to lose market share to its main competitor and may therefore not be as inclined to remove generation in future periods as this could mean surrendering market share.