Extraordinary price movements have again hit the South Australian electricity market, with prices for “ancillary services” soaring on Thursday and Friday, drawing criticism from the renewable energy industry about the management of the grid.
Prices in the market for frequency and ancillary services – known as FCAS, and which provides stability to the network – soared to nearly 10,000 times their normal price on Thursday, taking the total bill for a single day to around $8 million. The normal annual bill for such services is $5.5 million.
On Friday, the prices were still high. While wholesale prices in South Australia traded around $21/MWh at noon, FCAS prices were running at $300/MWh in South Australia, 30 times higher than in other states.
The Clean Energy Council is outraged by the spike in prices, and is questioning why the Australian Energy Market Operator chose to allow a small number of fossil fuel generators to bid the prices up so high, when it could have found a cheaper alternative.
The event occurred on exactly the same day as a report from the Melbourne Energy Institute raised concerns about bidding practices in the wholesale electricity market, which it says may have resulted in fossil fuel generators “gaming the market” and adding up to $60 million to consumer bills.
There is growing concern across the industry about the structure of Australia’s energy market, and the ability of a small number of generators to control and set prices much higher than they need be.
In Queensland last year, a Productivity Commission report noted, around $170 million was added to the wholesale market by the bidding practices of several dominant state-owned generators.
South Australia is seen as another market where a few generators can control and manipulate prices, which is why the state energy minister is pushing for more renewable energy (to help democratise the market), another interconnector to further increase competition, and for a regulatory review of recent bidding patterns.
The latest price spike has been caused by more planned outages on the main interconnector linking Victoria with South Australia. Because South Australia will have less access to imports, AEMO wants to make sure it has enough back-up generation to keep the local network steady.
But the CEC has questioned several of AEMO’s assumptions and its choice of action.
There was controversy last October and November when AEMO took a similar course action, causing the cost of FCAS to soar to $27 million over the period.
But even with these payments, the network still tripped, and the failure of one gas generator generator to follow market instructions caused blackouts to last more than half an hour, rather than just a few minutes, in turning causing a big outage and public controversy that was wrongly blamed by fossil fuel apologists and nuclear advocates on renewable energy.
More upgrades of the interconnector are planned by AEMO in coming weeks. The CEC fears that the cost could reach $21 million, a bill that will be shared by large energy consumers and other generators.
“It is questionable whether the mechanisms that are being relied on for this service are indeed in the interests of consumers,” the CEC says in a briefing note.
It points to a lack competition to provide these services in the SA market and a lack of preparation by AEMO – even though the exact same thing happened last year and “they knew this was coming.”
The CEC questions the AEMO’s assumptions that 35MW of FCAS capacity is actually needed, and wonders why it has only sought these services from three South Australian generators, and none in Victoria. And it also questions why no consultation took place, as it says is required by the market rules.
The FCAS regime was designed back in 2002. It is specifically tailored to the prevailing generation technologies of that time, namely coal and gas generators that include complex and slow (in electrical terms) thermal steam systems.
Although there has been a call for reforms to the market to encourage battery storage, which could provide quicker and cheaper alternative, specific requests for rule changes that could facilitate that are being rejected by the fossil fuel generators and their lobby group.
Indeed, an analysis for a new grid-level battery storage project in South Australia found that it would not be economic under current market structures. The design of FCAS places no value on the very fast response capability offered by inverter-based technologies. Effectively, there is no fast-acting FCAS market in Australia.
The irony is that if the battery storage plant proposed for South Australia was to receive the amount received by fossil fuel generators last October/November and this August, it would just about pay off its capital costs in one event.
The clean energy industry also notes that renewable energy sources such as wind and solar could provide these services, but there is currently no market to encourage it to do so.
In response, AEMO said in a statement that the market was first informed of the requirement to purchase regulation FCAS during planned outages impacting the flow of the Heywood Interconnector on July 2, just four days after it was  first made aware of this maintenance work.
“This follows considerable consultation with industry from late 2015 to clarify AEMO’s procedure to purchase 35MW of regulation FCAS when the Heywood Interconnector is at a single, credible contingency,” the statement said.
“When the Heywood interconnector is on single contingency, it falls into the ‘credible risk’ category. Due to a heightened risk to power system security, AEMO limits the flow across the interconnector, and purchases regulation FCAS, required to maintain frequency after an event where South Australia (SA) separates from the NEM.
“It is important to note, the 35MW of regulation FCAS procured by AEMO equated to approximately 30% of the regulation FCAS services available on 11 August 2016.”
