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New back-up rule means end of cheap wind power in South Australia

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New rules introduced by the Australian Energy Market Operator that require significantly more gas generation to operate when wind output is high in South Australia appear to signal the end of cheap wind energy in the state.

Normally, when wind output is high, prices in the state fall, or even go into negative territory. But on Tuesday morning, when the wind output jumped above 1,100MW the actual price of wholesale power in South Australia was above $150/MWh, with some 500MW being exported to Victoria.

winds of change graph copy

Over the previous day, July 3, when the output of wind was consistently above 1,000MW, the average price of wholesale power in South Australia was more than $130/MWh, due to the need for extra gas plant, which forces the price higher.

The new AEMO requirement, quietly introduced in December, but not enforced until this week, requires three gas units to run when wind production is up to 1200MW, and four gas units when it is more than 1200MW.

If four gas units cannot be engaged, then excess wind power above 1200MW is curtailed, as occurred on Monday. Previously, it had advised that just two gas generators were needed, but appears to have taken a security-first approach.

South Australia in the past year has experienced the highest wholesale electricity prices in Australia, mostly due to the rising cost of gas, its higher dependence on gas-fired generation over other states, and because the market is dominated by just a few generation companies, who have been accused by network operators and the state government of deliberately withholding capacity and forcing up prices.

However, South Australia’s ability to use wind energy to balance out these periods of high prices caused by gas generators appears to be in jeopardy under this new rule. Normally, when there are high levels of wind generation, prices are low, or even into negative territory.

Professor Ross Garnaut, the climate policy expert and now chairman of Zen Energy, says that in the year after the closure of Northern coal generator last May, the price of wholesale electricity power was often below zero for the 12 per cent of the year when the wind blew hardest.

“The average price over this time was minus $29 per MWh (volume weighted). You heard correctly. Minus $29 per MWh,” Garnaut told an audience at a lecture at the Melbourne Energy Institute on Monday.

“Now that the Northern power station has closed, expansion of renewable energy in SA extends the number of hours when renewables set the price at very low levels. It reduces the average price of power without risk that it will cause a price spike by encouraging the departure of a coal generator.”

However, when the output of renewables is particularly weak and demand strong, the peaking gas generators come into play and push prices higher. In South Australia in the year after the closure of Northern, these conditions ruled for 35 per cent of the time, when average power prices were $171/MWh, Garnaut says.

median price graph copy

His data is supported by research from the Climate and Energy College’s Dylan McConnell, which shows that in 2015, when wind generation was above 1,000MW, there were no high-priced events and the average price was less than $25/MWh.

“So certainly from an historical perspective – it is highly unusual for prices to be so high when wind generation is above 1000 MW,” he says.

quarter averages graph copy

Another graph above, from energy analyst Ketan Joshi, shows how gas prices have risen recently as wind output fell. Normally, this would be expected to be reversed as wind output rebounded.

But those negative pricing events may be a thing of the past – at least until new rules are introduced.

Over the last few days, when South Australia’s wind output blew constantly above 1,000MW, the prices stayed high, and it seems the new rules for the extra generators will now guarantee even higher wholesale prices for consumers in the state, who have long suffered the highest electricity prices in the country.

On Monday, when the price averaged above $130/MWh, despite the high wind output, it should be noted that prices were higher in both Victoria and Tasmania, and were only marginally above the level in NSW.

Queensland prices have fallen since the state government ordered the generators to change their bidding practices, a development that has underpinned the belief that bidding practices, more than anything, have been responsible for high wholesale electricity prices, and in turn higher retail bills.

Ironically, South Australia over the last three months has experienced low wind output, with Infigen Energy reporting that wind output from its operations in South Australia and NSW were more than 30 per cent below its long-term average. Tilt Renewables has reported similarly poor conditions.

Now, as the wind returns, the new rules – which had not been implemented beforehand due to the low wind output – means that prices will not fall as usual.

The state is now destined for a sustained period of high wholesale electricity prices, just as the Labor government heads into a state poll due by next March.

The high prices will benefit both gas generators and wind farm operators, but not consumers. It may also lend the argument that wind and solar with back-up are expensive, even though most studies suggest it would be cheaper than new fossil fuels if managed properly.

The new AEMO rules were flagged just one month after a review of the state’s power security indicated that two generators would be enough to operate at all times, including times of high wind.

AEMO says the new measure will be in place “until something else replaces it”, either until the shortfall in NSCAS (Network Support and Control Ancillary Services) is filled or alternate arrangements are made available through new markets.

“AEMO strongly believes this is a required and necessary initiative to maintain power system security during a period of rapid transformation,” a spokesman said in an emailed statement.

Franck Woitiez, the head of Neoen Australia, which is building the third of three wind farm stages at Hornsdale, for a total of 309MW, says policies need to be carefully designed so that they don’t incentivise side effects like high power prices, but rather achieve an overall critical risk mitigation.

“We strongly believe storage is going to help, as well as wind farms providing FCAS (frequency control and ancillary services),” he said in a statement. “We encourage governments to support the industry in moving towards this new paradigm and not only by imposing very constraining and economically unviable rules.”

On Monday morning, just over 250MW of wind capacity was constrained, from three wind farms – Waterloo, Bluff and North Brown that the AEMO dispatch mechanism judged to be the most expensive.

But curtailments could become even more marked in the future as more wind farms are added, such as the third stage of Hornsdale, and the Lincoln Gap wind farm near Port Augusta, and others.

New rules are being proposed that will require new wind and solar farms – and any new fossil fuel generators – to be able to provide fast-repose services to system faults, but this is not expected to add significantly to the costs of those operations.

But in the long term, the renewable energy industry is convinced that the combination of wind and solar and storage will be cheaper than relying on gas.

Reach energy says the combination of wind and solar is already cheaper than gas and will be “well below” $100/MWh. Lyon Solar is also pushing ahead with solar and storage projects. Excess wind energy can be spilled into battery storage, or pumped hydro, if available.

In a later statement, state energy minister Tom Koutsantonis said that the recent pricing is not related to the changed AEMO operating procedure, “rather it is the outcome of a range of factors, including high gas prices and limited competition” in the South Australian market.

“Our $550 million energy plan seeks to promote more competition in the South Australian market, including through the construction of Australia’s largest battery, which will allow cheap wind energy to be dispatched to the grid around-the-clock, adding competition during periods of high demand and putting downward pressure on prices,” he said in a statement.

  

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  • ROSSC

    wow, i just shake my head.. obstacle after obstacle stacked against renewables..will it ever change?

  • trackdaze

    The question is if wind generation is harvested to storage is it not considered as part of generation?

    • WR

      That depends on who owns the storage. if the wind-generator owns the storage and the storage is on site, they probably wouldn’t have to pay for the power and the wouldn’t be counted as generation until it enters the grids.

  • WR

    I see that the power imported over the interconnector decreased during the last quarter. I wonder if that is due to the closure of the Hazelwood plant. Perhaps this is an opportunity for utility-scale solar to step in and provide extra power when wind-generation is low.

  • Mike Westerman

    A clear indication that SA needs to get on with the pumped hydro sites begging to be developed. But without a bit less randomness in policy, they will be hard to bank.

  • Paul

    Its not necessarily biased against renewables. AEMO must allow for a contingency and have a plan in case the largest generator in a region falls over unexpectedly – whether its coal/gas or solar/wind. I’m not sure of the arcane formula but its based on reliability standards, availability and probability. Most coal or gas kit would have availability in excess of 80%. Wind and Solar are around the 30% so that must have a bearing on the risk weighted calculation. AEMO’s job is to make sure the light turns on when the switch is flicked. It may sometimes show an abundance of caution and that may be where, with a track record of reliability shown by renewables, it changes its cautious view.

    • juxx0r

      Paul, You dont really know anything about the subject do you?

      • Jon

        Sounds to me like he knows a bit! It doesn’t help that the lights actually went out last September, so it’s understandable that AEMO take an overly cautious approach.
        If you think there is some sort of AEMO conspiracy against renewables then you’re dreaming.

        • juxx0r

          You’re telling me that they need to curtail wind in moderate winds just incase their transmission towers blow down again and that that is good risk management?

        • Suzanne Reece

          Two backup gas generators used to be plenty, provided they were turned on. How AEMO decided we needed three in moderate winds and four in stronger winds is a mystery. The lights going out in September was due to towers toppling in cyclonic winds.

        • WR

          The bias can take the form of not doing the preparation necessary to best incorporate renewables into the NEM.

          An argument can be made that both of the SA blackouts last year could have been avoided if the AEMO had been better prepared for the weather events and their respective impacts on the grid and generators.

          So the question could be asked whether the new requirements are due to the AEMO not having done the necessary work to understand the operation of the system.

      • Paul

        I’m glad that there are people in AEMO that do what they do, and yes I do know a little.

        • juxx0r

          I would be glad if they were more competent. More interested in finding a lowest cost solution. Might have to think a bit harder for that. And lord knows the government aren’t good at thinking. Credit where credit is due though, government departments are the kings of stupid questions.

  • Chris Baker

    Curtailment of wind power is an opportunity for wind power to provide dispatchable energy. When the wind energy is more than the electrical energy needed, and output is curtailed, it means that the inverters will be running at less than full capacity. These conditions are perfect to implement synthetic inertia because the power output of the inverter can be adjusted up and down to match the demand. With a little creativity wind farms in these conditions can provide both load following and frequency support without needing any synchronous generation at all.
    Crikey we need the regulator to show some nous and not be so 20th century.

    • juxx0r

      That’s cool, it’s only costing the consumer $300,000 an hour.

      As Tony Seba said, if governments get on board with renewables, they will enrich their citizens, if they keep up with this rubbish they will destroy value and create more poverty.

  • Jon

    Giles, are you aware of the new technical standards that have been imposed on new generators in SA? They are available here http://www.sa.gov.au/topics/energy-and-environment/electrical-gas-and-plumbing-safety-and-technical-regulation/compliance-and-enforcement/generation-applications and will have an even more profound impact on new renewable investment in the state.

    • Peter F

      If these standards apply to new gas plant, particularly reciprocating plant then they disadvantage gas more than wind. New wind plants have a higher Inertia constant MW per MW than gas turbines, and even more inertia than reciprocating plants. Wind turbines don’t have a negative power response like gas turbines and if fitted with synthetic inertia software can actually contribute 4 to 5 times as many MWhr secs (why don’t we just use MJ) to the grid per MW of capacity than a gas turbine can

  • Peter F

    All the more a case for grid controlled storage/demand response, whether behind the meter, (usually the best place), for grid reinforcement or at the generator. Once it is in place then AEMO can revisit the rules. Forget about why the blackout occurred it did and it has been close on other occasions, so they are prioritising reliability over cost. By the way so will SA voters. If you can say these rules have reduced the chance of a blackout by 90% but temporarily added 5-10% to power costs most people would accept the trade-off

    Once storage, VPP’s and demand response are in place and hopefully the 5 minute rule it will be seen that spinning reserve requirements can be adjusted down again as they have been in Texas. In fact if we were to follow Texas it would be a two minute rule and then even the gas plants will install batteries to reduce their fuel costs

  • bedlambay

    AEMO has conspired with state governments and operators to rip off consumers for years. Now we again see Turnbull capitulate to the LNP REACTIONARIES to crimp renewables.

  • Grpfast

    Unless SA government finds away to disconnect the state from this crap, its going down. Not only is our industry under considerable technology pressure but the voting public are already over it. The only one to cop the frustration of the state power consumers is the government.
    If I was a conspiracy believer, I would think there are vested interests at work.

  • Chris Fraser

    I’m undecided about the need for the extra gas generation. As we have come to learn, high wind capacity is supposedly easy to forecast. Wind is not affected so much by storms as much as the weaker transmission system linking them all together. However, AEMO appears to have now taken energy supply security very seriously indeed.

    • hydrophilia

      Yes, but curiously unworried about sudden interruptions in FF generation. As various folks have pointed out, one is far more likely to have huge variations due to transmission or conventional plant outages than due to renewables.
      As some politician once said, you allow me to write the rules of the game and I’ll win every time.

      • neroden

        The invididual gas turbines are (a) far too big, particularly at Torrens Island and Pelican Point, and (b) far too concentrated, with way too many of them in the same location. Though it’s not as bad as the giant nuclear plants in the US (sigh)

        Having wind and solar dotted all over the map will create a much more robust grid — you will very rarely have the whole grid go out at *once*. Each subgrid needs a way to maintain frequency control — and to resynchronize when they’ve been separated and need to be rejoined — and that’s where batteries come in.

  • Robert Comerford

    I’m obviously getting old. Why when you have so much generation from wind would you need to run a fossil fool generator?
    I would have thought that fossil fools are only turned on when renewables cannot do the job?

    Obviously I am getting sillier by the day!

    • neroden

      The government wants to run gas generators even when they’re not needed, just to burn gas for fun. It’s like flaring methane from oil wells: generate global warming for no reason other than sheer waste and maliciousness.

    • MacGyver

      I’m assuming it’s because of grid stability.
      Any fluctuations in demand have to be covered by an increase in supply. Problem is when the amount of wind gets so high it becomes harder to quickly respond to any changes in demand (and supply).

      You do have to wonder how Denmark doesn’t have any issues with this 🙂

    • Darrell Anthony

      Because renewable extremist keep saying all we have to have is power generation. The problem is that the science of grid stability through varying large amounts of wind and solar renewable energy is still years in the future. Now everybody is paying the piper for their misleading and over enthusiastic statements. Let’s hope Elon Musk can pull everybody’s rear end out of the fire. But it’s going to cost everybody.

  • Robin_Harrison

    Never underestimate how desperate and dirty the fossil fools can get, particularly when they own so many politicians and regulators.

  • Michael Murray

    Oh good-oh. Something to add to AGL’s planned 18% price increase in SA.

  • Mark Roest

    Does this apply to using battery storage to maintain wind economics? “If the wind plant has installed some storage, flywheels or batteries to
    smooth output, arbitrage power prices and participate in the FCAS market
    then it will have have higher revenue and easily meet the FCAS/inertia
    requirement.”
    Would batteries at US$100 or US$150 per kWh and 5,000 to 10,000 cycle lifetimes be an economical solution to this mess? Would they qualify under the regulation, to stand in place of gas? If not, is there sufficient political muscle to make it so?

  • Ian

    3 gas generators required when wind generation is less than 1200MW and 4 required when wind generation is above 1200MW. Is that a typo? Rather counter-intuitive . Lobbying power must naturally be proportional MWH produced. The large wind farm operators are not small fry, how are they going to take this crazy ruling? I can’t see them doing this lying down. We are sure to see a bun fight between these big generators for market share.

    • wholisticguy

      The wind farm operators would be loving it. It pegs their price to the cheapest gas. Previously they would have been paying to produce under these negative pricing events, now they are looking at a guaranteed $50MWh, regardless of demand because it will be exported to Vic.

      It’s the customers who pay. What should be near free renewable energy for that period is now artificially inflated to the gas price.

      • Most wind farm operators are on fixed contracts, so it makes no difference at all. But the customers pay.

        • wholisticguy

          The floor price of those contracts will now be driven up closer to the price of the gas, because the wind operator could forgo the contract price certainty and just sell on the spot, knowing that the gas gens will set that price. My response to the above comment is that this is a good thing for wind operators.

          Ironically I think this is a bad thing for the gas generators. We know they were holding out anyway, and now maintaining that known minimum price will encourage more, cheaper-to-build wind to grab that artificial difference.

          It sounds strange, but I could see this actually adding more price certainty, encouraging more generation and bringing down the cost of power by reducing the exceptional $14,000/MWh events due to artificial wind overcapacity.

          It’s a terribly inefficient way to do it, but setting a price just means the cheapest operators will benefit from the difference. Market rules are pretty loopy and can have illogical and unintended consequences as players game them.

          This is compounded by the (relatively) low capital investment costs and fast paybacks on renewable generation. The rules take years to write, review and implement. Previous slow moving generation investment with 15 year paybacks couldn’t bank on a artificial opportunity to stick around. But renewables can be in and out before the regulators have time to fix the loop hole.

  • Tom

    I wonder what the definition of a “gas generator” is?

    The SA government is looking at purchasing/ building 250MW of gas generation and owning and running it themselves. If this was 5 X 50MW OCGTs, then does this count as 5 generators?

    The government could just look at the wind forecasts, set the price for their own generators at $40/MWh when it’s supposed to be windy, and let the rest take care of itself. The wind turbines would still get a good price, they could produce as much as they want, the other gas generators could either compete or be undercut, and everyone’s happy.

    As an aside, once the government installs their 100MW/100-200MWh of battery storage, and especially if this storage is decentralised into 4 or 5 different sites, then this would largely nullify the need for 3 or 4 gas turbines running at these times. 200MWh is stuff-all energy, so I’d assume these batteries would be kept 70% full most of the time for FCAS purposes rather than for energy arbitrage.

    Common sense isn’t always reflected in “the rules” though.

  • Mike Dill

    Damn good reason for a wind farm operator to build a small (50MW) peaking gas generator with a lot of storage. Buy the curtailed power for almost nothing, sell it as part of a ‘gas generation plant’.

    • Tom

      There might not be a lot of incentive for the wind generators to do this at the moment – the ones that were not curtailed were still getting $120/MWh for their energy.

      Why would they undercut the private gas generators with their own OCGT and force down the price of energy for the rest of their own generation?

      • neroden

        The curtailed ones have free energy which they can sell later. That’s the incentive.

  • Kevin O’Dea

    The power of the Greenhouse Mafia lobby groups is on full display here.

  • Brunel

    “when wind output is high”?

    Sounds like there needs to be a UHVDC line from QLD to NSW to Vic to SA – then SA can be 100% powered by wind almost 100% of the time.

  • MG

    The reason for this “3/4 gas units at all times” requirement is due to insufficient system strength (fault current) in SA – nothing else.

    Can someone explain why modern inverters / batteries are apparently incapable of supplying fault current, and only the gas turbines can supply it? Surely there’s some forthcoming technology (SA govt battery?) that is going to fill this gap (or enter NSCAS contract with AEMO) so that the wind limitation can be removed at some point?

    • neroden

      Batteries can supply fault current. AEMO just likes to pretend they can’t, because it’s in the bag for fossils.

  • Les Johnston

    Regulators often bring in new rules with unintended side effects. It is to be hoped that South Australians are not punished by higher electricity charges without that charge being transparent. Propping up the number of gas generators required to be operating as a function of total power consumption is a disfunctional regulation.

  • AussieJoe

    Wind generation in SA in June was very low. No wind, no energy. That’s the real story.

  • Malcolm M

    In practice the 3 generator rule means there is a minimum of 300 MW of gas generation, because the 3 generators must be of a minimum size, and must be on the 275 kV network. Data from the Aneroid Energy website indicates that in the early morning hours of 3 July there was a total of 300 MW of gas generation from 3 complying gas generators (Torrens Island B Units 1, 2 and 4, each at 40 MW), plus the Osborne generator at 180 MW. Osborne does not contribute to the minimum inertia requirement because it is not on the 275 kV network. If Osborne didn’t have a contract for its co-generated steam, it could have shut down for the early morning period. Why it couldn’t stop for that period is a mystery – according to Wikipedia its cogenerated steam was used by Penrice soda, but that this factory closed in 2014. Are there any other clients of its steam ?

    • neroden

      Oh good grief….this is such an arbitrary rule. Which utility company is getting paid by this rule? The exclusion of Osborne implies that this rule is specifically geared to profit one particular company. Probably the one running Torrens Island?

    • Ian Fordham

      Osborne does tend to run as “baseload”, it is a very efficient generator as is Pelican Point. Wind currently is outputting 1470MW and with TIPs 3xB units around 40MW all day, (now just ramped to 60MW) PPCCGT at 240MW and Osborne at 180MW there is plenty of thermal generation online (although as you stated Osborne doesn’t count to the minimum requirement). Hence why all day SA is exporting to VIC. It will be interesting to see how often the wind gets curtailed, its only been a few hours so far. I am not sure how much wind AGL have in SA but they may have an interest in keeping some TIPS online to ensure their wind is despatched?