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Know your NEM: Coal reliability issues will get worse

Figure 2 Victorian coal generation last seven days. Source: NEM Review
David Leitch
11

What’s interesting at the moment.

10 Year bond rates rose during the week ended January 12, up 18 bps (basis points) in Australia and 15 bps in the USA. This is concerning to renewable energy financiers. Only last week we were saying the change didn’t make much of a difference, and it still doesn’t.

Still we don’t like the trend.

We are adding a new table to “Know your NEM” with a few key non electricity and gas variables. We will add in the lithium price in due course.  The new table looks as follows right now:

Figure 1 Key commodities. Source: Factset
Figure 1 Key commodities. Source: Factset

So far, despite thermal generator outages, the system is coping

Nothwithstanding some high prices caused by the Loy Yang B outage the system coped OK last week. Our learnings are as follows:

  1. The 8 thermal coal generators and maybe 28 units of those generators in NSW & Vic continue to have reliability issues that will only get worse. To me it’s astonishing that the AEMC doesn’t seem to understand this issue one little bit. Its “Draft Frameworks Review” two hundred and something pages published in December 2017 preferred to focus on the AEMO’s demand forecast record and whether the contract market was working. There is just so much wrong with the AEMC at the moment it’s hard to know where to start, but we’ll get there.
  2. South Australia is the State that gets squeezed when Victoria has a problem

None of this is surprise. Each of the Victorian brown coal generators only ran at full capacity for part of last week.

We actually agree with energy minister Josh Frydenberg in that if Snowy 2 had been up and running it could have assisted. But it needs a lot of those events to justify Snowy 2.

Figure 2 Victorian coal generation last seven days. Source: NEM Review
Figure 2 Victorian coal generation last seven days. Source: NEM Review

Turning to the weekly action

Despite some warm weather consumption across the NEM was down, driven down by lower consumption in NSW and QLD only partly offset by much higher consumption in Victoria and South Australia. For the CYTD consumption across the NEM is flat.

Note that our consumption measure excludes behind the meter solar

Futures prices for both FY19 and FY20 fell, particularly in NSW but also in other States except South Australia

Gas prices are essentially flat on last year. Gas generation in South Australia and Victoria is actually down a touch in total for January to date on last year. So that no special call on gas volume has been needed.

Share prices were weak across the board typically underperforming the ASX 200 which lost 1%. Lithium shares took a cold shower on the news that Chile and the world’s largest lithium producer SQM have reached agreement on expansion of SQM production.

Notwithstanding that news and despite the pessimism of many in the Investment banking research community we are hopeful demand for lithium can keep up with supply.

Almost any amount of new supply. Still lithium prices, although only a small part of the battery cost will need to come down in time.

Figure 3: Summary
Figure 3: Summary

Share Prices

Figure 4 Selected utility share prices
Figure 4 Selected utility share prices

 

Figure 5: Weekly and monthly share price performance
Figure 5: Weekly and monthly share price performance

Volumes

Figure 6: electricity volumes
Figure 6: electricity volumes

Base Load Futures, $MWH

Figure 6: electricity volumes
Figure 6: electricity volumes

Gas Prices

Figure 12: STTM gas prices
Figure 12: STTM gas prices

 

Figure 13 30 day moving average of Adelaide, Brisbane, Sydney STTM price. Source: AEMO
Figure 13 30 day moving average of Adelaide, Brisbane, Sydney STTM price. Source: AEMO

David Leitch is principal of ITK. He was formerly a Utility Analyst for leading investment banks over the past 30 years. The views expressed are his own. Please note our new section, Energy Markets, which will include analysis from Leitch on the energy markets and broader energy issues. And also note our live generation widget, and the APVI solar contribution.

David Leitch

David Leitch is a regular contributor to Renew Economy and co-host of the weekly Energy Insiders Podcast. He is principal at ITK, specialising in analysis of electricity, gas and decarbonisation drawn from 33 years experience in stockbroking research & analysis for UBS, JPMorgan and predecessor firms.

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Comments

11 responses to “Know your NEM: Coal reliability issues will get worse”

  1. Joe Avatar
    Joe

    Snowy 2.0 is still just a twinkle in Two Tongue Turnbull’s misty eyes.

  2. Peter F Avatar
    Peter F

    So by this time next year SA will have another 450 MW of wind and 500 MW of solar and probably 200 MW more storage behind and in front of the meter. The wind turbines, particularly those at Coopers Gap will be designed to benefit from thermal winds on hot afternoons so the combined wind and solar contribution on a day like Friday can be expected to rise from 150 to 600 MW in the same weather conditions. Over a year the new resources will contribute 2.6 TWh to the grid. Some of this excess power will be exported but as SA’s total demand is only about 12 TWh that represents a jump from 50%+ to around 70% renewable power supply before any of the capacity from Lyon, Equis, Onesteel or DP Energy come on line

    1. Kevfromspace Avatar
      Kevfromspace

      Holy #&$@!

  3. Malcolm M Avatar
    Malcolm M

    Another lie: “If Snowy 2 had been up and running it could have assisted”. Whenever Vic prices were high over the last week, power flow from NSW to Vic was constrained by transmission capacity to 700 MW or less. The Snowy 2 proposal includes a new 330 kV transmission line with a capacity of ~700 MW from Murray to South Morang. This transmission investment alone would have solved Victoria’s capacity problem without any new generation, because on days of high Vic demand such as 18 January, NSW generators close to the border such as Uranquinty and Tumut 3 either didn’t generate at all, or only sparingly. Why invest in Snowy 2 when transmission investment alone would solve the problem ?

    1. technerdx6000 Avatar
      technerdx6000

      Transmission is so key. I don’t know why the government persists in trying to mislead the public on these issues.
      Not only should they build another transmission line from NSW to Vic, there should also be one build between NSW and SA

      1. Malcolm M Avatar
        Malcolm M

        I’m not yet convinced about the business case for the SA-NSW connection. SA will soon be a net exporter at times of either high solar or high wind, and the 220 kV line within NSW will soon be loaded up to close to capacity with solar from the Balranald area and wind from Silverton. These will have preferential access to the NSW market. There are also huge line losses, for example the Broken Hill solar farm receives 20% less than the NSW price because of line losses. Most of the market benefits of a SA-NSW link would be addressed by much smaller investments increasing the Vic-NSW capacity.

        One of the cheapest investments in Vic-NSW capacity would be to install a third 330 kV circuit for ~200 km between South Morang and Dederang. There already easement space for another circuit, which should speed up the approval process. From Dederang into NSW there is plenty of capacity, because there are 2 circuits to the Murray power station and a third circuit to Wagga and thence Tumut 3. A new line should increase capacity by 700 MW, providing better access to peaking capacity at Uranquinty and Tumut 3.

        There is also a proposal for a 500 kV line from northern Melbourne to Kerang, Darlington Point, Wagga, Tumut 3, then to Sydney. This would open up a lot of investment in large solar in the Riverina, allow better sharing of peaking capacity, and sale of excess wind power when
        it’s windy in the southern States.

        1. Moppa Avatar
          Moppa

          Malcolm, I think you’ll find that a generator at Broken Hill earns 20% more than the RRN spot price, not 20% less. So connecting a small amount of generation at that location will actually be beneficial because of the losses involved in getting power from (notionally) the RRN to serve the local (Broken Hill) load.

          Your argument may still hold though, as the same may not be true of a large new generation source, such as an interconnector. In that case the energy available would likely exceed the local load and therefore incur losses in reaching other locations.

        2. BushAxe Avatar
          BushAxe

          A big part of the SA-NSW interconnector is opening up Eyre Peninsula’s wind potential and solar in the Riverland/Riverina area.

    2. Ray Miller Avatar
      Ray Miller

      Agree with you Malcolm blind Freddy can see the daily energy flows on the interconnects and prices. AEMO has already identified a number of critical transmission investments which would return a high RIO.
      But I think as David has pointed out the reliability of the intermittent coalers has not been factored into transmission plan! And while on the subject one could make the case for the plants the poorest reliability to fun the much needed extra transmission support. As for the AEMC, time to throw them overboard or under the bus or both!

    3. David leitch Avatar
      David leitch

      Malcolm M. Thanks for the update on the transmission constraint which I hadn’t realised. Just for the record that doesn’t make the “If Snowy 2 had been up and running it could have assisted” a lie. If Snowy 2 was the most economic pumped hydro proposal out there surely there would be more support. Investment has to be justified and in a perfect market the highest return investments are undertaken first. Part of the problem with Snowy 2 is that as public investment competing with private sector proposals the investment case deserves careful review.

  4. digicle Avatar
    digicle

    Am I missing something? Did Redflow just jump 35% without rating a comment?

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