Depleted batteries and very expensive gas: How a two-day heatwave led to a near doubling of quarterly prices

The Australian Energy Market Operator, and various government authorities, have made a point in recent weeks of highlighting the benefits of battery storage – both grid scale and household – in some key events over the past summer.

CEO Daniel Westerman this week pointed to January 27 in Victoria, a day which smashed the record for underlying power demand as temperatures hit 43°C, but which was barely noticed by the market operator because of the benefits of home batteries, virtual power plants and grid-scale storage.

Westerman said the event, and others over the season, underlined the case that batteries are delivering benefits in both grid reliability and security, and in lower wholesale prices.

“These batteries, large and small, are fundamentally changing the way electricity is produced, consumed and priced across the day,”he told the Australian Energy Week conference.

“During the first three months of this of this year, grid-scale batteries in the NEM more than tripled the amount of energy they shifted from daytime to the evening.”

Indeed, in its analysis of the quarter across the whole grid, AEMO noted that evening peak prices had fallen as battery discharge reduced the reliance on high-priced gas and hydro generators, and that had played a critical role in bringing down wholesale electricity prices in most states across the quarter.

“Battery discharge during peak periods contributed to lower peak prices … and reduced price volatility across most regions,” it wrote in its Quarterly Energy Dynamics report.

But not, it turns out in South Australia. The country’s most advanced renewable state – it has a world leading share of 75 per cent wind and solar and a target of 100 per cent net renewables by the end of 2027 – was the only state to suffer an increase in wholesale prices over the quarter.

Critics, of course, blamed it on renewables.

They usually do, even though South Australia’s sometimes spectacular price spikes are a combination of geography (it is at the end of a long skinny grid), its fuel mix (it has historically had the greatest dependence on gas), and its lack of competition (the market is dominated by a small group of powerful companies.

But on this occasion it was the result – according to a recent report by the Australian Energy Regulator – of two incredibly hot days on January 26 and 27, where the price spikes across little more than 24 hours added an astonishing $63 a megawatt hour to the quarterly average wholesale price.

All the ingredients were there. A searing heatwave that lifted temperatures in Adelaide to 44°C and provided little relief overnight, multiple network constraints due to problems in other states that slashed the amount of energy imports, and relatively low wind conditions.

This allowed the dispatchable energy sources in the state – fossil fuel generators and its growing fleet of big batteries – to more or less choose their price.

Batteries were bidding lower than their fossil fuel counterparts, but because of the sustained nature of the heatwaves, and because most of the current fleet of operating batteries in the state have no more than two hours of storage, some of them soon ran out of charge.

The AER report notes that in the evening of January 26 and the morning of January 27 there were several dozen “rebids” from Neoen’s Blyth and Hornsdale batteries, Epic Energy’s Mannum battery, and Vena’s Tailem Bend battery – mostly blaming a low state of charge for the withdrawal or repricing of capacity.

The impact was particularly severe on the morning of January 27, a Tuesday. Demand was still high – double the normal average for this time of day, and network constraints were still severe.

It turns out that a relativeily small amount of 30 MW additional low priced capacity might have been enough to avoid really high prices spikes.

However, the AER says, between 6.08 am and 8.13 am, Epic Energy removed up to 100 MW of low-price capacity at Mannum battery due to state of charge management.

Neoen shifted 59 MW from above $3,000 per MWh (34 MW of which was priced above $14,000 per MWh) to below $1,000 per MWh at the Hornsdale battery (presumably to avoid dispatch due to its low state of charge).

Just after 8am, this 59 MW of low-priced capacity at Hornsdale was then withdrawn due to the unit’s state of energy approaching lower operational limits, the AER says in its report.

And at about the same time, AGL shifted 60 MW of capacity across three units at its Torrens Island peaking gas generator – from $138/MWh to a whopping $20,300/MWh.

The result of all this? The multiple price spikes over $5,000 per MWh over the two days added an astonishing $63 to South Australia’s quarterly volume-weighted average price.

Without the price spikes, South Australia would have enjoyed a quarterly wholesale electricity price average of $81/MWh. Because of them, it jumped to $144 per MWh.

The lessons here? You really don’t want to be counting on peaking gas or diesel generators but for an emergency, and the more battery storage, and the longer duration, the better.

When the first Tesla big battery at Hornsdale was built in 2017, it quickly demolished one of the prevailing gas cartel’s favourite market ruses, the manipulation of prices in the small frequency control market.

It does not yet have the capacity needed to eliminate this from the broader market, although it has made a dent.

The addition of more home batteries from the federal government’s successful rebate scheme will help, as AEMO’s Westerman says is already clearly demonstrable across most parts of the main grid.

And, so too, will batteries with longer storage. South Australia has just awarded contracts to six new big battery projects that will be required to make available a minimum 517 MW of capacity over an eight hour period (4,136 MWh) to address precisely these sort of events.

Most of the new big batters being built in the state – and there are at least a dozen under construction or about to start – are being sized at around four hours of storage.

Big batteries have almost eliminated peaking gas in other states – and helped reduced wholesale prices along the way – but South Australia still has some way to go, even through battery storage claims market shares of up to 40 per cent of local demand at times, and AEMO allows thermal capacity to run as low as 40 MW.

The newly energised Project EnergyConnect, the new (but undersized) transmission link from South Australia to NSW will also help, reducing network constraints and encouraging more renewable capacity, less curtailment and more storage.

It will also allow AEMO to reduce the capacity of thermal generation to zero, allowing the state grid to run on a “real” 100 per cent renewables. That will be an important landmark and signpost to where the rest of the grid is heading in the future.

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