Graph of the Day: What really causes the biggest price spikes? | RenewEconomy

Graph of the Day: What really causes the biggest price spikes?

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Answer: It’s not renewables, or the lack of them. Most are caused by network problems or failing fossil fuel plants.

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This graph caught our eye. It comes from one of the regular weekly updates from the Australian Energy Regulator, but this one summarises some of the major events over the past two years.

In the graph above, the AER has tracked the major price spikes across the National Energy Market – and please note that these are weekly prices, rather than prices that reflect the normal half-hour settlement period. So no $14,200 prices here.

The causes outlined by the AER are pretty clear – mostly a mixture of plant problems (read, failing coal or gas generators), network faults, and high demand associated with high temperatures in summer. The lack of wind was mentioned once.

This next table is interesting too. We are taught to expect increased volatility as the share of renewables increases, but this table tells us otherwise.

Over the last year, the number of price spikes has fallen dramatically, possibly because of the increased scrutiny on bidding behaviour of the big generation companies, particularly in markets with little competition such as South Australia and Queensland.

South Australia remains the most volatile electricity market, as it has always been, but coal dependent Queensland (7 per cent renewables) and NSW also had high volatility.

Queensland’s was significantly reduced after the state government told its state-owned generators to pull their heads in, and while the number of price spikes also fell in NSW, it wasn’t far behind South Australia.

Even Victoria had less volatility in the first full year after the closure of Hazelwood.

This next one summarises the average prices – showing that all states except Victoria and Tasmania experienced falls in average spot prices. Victoria, because more expensive gas and more costly black coal in NSW played a greater role.

And finally, the AER notes, the market price cap for wholesale markets has risen to $14,500/MWh from $14,200/MWh.

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  1. john 2 years ago

    As every study has shown it is not Renewable Energy it is gaming the system because of the system put in place to ensure a total rip off of consumers this is madness end of story.
    Putting in place a whole lot of Retailers who do absolutely nothing is another blithe on the system how stupid are the people who put up with this blatant rip off.

    Evidently the people are extremely stupid because they embrace this ripoff.

    Welcome to the age of the educated Idiot that is what the country is full of no more comment can sum up the stupidity more than the system in place.

    Because of the gullibility of people the political system will take advantage of their stupidity and elect idiots to parliament and the outcome is this kind of rubbish.

    I am sorry but honestly power delivery is a simple exercise make it deliver it no need for and other person or identity in the system.

    • MaxG 2 years ago

      Yep, you’ve figured it out… and once you get there: the wilful ignorance and stupidity combined with greed in our society, you’ll realise that even a revolution will not bring any improvement until human’s change their behaviour to true altruistic values.
      In my case: I will be dead before this will happen… hence, I care less by the day.

  2. Brunel 2 years ago

    A UHVDC transmission line from WA to NSW will solve a lot of problems and ensure that South Australia does not pay any more for electricity than a neighbouring state does.

    It will also allow South Australia to export its wind power when it has a surplus.

    • john 2 years ago

      Yes very true in fact an East West inter connector to deliver wind power from the southern fringe of the continent as well as the solar resources would seem logical however the cost to build even using UHVDC may be a mitigating factor.
      A cost study as to the cost over a time frame against the underlying cost of energy lets say $40 per MWh against the present coal producers at $50 to $80 over time may show it as a viable and good outcome.
      Mind there is a need for a very large amount of RE to replace the present producers of power.

      • Peter F 2 years ago

        No it wouldn’t. A back of the envelope calculation shows that UHVDC is far too costly where we already have far more than adequate local renewable resources

    • Marcus Whitley 2 years ago

      Someone would have to make a really good case for the economic viability of such a cable, you have to remember these are huge infrastructure projects for a country of 25 million people.

      • john 2 years ago

        Very true Marcus however there is a strong case to look at the long term cost of power and delivery.
        I know because of the small population and the size of the country it does present problems of capital cost over delivered cost of energy.
        However the exercise should be looked at.

      • Brunel 2 years ago

        But the population is growing by 400,000/year and we are on track to be a nation of 40 million people.

        It is still a better use of money than building 12 diesel submarines.

        A transmission line already runs from SA to QLD via Vic. We could replace it with a UHVDC transmission line and cut the transmission losses.

        • Marcus Whitley 2 years ago

          There are definite long term benefits to it, but it is interesting that on one hand you have economical cases for fringe areas of the grid to disconnect completely, while at the same time having arguments for more interconnection across the nation.

          These options all need to be looked at on their merits and assesed accordingly.

        • Nick Kemp 2 years ago

          “It is still a better use of money than building 12 diesel submarines.”

          Almost anything is better than that

      • Joe 2 years ago

        A bit of nation building by bringing WA into the national energy grid can’t be a bad idea. Plenty of sun shining on WA, plenty of wind blowing in WA, lets feed it into the national grid. As Brunie mentions below, we / Australia have no problem stumping up $50billions and counting for those super duper new subs, I think WA’s RE resources is a better spend of money.

        • My_Oath 2 years ago

          Yes it can be a bad idea. You’ll attach my grid to the NEM disaster over my dead body!!!!!!

    • MacNordic 2 years ago

      Such a line (WA- NSW) would be around 3000km long. Cost estimates for overland lines are a bit difficult to come by, but some data suggests 190,000US$/km for a bipolar HVDC line, with added terminal costs of 190 million US$ each*.

      Important to remember is the fact that the transmission here is strictly point to point (adding side lines is theoretically possible, but has only been done two times, called a “multiterminal link” – but you need at least one additional substation @190million. Problem is the regulation of the flow, apparently).

      Losses of around 9% (3%/ 1000km) and a reliability of 97%, mostly due to complex equipment. With Australian rules, spare backup capacity would have to be held in reserve on both sides, as with current interconnectors, IIRC. Or you have to add a second interconnector…

      The cost side: Upfront cost would be (at least) around 1bn US$/ 1.3bn AU$. Running cost: O&M 5%, capital cost at ~10% and the guaranteed return for the owner – >10% pa? Lets just assume 25% – 325 million AU$ per year of operation. Without second line or backup costs.

      You could build 200-250MW of RE generation with that – per year. Additional PHES, wind or solar. Or storage batteries, if you prefer.

      Other sources give 450million US$ for a 1000km/ 2GW Kenia- Ethiopia link.

    • Peter F 2 years ago

      I am sorry but even in emergency situations you have to look at “bang for the buck”. A dual circuit UHVDC line from Perth to Sydney with two or three connections along the way would cost about $10 b +/- For $5 b you could build 1.2 GW of wind and 1 GW of pumped hydro at each end and deliver more power more reliably
      One of the lessons that has stuck in mind from my Engineering Masters course 40 years ago was “Work back from the load – then minimise the load”
      A few years ago the NREL did a study which showed that California could supply 73% of its load from 16% efficient rooftop solar. Extrapolating from that and using 20% efficient panels that are now becoming available we should be able to get 90%
      Spain has a similar climate to most of Australia and a much higher industrial share of the economy. Electrical energy use in Spain per $ of GDP (at PPP) is 30% less than ours.
      Combining those two numbers If Australia focused on energy efficiency first, which generally pays for itself in energy savings, then local generation i.e. solar on every suitable roof we can generate 80% of the energy we need just from solar PV including for Aluminium smelters etc within 50-60 km of the load. Wind, biomass, controlled demand and some storage will do the rest.
      Rules for a new electricity system:
      1. Make the load as efficient as possible – Australia is about 30% behind current practice and 50-60% behind best practice
      2. Generation as close to the load at the load – see above
      3. Use controlled loads as much as possible- water heating/ water pumping/ pool pumps/ ice making to use energy when it is available
      4. Install high CF generation, tracking solar, solar thermal small widely spread windfarms with high CF turbines to minimise the generation gaps
      5. Install storage as close to the load as practicable
      After following these rules there is probably no case anywhere for UHVDC in Australia

      • Mike Westerman 2 years ago

        Excellent Peter: coherent, concise, objective.

    • Connor 2 years ago

      Even expanding the WA grid to allow transmission from Perth to Adelaide would be a nice start. Of course, there are pros and cons, but overall it seems like it would allow for much more renewable generation in WA overall, especially outside of the SWIS

    • My_Oath 2 years ago

      How about SA store their own surplus wind energy, then use it when needed.

      ensure that South Australia does not pay any more for electricity than a neighbouring state does.

      Eh? Cos connecting to Victoria was such a success on that front? And who pays for the cable anyway? If it is to the benefit of SA, then SA should be paying on a fair share basis. If that doesn’t reduce prices, it shouldn’t go ahead when there are clearly better options (storage in SA, combined with more SA generation).

  3. Ian Smith 2 years ago

    In the interim a reduction of the cap from $14000/MWh to something like $300/MWh would be an interesting development.

    • Peter F 2 years ago

      $300 is probably too low because you have to maintain a generator in working condition all year to operate for 20-200 hours. To make peaking plant worth installing you either need capacity payments or very high peak prices.
      The UK and Spain in particular have been spending billions on capacity payments most of which have gone to obsolete and not necessarily very reliable technology which would have been there anyway and in a sense have crowded out new more efficient technology. WA has built diesel plants that have never been used under a capacity payment scheme
      $14,500 may be too high but it is closer to the right answer than $300. A 5/5 rule would still allow very high returns for incremental capacity but would inhibit much of the egregious behaviour seen in recent events

      • itdoesntaddup 2 years ago

        It is not correct to say that “obsolete” capacity would have been there in the absence of capacity payments. Those coal stations that have not obtained capacity agreements have simply closed. Meantime, there has been a large scale installation of diesel STOR as being the cheapest capital cost reserve capacity, even if the operating cost is quite high.

        You are of course quite right to say that backup capacity has to be able to earn its keep, otherwise you simply get blackouts when there is a generation shortfall. The problem with renewables is that as penetration increases, the need for backup capacity does also, driving up whole system costs. Moreover, absent cheap storage, there are real limitations on how much wind and solar can provide across a year. You only have to look at places like King Island to understand that there is a need for dispatchable backup capacity even where wind and solar capacity can meet 100% of demand in favourable conditions, and that achieving over 70% renewables generation over a year makes no kind of economic sense.

        • Peter F 2 years ago

          I will accept your correction. In the case of both the UK and Spain (and parts of the US and Germany) pushing minimum prices below economic levels for any form of generation so delaying the replacement of old capacity and negatively impacting the economics of more modern thermal plants as well as renewables.
          I should have said Excess obsolete capacity staid on line.

          Re your 70% figure it is probably not far wrong at this moment in time, but it is not fixed in either a thermodynamic or economic sense.

          There is a rule of thumb around that says the maximum economic contribution of a power source is its Capacity factor. On that rule modern wind farms in Australia are 45%+ and tracking solar about 28%+ so combined we reach 70%. However if we add in some biomass (mostly bagasse, food waste, sewer gas and sawdust), waste to energy, landfill gas etc that can economically provide 2-5% and hydro currently provides about 7%. Then Solar thermal is cheaper than coal at export prices for the coal, so it is reasonable to suggest that the 70% number will be more like 85-90% in 5-7 years time.

          I think there would be very few readers of Renew Economy who would not be satisfied with that target, when we get somewhere near it then we can worry about the hard stuff

          • itdoesntaddup 2 years ago

            Unfortunately, if the wind isn’t blowing, or the sun isn’t shining, you need to have full backup for that – not just some extra capacity on the side. Try checking what you would have needed for keeping supply going over June in Australia, where I understand that wind generation was rather disappointing – and solar was limited by winter.

          • Mike Westerman 2 years ago

            Again you are overly conservative in your back up estimate in an immediate sense and likely horribly wrong long term. The limit on solar in winter across most of Australia is political, not climatic – most of Australia has clear skies and we are mostly so close to the equator that the decline in incidence is minor. Fortunately a surge in installation of solar is now rectifying this, coupled with a practical realization by developers of the need to firm a percentage of their output. But it is only a percentage because even now most energy consumption is in daylight hours but we have not seen much of a shift yet in demand to chase lower daylight energy costs – this is only just kicking off.

          • Connor 2 years ago

            Love reading this polite and coherent debate, makes a pleasant change.

          • Peter F 2 years ago

            Wind in June averaged a little under 15% CF. This was from a fleet that has about 30% annual CF. However the newest wind farms are running at 48%, while even higher CF wind turbines are now available. So by the time the wind fleet has grown by a factor of 7 which it will eventually need and CFs continue to improve (NREL is predicting 65% for the best sites) we will have a minimum 25% over a month. 25% of 35 = 9 GW which is 40% of average June demand. Even in winter with probably 30 GW of rooftop solar (8.5-9 by the end of this year) and 30 GW of utility plants will supply an average of 9 GW with existing hydro at 4-5 and biomass etc at 2-3 gives an average of 25 GW when demand averaged 21.5 GW.
            We really don’t have a problem.

          • itdoesntaddup 2 years ago

            It’s not the monthly average that is critical, but the length of the lull on minimal to low output that matters. You still have a problem.

          • Peter F 2 years ago

            It was you who raised the month of June. Daily lulls are relatively easy. You will notice none of the above included pumped hydro or batteries or for that matter a little bit of gas which I don’t oppose.

            It is not bad days that investors in wind and solar worry about but good days. We have had several days in a row where wind has been running at 70%+. 65% of 35 GW supplies all the power we need, throw in some solar during the day and hydro in the evening and wind and possibly solar plants are going to be curtailed so the economics of building batteries or contracting pumped hydro become pretty obvious. So it can be expected that generators will provide/contract about 6-8 GW/30 GWh of storage to protect their revenue
            Regardless of bankers working out that a battery takes 10 years to pay for itself, Australians are installing them by the thousands because if they have cash in the bank which is earning 1.5-2% a ten year pay back is good. If they are pensioners cash in the bank reduces their pension, if they are taxpayers the interest earned is taxable. If a battery reduces your power bills that is “heavy money” i.e. it fall straight to the household bottom line by saving after tax money.
            Therefore by the time we have closed our last coal plant there will be 2-3 m behind the meter batteries with a sustained 2 hour peak capacity of about 10 GW. Combine that with existing hydro and generator linked storage, peak demand is easily met. If the low wind lasts for 5 days you might run half our existing gas capacity for three days or perhaps 30 days a year providing 3-5% of our annual energy consumption, which is less than gas does now and reduces emissions from the power sector by 90%

          • David Osmond 2 years ago

            Wind generation in June of this year wasn’t actually that bad, with an average CF a little over 30%. It was June 2017 that was a very poor month for June. This year, wind in June generated 6% of NEM demand. On the worst day in June wind met only 0.9% of demand, but that day was moderately sunny and solar met 3.1% of demand, so in total on that day they met 4% of demand compared to the annual average of a bit over 10%.

          • David Osmond 2 years ago

            And also the following article:

            Note that it mentions that QLD is likely to have higher than usual wind speeds during these phases of the southern annual mode which result in lower wind speeds in Vic and SA. QLD didn’t have any wind farms of significance during the June 2017 wind drought, nor were there any in northern NSW. That is now rapidly changing with over a GW soon to be in these areas.

            “Q2) Am I correct in inferring the winds in the northern half of australia are unaffected (QLD and northern NSW)?

            While the strong high pressure systems we have been seeing this winter have led to lower wind speeds in southern Australia, high pressure systems such as these during the winter can direct stronger southeasterly winds over northern parts of the nation.”

          • juxx0r 2 years ago

            That rule of thumb is just FUD. It’s more of a fairy tale of thumb.

          • Peter F 2 years ago

            It may well be FUD but I was trying to be kind to the anti-renewables brigade. There are about 30 variables to feed into the optimisation regime and no-one (not even me (joke)) has any clear idea what the balance is to get the optimum mix of cost and security without even considering emissions.
            Speaking to the experts two years ago, who would have predicted wind at $55/MWh or solar thermal at $78 or in fact demand response at about $250 or the 100 MW Hornsdale Power Reserve for about $1/watt. All falling between 30 and 60% below the expert forecast in 12 months or less.
            Similarly who would have believed 48% CF for a wind farm. Conooer Bridge is achieving that and only has 117 m diameter rotors. If it was speced out today the tower would be 10-20 m higher and the rotors 126 or 134 m rotors so 50-55% would have been feasible.
            None of us know the ultimate shape of the grid but allowing the other guy a bit of slack is a much better way to win the argument because in all likelihood he is not completely wrong and we are not completely right

    • phillyc 2 years ago

      I agree that the cap should be reduced from $14000/MWh. I think a more reasonable limit would be $1500/MWh. Likely enough for a reasonable rate of return for peaking capacity, but more affordable for consumers.

      • Mike Westerman 2 years ago

        The cap is supposedly related to the value of unserved energy and from that point of view it’s probably too low. What is lacking is penalties against those who cause the shortages due to their failure to maintain or to supply what they contracted. Innocent consumers shouldn’t carry the can.

  4. Paul McArdle 2 years ago

    More discussion on causes of volatility have been on WattClarity in successive reviews of Q2 periods:
    1) Starting with Q2 2016:
    2) Then Q2 2017:
    3) Finally (for now) Q2 2018:

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