How gas generators cashed in and exploited hot water load

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The media continue to blame renewable energy for South Australia’s high wholesale electricity prices, but they would do well to look at how the gas generators exploit the market. And so would the regulators.

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It’s a sign of lazy journalism and it is rampant. Almost all mainstream media – Fairfax, the ABC and of course the Murdoch empire – routinely blame South Australia’s high electricity prices on renewable energy. They hardly ever question the role of the gas generators. They should.

South Australia has long had the highest electricity prices in Australia – even before its investment in wind and solar – because it is at the end of the grid and it has always had a heavy reliance on gas generation, and “peaky” usage.

The sort of price spikes witnessed on July 7 used to be commonplace before the arrival of wind and solar, which makes it deeply ironic that the July price surge was blamed on renewables, or the lack of them.

But events since then provide another illustration on how gas generators are able to exploit the market, and are clearly events when the blame cannot be shifted on renewables.

According to the Australian Energy Regulator, a price spike to $14,000/MWh occurred just after 11.35pm on Monday, September 5, when demand jumped 212MW as the grid operator switched on all the electric hot water systems under its controlled load operations.

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This demand is not a secret nor a surprise. It happens every night. Powering hot water systems was shifted to the late evening time slot years ago because the coal fired generators and other “baseload” generators did not want to be switched off, but there was nothing much else for them to power while everyone slept.

On September 5, the market was cruising along normally. Then a funny thing happened. There was slightly less wind capacity coming through than thought four hours earlier, but instead of pushing up prices by a little bit, or maybe even doubling them, the price surged from $33/MWh to $14,000MWh.

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Apparently, that was because “low priced” gas generation was “not available”, although this table above suggests there was plenty of available capacity. And guess what happened when the price jumped to $14,000/MWh?

Suddenly, within five minutes all the “unavailable” gas generation suddenly became “available”, because the operators knew they were guaranteed a minimum $2,300/MWh for switching on in that 30 minute period.

In the rush to grab that money, there was a stampede of offers from generators that had been “unavailable” just 5 minutes earlier and the price fell immediately to $44/MWh.

A similar event occurred three days later when the price jumped from $60/MWh to $14,000/MWh, again in that second five minute time slot, before falling to negative territory as the gas generators fought for an allocation knowing they were guaranteed a windfall if they could win a slot.

Of course, this sort of caper carries on most days. The Melbourne Energy Institute recently produced a report showing the number of times capacity was “unavailable” at the start of a 30 minute period, and then suddenly became available 5 minutes later after the price had surged in one 30 minute interval.

A variation of this bidding strategy occurred in the July 7 surge blamed on renewable energy, or the lack of it. Gas capacity was “unavailable” at the start of the 30 minute session at prices less than $14,000. And once that price was established, they all rushed in for their share of the spoils.

This didn’t happen just once but repeatedly through the day, as if on a continuous loop. Everyone rushes in, but then suddenly capacity is scarce again! Repeat. And somehow the blame for the state’s high costs goes to renewables.

The Australian Competition and Consumer Commission reckons this is fair play, just a market operating as it should. Its boss Rod Sims, says the gas generators have every right to exploit the market in this way.

But the Australian Energy Market Operator and the Australian Energy Regulator concede that this practice distorts the price, and that is why they are supporting a rule change proposed by big energy users, such as aluminium smelter Sun , who are sick of getting screwed by the gas generators.

This rule change is simple. Instead of having financial settlement every 30 minutes, which allows one 5 minute bidding rush to raise the prices for the whole period, it proposes to have the settlement every 5 minutes.

This, the proponents say, and the regulator and market operator agree, will reduce the cost, and encourage new market entrants such as battery storage, which can respond in milli-seconds, much quicker than the 40-year-old gas generators that currently dominate the market.

Of course, the gas generators, owned by AGL, Origin Energy, Engie and others, are furious anyone is suggesting such a thing. They say it will increase costs and is too hard (AEMO says that is rubbish), and will force the exit of gas generators – revealing once again their penchant for holding the market to ransom.

The AEMC was on the verge of knocking the rule change on the head, as it has done to most progressive rule change suggestions in recent years. But under pressure, it has decided to look at it in more detail, and a decision will be made around the middle of next year. It couldn’t come soon enough for Australian energy consumers.

The point of this story is to point out, yet again, that the market rules and practices in Australia are designed to favour the incumbents, who have exploited their market power to such an extent that it is all but impossible for consumers to access electricity in Australia at less than $300/MWh, in many cases less than $400/MWh

That is more than 10 times the price of our “cheap coal”, but the generators, networks and retailers, with a mixture of over-investment, super high margins and market manipulation, have been allowed to screw the consumer, and pass the blame elsewhere. It shocks me that the mainstream media lets this by. Maybe it’s the party pies in the corporate boxes.

Screen Shot 2016-10-06 at 9.53.06 AMP.S. Why on earth has the South Australian network operator not already moved the big lump of hot water load from 11.30pm and scattered the load through the day, particularly to fill in the “solar sponge” created by all that solar PV on the rooftops of homes and businesses and being exported back to the grid.

As this graph shows, the hot water loads are a constant and could easily be spread through the evening. The second graph shows the changes in demand. It seems outrageous that the gas generators should be allowed to exploit this, to varying degrees, day in and day out.

The Queensland network operator has already shifted some solar hot water to the middle of the day to act as a “solar sponge.” SAPN has said it was considering doing the same, but presumably has not yet acted because it is “hard”, and requires some smart software to do it properly. Yet another argument for having a “smart grid” rather than the dumb, gold-plated monolith we currently have to deal with.

 

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43 Comments
  1. suthnsun 3 years ago

    Giles for PM!

    • Kenshō 3 years ago

      I think he would be more in his element than Peter Garrett.

      • suthnsun 3 years ago

        For sure, GP not PG for PM!!!

        • Kenshō 3 years ago

          This period of history still has allot of politicians there for the wrong motivation, so it would be necessary to have a really robust character and be focussed to the point of not being distracted by all the bullshit. Of course it has to be done, and it won’t be an easy job.

  2. Peter G 3 years ago

    How could they be so intermittent !!

  3. MrCyberdude 3 years ago

    Hang on a minute! The Gas generator at Pelican Point had to make workers redundant only a couple of years ago because they were not running very often.
    So how about you go a little lighter with the bullshit when it comes to renewables and accept that “you should never go full retard” and there needs to be a sensible mix.

    • Analitik 3 years ago

      Yep, about 5% renewables would help reduce fuel loads without compromising the grid stability.

      Maybe when the “smart” electric hot water services are rolled out, they could communicate with the grid operator to only switch on when there was renewable generation occurring. That could provide some real benefit as opposed to the chaotic interruption of the market price bids.

      • Peter G 3 years ago

        If you use ripple there in SA, then that is all you need to make
        controlled HWS a dispatchable load at <300 sec – nothing futuristic
        about it. Like most of the other impediments to ramping up reliable low
        carbon energy in OZ the barrier is administrative not technical.

      • Kenshō 3 years ago

        On a property, a HWS can already be powered by excess power that would have been exported.

    • john 3 years ago

      Which part of renewable’s is BS old mate?
      That is a rather bold statement so substantiate it.
      Which part about zero input of energy to make power is wrong or how do you come to that conclusion please tell me.

  4. Rod 3 years ago

    Totally agree on the hot water issue. There is no need for all of the off peak load to come on at once. It could/should be staggered but the older meters would require a manual time change. I asked a sparky to change mine to later in the morning and he said SAPN would need to do it. Enquired with SAPN and got knocked back. You can buy DIN rail mounted timers but my board is too old.
    AGL are currently rolling out “Smart” meters so that might be an opportunity.
    Also the off peak tariff seems to have risen from 7c to 17c/kwh in a very short time so they might be encouraging people to use alternatives.
    I thought electric HWS were now banned so would expect this load to reduce in future.

    • Chris Fraser 3 years ago

      I have a DIN rail timer, within an MCB holder, mounted on the chipboard. You can have a timer.

      • Rod 3 years ago

        Thanks, good to know.
        I haven’t pursued it further as I only boost my solar HWS
        in Winter and keep the temp low so $ wise not much to gain.

        • Kenshō 3 years ago

          There’s also the option to pull the wires off the off peak meter and have a solar system power it during the day, which could be done by installing a manual booster button on a wall inside like I have or there is now even a device which takes the excess capacity of a hybrid solar system, and once the batteries are full, heats the hot water system instead of exporting the excess to the grid. From memory I think my sparky said that device was a few hundred dollars, so would take time to pay itself off, though I like not encouraging the grid to rip us off for our exports. The other option is some inverter/chargers, like Selectronic, have 4 x AC electrical circuits with programmable timing of the loads. I think there is also 4 x programmable electrical circuits for DC loads e.g. DC pool pump etc.

          • Rod 3 years ago

            Fortunately I am on a high FiT until 2028 so keen to export as much as I can.
            I could probably have a stand alone PV system for the HWS but again it is only for topping up during Winter.
            Money wise I would probably be better off using bottled gas to instantly boost the temp of the water coming from the solar HWS

          • Kenshō 3 years ago

            OK no worries. With gas the downside is its fracked these days and we’re probably eventually going to need to drastically upsize our properties PV anyway for EV’s so I’ve stuck with an electric hot water booster and also upgraded to an induction cooktop which is as fast as gas and more precise electronic control.

  5. Chris kime 3 years ago

    Thats right.senible mix,100% renewables.thats sensible.how bout some sensibe politicians who have the balls to move us in that direction and stop these utilitys from exploiting the system.we all benifit from a rapid transition to renewables
    It gives power back to the people,saves us dollars and ultimately addresses climate change.just a few good reasons to pull our fingers out or at least stop denying the challenges ahead..

  6. Ray Miller 3 years ago

    “Why on earth has the South Australian network operator not already moved
    the big lump of hot water load from 11.30pm and scattered the load
    through the day”
    If the network operator is not paying for the bill for the energy why should they. This exposes the myth of “competition” giving the lowest cost, most efficient system for customers. It is clear the network operator should not be charged with the demand management responsibility but moved to the stakeholders with operator recommendations.

    So much for the “smart grid”.

    • john 3 years ago

      In fact dumb comes to mind.
      Put a solar hot water system on your roof simple it actually works.

      • Kenshō 3 years ago

        Your suggestion is my preference too although it can be done with PV powering an electric hot water system during the daytime, though if people are home during the daytime that means the inverter/charger has to be sized bigger.. adding cost and complexity. So I also like solar hot water as there are no moving parts and it just works.

        • Geremida 3 years ago

          I’ve had a heat pump hws for a year and use the inbuilt timer to run it from my PV during the day. The killer advantage of course with heat pump hws is that they use approx 1/4 the power of a normal electric hws.

          • Kenshō 3 years ago

            Yes I’m not saying they may not be the most efficient technology, just that the longevity has to be taken into account as well. Does it have a warrantee?

          • Geremida 3 years ago

            mine’s from Hydrotherm – warranty here – http://hydrothermhotwatersystems.com.au/warranties-2/
            Only downside is it sounds like a (quiet) air con while it’s on.
            Draws about 1 Kw for a couple of hours a day

          • Kenshō 3 years ago

            Wow almost miraculous performance and 5 year all parts warrantee and 15 year tank warrantee – that’s impressive. Thanks for letting me know about the small amount of noise because I was considering an internal install in a small building and will instead locate it external to the building. I was considering putting up a covered deck with a solar hot water system, though I would really rather put up another PV array. Thanks 🙂

          • Geremida 3 years ago

            yep locate it externally, it’s all stainless. It prob helps too that I’m in Qld. I don’t get your bit “put up another PV array”

          • Kenshō 3 years ago

            Sorry, the building in question currently functions as a granny flat. It currently has no hot water though it has a 1.5kW PV array and 9.6kWh of batteries. The current PV array is a bit small for winter, so I’d like to put up a covered deck, also giving the additional roof space for another PV array. I really didn’t want to allocate that new roof space for a solar hot water system. Installing the heat pump will free up enough space for another 3 to 6 solar panels, depending upon how big I make the covered deck.

  7. Chris Fraser 3 years ago

    This is a cartel, isn’t it ?
    AEMO rules are ripe for revolution !

  8. Cooma Doug 3 years ago

    Like we have been saying for a long time, the market needs a re design to allgn the incentives. The gas gens are not cheating. They are working within the rules which need a tweak.

    • Mike Dill 3 years ago

      A big tweak is needed. Too bad the regulators are owned by the operators.

  9. Stan Hlegeris 3 years ago

    This is what Enron used to get up to. That company would organise shortages in the California electricity market by getting captive generators to shut down at times of high demand and then fill the gap by selling extra power at extremely high prices. Enron went broke and a number of its executives went to jail. Exactly what we need here.

  10. john 3 years ago

    It is not hard to send the signal by freqency through the grid to trigger a water heater this is how it has been done for a long time.

  11. Kenshō 3 years ago

    On a positive note, the incumbents are demonstrating they are exceptionally well organised at exploiting markets wherever possible. On another positive note, energy regulators are making progress in some states. On another positive note, energy security appears to be the territory future elections are fought on.

  12. Miles Harding 3 years ago

    It’s kind of idiotic and embarassing having a problem like this these days.

    It could be easily avoided by banning resistive electric storage hot water in favour of heat pump types that use 1/4 the electricity, making them compatible with daytime running under solar panels. No import energy would be needed most of the time.

    The price of heat pump units has been coming down, and is now in the order of 2.5x the cost of a resistive type, making them on-par with roof-top thermal collectors, after factoring in another kW of solar to run them.

    • Kenshō 3 years ago

      My electrician reckons heat pumps are not good for coastal areas with salt air, as the mechanical parts corrode. Although they don’t have to be installed outside. It’s getting authoritarian to ban a technology. Each application is situational. Running a resistive hot water system or a heat pump also increases the size of the inverter/charger needed and they are the next biggest cost after the storage.

  13. Mike A 3 years ago

    This would be caused a fraud or market manipulation anywhere lose in the world?

  14. Ian Fordham 3 years ago

    SA controlled load is pretty much all hard-wired time clocks. Totally uncontrollable once set without visiting every property!

    • JeffJL 3 years ago

      So why not change the rule that all new hot water systems come on at 1230pm then. Reduce that peak. It is a no brainer for a change.

      • Ian Fordham 3 years ago

        That would take years to have a noticeable effect. They need to visit a large amount of existing and change as you suggested. There was a document suggesting they were going to do this and use it as a solar sponge but as to when, how, how many would be targeted I have no idea.

        • Kenshō 3 years ago

          Yes another approach is for an electrician to remove the wires on the customers side of the meter and rewire it directly to an onsite solar system. Can be wired to a dedicated circuit on an inverter/charger or a device which collects energy that would have been exported once the batteries are charged.

        • JeffJL 3 years ago

          Yes, it would take years. Just why (echoing Giles here) did they not do something about this years ago? Rhetorical question there Ian.

  15. JustThink4Once 3 years ago

    Instant gas hot water systems – Only use it when you really need it.

  16. David Pethick 3 years ago

    Nice pick up @GilesParkinson. I never knew the controlled load was set at 11:30pm, but it shows up clear as day in the net system load profiles. Very strange choice not to set timers on a random schedule.

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