Know your NEM week: NSW coal chaos and China's solar bombshell | RenewEconomy

Know your NEM week: NSW coal chaos and China’s solar bombshell

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NSW coal closures, China’s solar bombshell, and falling lithium shares. Just another week in energy markets.

Figure 3 NSW Coal generation (note Eraring lift). Source: NEM Review
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Two things were interesting this past week: (i) NSW thermal outages and their impact and (ii) the reduction of solar subsidies and new solar plants in China.

China drives world markets, cuts new generation build – kills PV

The NDRC, Ministry of Finance and NEA jointly announce there would “no new general solar capacity planned” for 2018 except for projects to lift poverty in rural areas.

Last year, China’s solar PV build was about 58 GW out of a global total of between 90-100GW. This year’s build is now expected to be something between 20-35GW. Solar tariffs were also cut by Rmb 50/MW. Most solar panel makers have been taken private and but JinkoSolar’s share price has fallen by 1/3 this year.

Naturally, the cut in China demand will lead to an oversupply of panel production. We expect China companies to cut production plans and fire workers very aggressively but even so there should be some excellent prices on panels by the end of this year.

I am guessing panel prices in US$ achieved by panel manufacturers could be something like US$0.25-US$0.35/watt. This compares with Australian utility-scale, single axis tracking plant EPC costs of around A$1.10/w.

In other words panels are only a component of costs and installed costs in Australia might see say a 10% reduction.

It’s also likely that in a fragmented China panel manufacturing industry some players will exit.

In the medium term a reduction in panel demand in China is bad, yes bad news, for prices. Price reductions are mainly sourced from the learning rate, the 15% or so unit cost reduction that comes from a doubling of installed capacity. A slow down in growth means a slow down in learning rate cost reduction.

China coal growth also cut

On May 24 the NEA/NDRC announced an update to its “Risk warning system” for evaluating new coal projects and designated 20/31 provinces representing 66% of the entire country as “red zones”. This means new coal-fired plants are unlikely to be allowed in those provinces.

In general China has moved to increase capacity utilization of the entire generation fleet as opposed to the expansion of new capacity.

However, you can’t decarbonize without having new renewable capacity replace existing thermal capacity. You can stop growing emissions but you can’t reduce them much that way.

Are the NSW outages a portent?

For a year now we have been standing on a soapbox complaining that NSW wasn’t taking its electricity futures seriously enough.

A very backwards looking group of NSW politicians have prevented NSW from taking the same action to protect its manufacturing base and general population from high electricity prices and supply risks as Victoria and Queensland have taken with their renewable energy targets and State guaranteed reverse auctions.

This is despite the fact that NSW has

  • by far the most expensive coal supply,
  • the easiest to forecast closures of thermal power stations and
  • the least access to conventional gas and is
  • a net importer of power.
  • And new transmission will take years to build. Again this is well known and we have been talking about it for a year.

NSW also has access to a vast solar resource and some reasonable wind resources. Of course, the wind and solar PV will not be enough on their own.

Not even the most ardent supporter of renewable energy has ever doubted that some way to firm up the variable renewable energy [VRE] will need to be employed.

However, just as equally lots more VRE can be firmed up by the remaining coal generation for another 15 years. There is plenty of time to build better firming than coal in that time and more transmission.

A policy, or even a signal, from the NSW Government is what’s needed

New VRE though can provide much energy and can be built quickly. As Transgrid reports regularly, there are literally several GW of solar PV farms waiting to be built.

It’s true that current prices are less attractive in NSW that anywhere other than Queensland. It’s also true that Transgrid would have to get very busy to facilitate the work. However, to some extent there is a lack of confidence in NSW.

That lack of confidence comes from the lack of NSW Govt commitment, the lack of a plan to replace the NSW generation that is going to close, the lack of a NSW Govt policy for future electricity supply in NSW.

If Don Harwin, the current Energy Minister was given is druthers there probably would be a plan, but the NSW National party and its supporters and allies in the Liberal Party stand like a gigantic speed hump.

Despite the message coming from the South Australian Liberal Government about taking the best policies of the ALP and continuing with the renewable course, NSW continues with its same old message that the future is coal.

Of course coal royalties are very important, but only 14% of those thermal coal royalties comes from sales to NSW electricity generators and arguably coal mining is not very politically popular.

In fact the industry is largely foreign-owned. In any case coal royalties and coal loyalties can hardly be considered more important than a secure and cost-effective electricity system for the State.

NSW actually managed ok anyway

In any case NSW managed the outages reasonably well. The following figures provide a few pictures of the week in NSW. One feature was how little help gas was during the week.

Figure 1 NSW daily prices last week. Source: NEM Review
Figure 2 NSW demand and generation. Source NEM Review
Figure 3 NSW Coal generation (note Eraring lift). Source: NEM Review
Figure 4 NSW gas is just a peaker. Source: NEM review

The market action

Despite the difficulties in NSW and the flow on impacts to spot electricity prices in Qld it was overall a relatively standard week in the NEM.

Consumption overall was basically bang on the level of last year and the year before, although Tomago having to cut consumption on at least 2 occasions didn’t help demand.

Futures prices clearly reflect a jump in NSW and QLD in 2022 following the Liddell closure. There is little or no trading in these contracts but we don’t disagree with the price outlook.

Gas prices drifted upwards and the slow-moving 3o day STTM 3 city average is getting up to last year. This, in our view, reflects higher international gas prices. We cannot see LNG shipped from W.A. to the East coast having a cost advantage but we could nevertheless see lower prices due to competition for market share.

Figure 6: Summary

Coal price hit A$150 /t this week, we presume on continued strength in China but also the global economy is relatively robust just now. That’s something like a $60/MWh coal cost at the margin for a NSW coal generator. A new wind plant’s all up cost is less than that.

Brent oil is over A$ 100/b and that will translate over the next few months into higher contracted LNG prices, conceptually over A$12 GJ. Spot LNG data will be added to Fig 7 when I get round to sourcing it.

Bond rates in Australia and the USA rose 10 BPS.

Figure 7: Commodity prices. Source: Factset

Share prices

Lithium shares took a hit this week, unsurprising on the back of the China PV subsidies.

Figure 8 Selected utility share prices
Figure 9: Weekly and monthly share price performance


Figure 10: electricity volumes

Base load futures, $MWh

Figure 15: Baseload futures financial year time weighted average

REc prices

Figure 16 Source: Mercari

Gas prices

Figure 17: STTM gas prices
Figure 18 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.


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  1. Chris Schneider 2 years ago

    Have you got some references to the information about China. I only see a lifting of subsidies. This is IMHO a signal of a mature technology. It doesn’t need them. I can’t find reference to the stopping of building Solar farms. Although there is reference to an over supply currently requiring large curtailment. and there is also reference to a smaller demand. It actually all make sense. No point putting more solar in if curtailment currently sits at 20%.

  2. Connor 2 years ago

    Can you please please please please please, upload higher resolution graphs and charts? I understand the reason for having the small thumbnails on your article, but when I click on the image I want to see a high resolution image that I can actually read and make sense of; without zooming in so far I can see individual pixels.

    Thanks 🙂

    • David leitch 2 years ago

      Hi Connor

      I share your frustration at the lack of resolution, not so much in the charts but in the tables. I’ve felt that way since my first contribution to reneweconomy. The problem is two fold. (1) Microsoft Office does not play that well with WordPress. (2) There is no time or budget to really experiment with the various plugins that might but probably wouldn’t fix (1). The system used requires a lot more copying and pasting at both ends of the chain than I would like but it works, just at the cost of some resolution.

  3. RobertO 2 years ago

    Hi All, NSW State Gov has a program to build infrastructure, it just not RE or any related field of RE. Rebuilding stadiums is so much more important to the COALition Gov of NSW. It appears that NSW Residentials / Business with Batteries will need to step up. Even the interconnects will take years to upgrade if that was the only thing we could do, but there is so much more that we should be doing.

  4. neroden 2 years ago

    I’m not at all sure that the Chinese government policy announcement will slow solar adoption.

    (1) This is solar farms only. I expect rooftop solar to continue to boom in China.
    (2) The panel companies are NOT going to cut production. They’re just going to export more.

    On top of this, the actual mechanism involved cutting subsidies and feed-in tarriffs. Solar farms which do not seek FITs can still go ahead. The “cap” on large-scale distributed generation is only on subsidies, not on total installs; anything which is commercially viable on its own will go ahead.

    I am quite sure that there will be plenty of solar farms and industrial installs which are viable without any subsidies based strictly on market bidding.

  5. Peter F 2 years ago

    Every time wholesale power prices spike, another few hundred large solar/battery customers are created.
    NSW has 4,000 MW of hydro and 2,000 MW of gas/biomass/landfill etc. Typical winter peak demand is around 10,000 MW. If it had 2,000 MW of wind and 3,000 MW of solar which it should have, minimum daytime supply from those will be 500 MW. Adding 2,500 MW of imports leaves about 1,000 MW of winter firming required even if every coal plant closed. Adding 5-7kW batteries to 10% of NSW small customers gives 350,000 x 6 kW. Even running at 60% capacity that is around 1,200 MW. Upgrading Shoalhaven and buying Jay’s now surplus portable gas/diesel plants gives them another 5-600 MW. So after that, if they wanted to they could actually operate even if all the coal generators tripped for a few hours and only using about 80% of gas and hydro capacity

    NSW is installing 6,500 solar systems a month. It could easily install 10,000 batteries in both new and existing solar systems. That works out at 600 MW per year. If it keeps installing about 600 MW of solar and 500 MW of wind per year, which it will do this year, it probably means that in 5 years on breezy sunny Sundays coal/gas demand could drop to zero.

    Scotland is installing one wind turbine a day, NSW could therefore install two because its economy is twice as large. i.e. in five years they could install more than 3,500. In good areas in NSW they will generate an average of 14 GWh each or a total of 49 GWh + 5 GWh from new solar, pretty much displaces all current coal generation within five years with sufficient political will

    • Mike Westerman 2 years ago

      Peter – a big chunk of winter demand in SA, Vic, Tas and NSW is heating: better insulation and some thermal storage, which is way cheaper than batteries, would cut it back dramatically. What is needed is a way for domestic customers in bleak windy places to be able to benefit. If retailers were serving customers they would facilitate this. Since they don’t the market needs to be reformed to give put more pressure on them to do so, with the threat of regulation if they don’t.

      • Barri Mundee 2 years ago

        Like a lot of Victorians I still use gas for space and water heating. When one is home a lot in the winter the expense is considerable.

        I will ditch gas when my appliances fail. I have already replaced gas cooking with induction and have a 3KW solar array. No plans to add storage

        Meanwhile, I have added extra ceiling insulation and have installed under-floor insulation.

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