“You are sixteen going on seventeen
Baby, it’s time to think
Better beware be canny and careful
Baby, you’re on the brink” Rogers and Hammerstein 1959
Renewable energy market share of the National Electricity Market is 13 per cent at present. Seasonality is quite a strong driver of share. Solar in Queensland exhibits little seasonality but production in South Australia and Victoria is much softer in the June and September quarters.
Utility solar gets 70 per cent of the talk, but is still easily the smallest contributor.
By contrast, wind production in virtually all states is much higher in the September quarter. So we expect the share of wind and solar to jump at that time.
Meantime, there remains a massive workload to manage the transition. In no particular order we have:
- Review and reform of the market structure. A longer term project from the ESB but with decisions made this year. What is the point of having a spot market for zero cost wind and solar, unless there is competition for the energy to be used in pumped hydro, battery storage?
- 5 minute settlement;
- Transmission, MLF and REZ reform;
- Better disclosure of prospective generators with a connection agreement would be a useful and seemingly relatively straightforward start. It’s one thing for AEMO to have higher modelling standards, its another thing to be a “can’t do” bureaucracy more focused on process than outcomes.
- Fast frequency FCAS services;
- Reliability leg of the NEG;
- Role of Government – federal and state governments are becoming more invested in generation one way and another.
- Distributed energy topics include:
- Household batteries. Perhaps the easiest win here is some better data. We just don’t know how many there are. This is not good enough.
- Who controls the household power system?
- Peer to peer trading;
- Role of the network.
No doubt the regulatory bodies, that is the ESB, AEMC, AEMO, AER, COAG Energy Council, ACCC, and state electricity apparatchiks are trying hard, but I don’t think they are winning.
Smart Energy Conference wrap
I haven’t seen all the Smart Energy presentations yet and with three streams over two days there’s always going to be stuff you miss.
Warwick Johnson presented a very gloomy view of household battery sales, although not every vendor I spoke to agreed. It is clear that the Bloomberg Energy projections of lower battery prices are not showing up in household batteries in Australia. Installed prices in Australia have been flat for two years. Yet utility scale batteries and car battery prices do seem to be falling.
Also of interest was the move by CWP to refocus its Asian Utility Hub on hydrogen rather than DC transmission to Indonesia. This $20 billion project is super exciting and we can think of no better group than CWP to take it forward – but it will be hard. Hydrogen is not there yet on cost. (Listen to our podcast interview with CWP’s Alex Hewitt).
For reference, diesel is said to be about $20/gj if looking at transport reference point. The chart just shows variable cost (but before oxygen credit).
You also have to factor in electrolysis capex, compression, storage and shipping and then the cost of a turbine at the other end to convert the hydrogen in say Japan back to electricity. Decompressed LNG in Japan at current oil prices is about say US$10/GJ give or take 20 per cent.
The market action
Volumes were flat.
Spot prices remained elevated but showed signs of softening by the end of the week.
There are now flat load futures contracts on the ASX listed out to June 2023, but there are no trades, so the prices are nonsense. We show them in the graphs but you could only make money selling the posted prices if someone would take the other side.
Gas prices are higher than last year and the rise in the oil price is bad for local gas.
REC prices are soft.
Coal prices have dropped very sharply recently, down $US15 or nearly 16 per cent in a week. This may only be Australia and it may only be short term, but you can bet the local buyers are out there doing some business.
Equally, bond rates jumped again in the USA and Oil prices were up 4.5 per cent.
All of these are big weekly moves and some traders will be whipsawed. Others will be talking about how clever they are forgetting earlier failures.
Base Load Futures, $MWH
Looking at FY22 is misleading as there is no trade. One thing South Australians can be happy about is that in FY21 electricity prices there are about the same as in NSW and Victoria despite the reliance on gas. Near term futures are rising in NSW and Victoria in particular.
David Leitch is a regular contributor to Renew Economy. 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.