Know your NEM: More renewables, lower prices, questions over battery storage | RenewEconomy

Know your NEM: More renewables, lower prices, questions over battery storage

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High variable renewable energy output in the NEM will continue to push down Australia’s power prices. Pity it’s not having the same effect on Australia’s total CO2 output.

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Figure 1 Source: ASX

ITK forecasts that the time weighted spot price average in Victoria for the March 2020 quarter will be lower than the current futures quote, but price forecasts are inherently subject to error.

The price forecast has fallen despite the fact the weather forecast continues to be terrible. Seeing climate change problems emerging as predicted won’t make anyone happy.

In front of the meter (that is demand for utility sourced generation) continues to fall, or be flat at best.

Figure 2 Source: NEM Review

That’s because high prices and reliability concerns have driven acceleration of rooftop solar.

VRE at 21% of supply, including rooftop solar at 8%

Variable renewable energy (wind & solar) output in the NEM is now running at a 30 day annualised total of 42TWh, more than 100% higher than the total of two years ago (18.1TWh) and 41% higher than last year. VRE is now 21% of total NEM demand.

Figure 3 Source: NEM Review
Figure 4 Source: Nem Review

Of that 36TWh, wind is about 18TWh, Rooftop solar 16TWh and Utility solar 8TWh. Coal market share in both Queensland and NSW has dropped from around 83% last year to around 77% this year.

Regrettably, ITK anticipates the increased VRE output will have a much bigger percentage impact on the NEM wholesale electricity price than it will on Australia’s total CO2 output.

It’s way past time to bring back a carbon price for Australia.

Renewable energy share close to 35% of NEM supply by June 2022

ITK expects 4000MW of wind and solar capacity to start up between December 1, 2019 and June 30, 2022  from projects already under construction, or like Cattle Creek, have just started production.

The expected annual energy output from these projects at full operation is about 11-12 TWh. ITK can’t see rooftop installations continuing at 2000MW a year for ever. Let’s assume that 2200 MW are built between Jan, 2020 and Jun, 2021.

At a 14% full year capacity factor that’s another 2.6TWh of energy.

Figure 5 Source: ITK
Figure 6 Source: NEM Review
Solar batteries

We think the Grattan Institute was wrong when it criticised household feed in tariffs. Its incorrect view has contributed to slow uptake of rooftop batteries

Australia is a world leader in rooftop solar, that leadership came at a cost as for a year or two feed in tariff subsidies were excessive, and had to be paid for by consumers that didn’t their own rooftop solar (eg business).

But those same subsidies were the making of a world beating installation industry in Australia, and as a result of the firm foundations the industry has gone from strength to strength to the point where it is a major driver of supply in the NEM.

Similarly, in the UK, offshore wind industry policy support was accompanied  by sky high feed in prices in the first round of auctions, but the subsequent dramatic fall in cost make the subsidy now seem like a good idea and makes a significant contribution to the UK being essentially coal free in terms of electricity production.

In Australia, household batteries are yet to take off. Hardly a day goes by when I don’t read someone quoting a BNEF forecast about falling battery prices. Yet the installed price of household batteries in Australia has barely changed in 3 years. Installers don’t want to put them in.

They don’t make enough money to justify the extra training and complexity. Or at least that’s my impression.

Household batteries are likely to be an important part of the resilient, zero inertia, highly distributed NEM that we are rapidly moving towards and yet policy support remains small.

Only in South Australia is there real support. NSW’s scheme is yet to see the light of day and is one of the reasons why I treat NSW energy minister Matt Kean’s impressive speeches with caution. Talk is cheap, you have to “walk the walk”.

Thermal fuel prices fell sharply in 2019
Figure 7 Source: AEMO

Even in South Australia the spot price is down 29% on last year at this time and more in NSW and QLD. This of course kills the impetus for imported LNG.

Figure 8 Source: Factset

Coal prices have been stable recently but are 32% down on last year.

Figure 9 Source: Factset
Where will the spotlight fall over the next 12 months?

This will be a topic for a separate note. Right now we point to:

How utility solar developers can earn a return when they have to compete with rooftop?

How much dispatchable power is needed?

Dispatchible power but particularly thermal generation has a (good for the environment) missing money problem. If renewables are 20%, then thermal gets 70% of the volume. As renewables go to 35% then thermal only gets 65% of the volume and the price when it has to compete with renewables will be lower. There won’t, despite what some consultants say, be enough revenue for all the thermal generation users.

Can the energy only market design continue to provide reliability, achieve decarbonisation and “efficient” prices? The answer is going to be no and we will see the ESB’s preliminary view on this.

Can the NSW Govt puts some money where its mouth is in terms of the REZ, getting transmission built, and actually introducing its household solar and battery zero interest scheme rather than just talking about them in fancy speeches and press releases?

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9 Comments
  1. Paul Surguy 3 months ago

    The more roof top solar and batteries means less money needs to e spent on transmission lines

    • Malcolm McCaskill 3 months ago

      I have rooftop solar in southern Victoria. Output has ranged from 1 kWh in the dark days of June to 42 kWh on sunny days in December. Herein lies the problem, that most of our population centres are close to the coast, and there is much higher variability of daily output than where large-scale solar has been installed in inland areas away from coastal cloud. Rooftop solar will therefore require more investment in either firming or transmission than an equivalent capacity in large-scale solar. Not all the dark days have high wind output that can compensate.

    • Ian 3 months ago

      You would think electricity is the be all end all. It’s just another tool to enhance the quality of our lives. The thing called the NEM with its generators , transmission lines, squadrons of accountants, office staff, etc etc, is all there just to make our lives better. People are the masters and benefactors of the economy , all these other things are like shoes or shirts. Good whilst they serve a function, to be thrown away when they don’t. If households want batteries and solar panels to reduce their costs and maximise their comfort then that is where the support needs to go. Does anyone really give a continental stuff about the grid?

  2. GlennM 3 months ago

    Good read….21-35% in about 3 years is 5% per year so therefore 65% by 2030…..but of course you are correct Battery prices are stubbornly not dropping and they will need to soon.

  3. john rattray 3 months ago

    David
    For roof top and utility solar I think that looking at energy share is highly misleading when considering their impact on the market in terms of reliability and price. What I would like to see is historical and future projections of power shares at solar noon. I think that these would surprise many at how fast solar as a percentage of total power at peak solar output is growing.

    The problem being is that as penetration grows, price per MWh of production will drop significantly and not in a linear fashion, due to oversupply.

    Picking better times to generate doesn’t work due to the high correlation between roof top solar and utility solar and batteries are very expensive once you start talking of 3-4 hours worth of name plate production. Hard to see where utility solar can go long term (7 – 10 years).

  4. Pete 3 months ago

    I think the smart money is that home batteries will have chairs and tyres. With forthcoming V2G capability in Australia, and variable time-of-use tariffs, the car battery will deliver better bang-for-buck. In reality most of us would only need the second-half of a car battery on less than 10 percent of days in a year. That is particularly the case for the hundreds of thousands of us that catch public transport or use active transport to travel to work while our cars sit at home connected to a wall-socket.There is a natural cost incentive to use that instead of buying an additional 10 kWh of batteries to hang on the wall next to the car.

  5. Malcolm McCaskill 3 months ago

    Anyone noticed that Loy Yang A has today started ramping down its production some of its units to ~60% of capacity during the middle of the day to avoid negative prices in Victoria? Data source: aneroid energy website

  6. David Craker 3 months ago

    Has anyone mentioned that the Victorian Government solar homes program has subsidised over 47,000 homes to install solar over 5kw in size over the last 2 1/2 years but everyone of these shiny new solar homes is now not elegible for a solar battery storage subsidy simply because they used the scheme. What a waste of the 47,000 possible homes that can already be used and have been vetted to be financially suitable. What a crock that the State Government champions the renewable story and provides more postcodes in the scheme as unless the oldeer non subsidised homes have 5kw and better or have not also had a new hot water service, they are stuck without support to be battery storage suitable and part of any scheme unless they change the rules.. What a waste of the best solar homes in their system.. Batteries support from the government, they may as well double or triple the number of subsidies available as no one is really eligible to get the cash,, what a joke..

  7. Alastair Leith 3 months ago

    but the subsequent dramatic fall in cost make the subsidy now seem like a
    good idea and makes a significant contribution to the UK being
    essentially coal free in terms of electricity production.

    You gotta hand it to those policy wonks actually thinking ahead and whatnot…

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