Electricity consumption supplied by utility scale genereators was massively down last week, as much as 18% compared with the previous corresponding period. In general, that continues the experience of the calendar year to date.
More importantly, the time of year which over the past five years has marked the peak of March quarter demand across the National Electricity Market has come and gone without any real drama. That’s notwithstanding the NSW-Vic separation event which I’ll briefly get to in a moment.
But back to demand: Looking at the following five-year average we can see three separate peaks during the March quarter and, as it happens, each one is smaller than the preceding one. That’s not to say that this year can’t be different, and five years is not a strong statistical average.
Nevertheless, the general trend is down from here and then it starts rising from May as we move into winter heating demand. So this is good news for consumers looking for lower prices, as it will tend to push futures prices down, but it is bad news for generators who last year made large amounts of money in the March quarter.
Those people with access to Global Roam’s forthcoming Generator Statistical Digest which has a monthly summary of 2019 pool revenue for every generation unit will see that for instance Pelican Point made twice as much revenue in January 2019 as any other month of the year and even “baseload” stations like Eraring make 20-30% more revenue in January than the average month.
Also, in ITK’s opinion, the system survived the bushfires quite well. It’s true the calendar year to date price average in NSW is $108/MWh but in every other State it’s way lower, and just under $50/MWh in Victoria and South Australia for instance.
However, there was some price separation when the NSW-Vic interconnector was threatened. And as a result of the constraint, although not cut transmission, Tomago aluminium smelter was asked to constrain output on a potline, freeing up 300MW or so.
Even so the maximum price was “only” $2400/MWh and that was for about an hour. No doubt it could have been far worse.
In our view, this just shows that the risks in NSW are far higher than in other States because of NSW’s dependence on imported electricity and because it is so backward in getting new supply built, and because its coal generators and their coal sources are generally completely clapped out.
The following chart is taken directly from NEM Review and shows the price separation on January 23.
For me this illustrates the importance of transmission. If the new transmission link to South Australia had been built instead of remaining in the approval process while the AER considers its revenue requirements, Tomago may not have needed to constrain its output and in general NSW risk would be reduced.
New gas-fired generation proposals
The criteria for comparing and selecting projects for approval under the Federal Government’s Underwriting New Generation Investment [UNGI] program have never been made clear.
Given the controversy over sports grants, it’s perhaps understandable why the criteria have remained murky. The four-year program objectives are to:
– Reduce wholesale prices by increasing competition and supply;
– Assist commercial and industry customers and small retailer to access affordable energy
– Improve reliability by increasing the level of firmed capacity.
The Federal Government has announced two early winners – both gas projects.
One is APA’s 330MW of reciprocating engines being built at Dandenong Victoria in two stages. This is the same APA that has – with two exceptions – just about a gas transmission monopoly on the East Coast of Australia.
The second is a proposal by Quinbrook Infrastructure Partners to build a 132MW gas plant at Gatton, between Toowoomba and Brisbane in Queensland.
This plant is supposed to help NSW, but that idea is laughable as Queensland regularly has surplus power to transmit to NSW to the extent of constraining the transmission line. Equally there are already plenty of gas power plants in Qld and Qld prices are the lowest in the country.
However, it may be by the time the plant is built that Queensland will be closing a coal-fired generator and there may be more need for peaking generation in that state.
I personally don’t see 132MW of gas generation in QLD as doing anything that will materially change the outlook in Qld or the NEM but…. Quinbrook are a respected investment team headquartered in Houston, and its senior management have backgrounds at Hastings Funds Management in Australia
It would be nice to know why those projects best met whatever the criteria are, but that will remain a matter of secrecy.
The point about both these projects is that they are only going to be intermittent suppliers of power. And I don’t expect them to consume much gas, because they will not be operating much. That’s a good thing because anyone thinking of building a cogen plant designed to operate in the daily balancing market is likely to have to confront a carbon cost during the life time of the plant.
Why is this?
It’s because gas is becoming globally a very significant carbon emitter. In fact gas now has the same emissions as both coal and oil did in 1984 and its compound growth rate since 1980 is 2.5% per year compared to oil 1%. At 2.5% growth in 20 years coal will be the same as oil today (around 12 bn t/CO2 per year) and within touching distance of today’s coal number. That’s bad news.
So if that’s the case it’s a bad move for Australia, even assuming we had endless reserved gas in the Beetaloo basin of the Northern Territory to use gas as a “transition fuel” or even to use it as the mainstay for use in the overnight balancing market.
And even 5 minute startup reciprocating engines won’t be within cooee of batteries at capturing the 5 minute balancing market.
To be clear, with risks around the early closure of Yallourn high on the list of foreseeable risks in the NEM, having a spare gas peaker will surely not go astray. But that risk has emerged because planning for the transition to a cheaper variable renewable energy bulk supply system has been so backward.
Every day somewhere you have to have a fight about “is coal good or bad” before we can get on with planning for life without coal as the UK has done. When the Poms are beating us at electricity you know it’s a mess.
It’s unlikely, given the glacial pace of progress in Tasmania’s battery of the Nation project, that there will be any new hydro or pumped hydro coming from Tasmania by the time Yallourn closes. That program could surely be sped up by at least two years if there was a will but at this stage looks like it will be on the slow slow burner.
That leaves pumped hydro in South Australia where four projects are being considered. ITK had expected one of these to be approved for ARENA and CEFC funding by Christmas, but that perhaps that’s Christmas 2020. In any even,t transmission between Victoria and South Australia is an issue.
Victoria could build some pumped hydro but is clearly relying on Snowy 2. Snowy 2 and the associated transmission might be ready by the time Yallourn closes but there would be many that would bet against it.
Batteries could play a role. Many will scoff at batteries replacing Yallourn and indeed they won’t, but wind and solar supplemented by batteries might. Wind and solar can probably do 70% of the energy, leaving only a 30% gap to fill in.
The Victorian solar program could be extended to household batteries. Lots of small batteries can do just the same job as a big battery.
Essentially, batteries can do the same job as a gas peaker, but the shoulder energy would ideally come from a cheaper source.
Household batteries can certainly be introduced steadily, 50-100 MW of power a year over 5-10 years ends up having a big impact and doesn’t require much in the way of land or transmission support.
Street level battery $700 per year per house compared to $1800 per year for a Powerwall. Fantastic savings on offer
Street level batteries where you have one professional installation per street instead of 30 installation costs at the individual household could be rolled out quickly, not taking up much more space than a couple of phoneboxes.
My feeling is that could reduce battery costs in $/kWh by say 30% and improve safety and ability to coordinate the use of the batteries at the same time.
Obviously it would take some load off networks and the network benefit can be subtracted from the consumer cost. Ausgrid are running a trial of this in Sydney and there are examples in West Australia but again progress is glacial.
By comparison a residential Powerwall in Sydney costs $12,690 fully installed, according to a Solaray quote. The Powerwall has 13.5 KWh of capacity and about 5kW of power. I assume a 10 year life for this analysis.
Solaray is a highly respected solar installer and in fact did the installation on my house as being a sponsor of the Energy Insiders podcast, so in my view it’s one of the better quotes to have.
Still, if we ignore the energy difference the “Powerbank” is not 30% cheaper to the household it is actually about 70% cheaper. $1777 per year for the Powerwall v $694 for the Powerbank. Surely that must make people think?
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.