What’s interesting this week:
- AEMO’s Integrated System Plan [ISP]
- Distributed Energy Resources [DER] development
These two topics cover one of the main debates, one that many don’t even see as a debate – namely: Are grid delivered and behind the meter electricity in competition, or in Co-Opetition ?
Every kilowatt hour (KWh( of behind the meter investment is a KWh that won’t be delivered by the grid. Every KWh of household battery is a KWh taken away from peak pricing available to grid suppliers.
At the same time it’s laughable to suggest that a developed economy can or should be entirely or even largely behind the meter.
What is a microgrid? Where are its boundaries? At a recent DER forum attended by many knowledgeable people it was clear to me that DER is a technology and software rich market that is offering tremendous opportunity for some business.
I must have spoken to two or three company owners that have seen employee numbers go from 15-30 and from 30-60 in 12-18 months.
The scale of the problems being tackled is increasing. It’s not just a household PV and a battery but keeping medium size businesses with mission critical power supplies running, sometimes at the end of long grid lines.
Cities and towns are starting to think what they can do to progress their electricity ecosystems and, as electric vehicle penetration grows, this will become more of an issue.
We still think town councils and city mayors could do more to speed EV uptake than just about anyone through parking concessions.
Property developers, and aren’t there a lot of them, can and do think about “the grid” of a new property development, although they may not think of it as a grid.
It wasn’t defined at the forum, but I tend to think of a micro-grid as an electricity consumption point or connected set of points that can be islanded from the main grid for a period of time. It’s not the size but the self sufficiency element that matters.
We can contrast the thriving DER market with the paralysis that has gripped the in-front-of-the-meter “main grid” in recent years. Yes, over 4GW of new renewables investment is underway, but the broad design of the system they fit into remains, frankly, unresolved.
Snowy 2.0 is at odds with the NEG
Snowy 2.o is a clear example. It’s been obvious from the start it only makes any kind of sense in a high renewables world, even if its economics still depend on selling caps as much as energy.
So we have the federal government investing $10 billion and $2 billion of transmission in a high renewables future, but still putting in place a low renewables future NEG.
How can you run an industry policy that way? How can you win an election when you won’t trust the people to tell them what you really think?
The same could be said of Shorten and Adani. Prime ministers are in a relationship with voters, whether they realise it or not. Relationships depend on some degree of trust. Actions speak louder than words.
In any event, getting back to the ISP, Here is a reminder from AEMO’s website of what it is, and what it is supposed to achieve:
“AEMO is calling this an Integrated System Plan (ISP), rather than an integrated grid plan, to reflect that over time, the ISP will by necessity consider a wide spectrum of interconnected infrastructure and energy developments including transmission, generation, gas pipelines, and distributed energy resources.
The June 2018 ISP is not the end of the process, but rather the first of many steps, with updates in future years to reflect the dynamically changing nature of the power system and the need to continually innovate and evolve strategies for the future.
The first ISP in June 2018 will deliver a strategic infrastructure development plan, based on sound engineering and economics, which can facilitate an orderly energy system transition under a range of scenarios. This ISP will particularly consider:
What makes a successful renewable energy zone (REZ) and, if REZs are identified, how to develop them.
Transmission development options.”
Comments on this plan are now closed at the AEMO site but we continue to enthusiastically wait for news including, hopefully, publication of comments and submissions.
In our view the ISP and not the NEG is the plan COAG should focus on. If COAG gets behind the ISP Australia may yet manage the transition to a low carbon economy in a way that we can be proud of.
Design of the NEG, or in any event policies for reliability and carbon emissions, in our opinion logically comes after the ISP is agreed – and not before. It’s amazing to me that the ESB doesn’t even seem to know about the ISP. Same with AEMC. Come on guys, where’s the love?
Clearly one part of the plan will be thinking about DER’s fit with the grid in a more systematic manner. DER is very disruptive and its getting bigger not smaller.
The weekly numbers
Electricity volumes for the past seven days at 3.6/TWh were 3 per cent lower than PCP driven down by rain and weather in Queensland, where consumption was down 8 per cent. I suspect that the annualised seven-day total is pretty much the lowest on record for this week in the year.
This had a knock-on impact on spot prices which averaged as low as $63/MWh in NSW, pretty much half last year in a region where consumption was flat. As interesting as the highs are the lows. In Victoria, a low price of $14/MWh was seen and I don’t recall seeing that often since Hazelwood closed.
Futures prices continued to drift, although if we use 2019 as the baseline, they have been pretty flat for months. FY 20 futures in Queensland are just $63/MWh, probably less than in China but remain at $80 in Victoria.
However at some point, not for a few years, but at some point, the Gladstone power station is going to close and Queensland’s own Hazelwood moment will arrive.
In general, Summer has in the end been a non-event for the electricity market. Despite odd days of heat, and a few occasions where pool prices threatened to go through the ceiling, it didn’t happen.
This is a credit to all concerned, but having been the first to hand out the booby prize to AEMO in regard to managing South Australia’s blackout we are happy to hand them a bouquet for managing this Summer across the NEM.
Gas prices, REC prices were of little interest. REC prices post 2020 remain a puzzle as does how projects developed under a NEG framework will be treated from an REC point of view.
Just another pesky detail, one of very many to keep NEG apparatchiks tied to the desk.
Coal prices fell during the week, otherwise no major international action.
Share prices drifted. Lithium shares remain on the nose. There are repeated stories that the “lithium bubble” is going to burst or has burst. That may be the case and eventually will be true. However for the time being our optimism on demand growth is greater than our pessimism on supply growth.
Base Load Futures, $MWH
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.
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.