Know your NEM: We may still get to 50% renewables by 2030

“False facts are highly injurious to the progress of science, for they often endure long”

Charles Darwin 1871

Cutting new supply estimates

Despite the election result, we have only made slight changes to our supply forecast, and these are focused on the 2019-2022 period. The underlying assumption is that there will be enough policy to get to 50% renewables by 2030.

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Figure 1 ITK Unannounced new suppluy estimates. Source: ITK

It should be obvious that forecasting unannounced new supply is likely to be wrong. More wrong even than betting odds and opinion polls, or forecasting who is going to win a race. Still we think having a view on how much new supply there will be is important.

Also, the break up by state and by fuel is even more problematic. Still they are our estimates. We expect to revise them often.

Notwithstanding that the solar industry is deeply unhappy with the Queensland government’s new rules on qualified electricians being relegated to the apprentice status of carrying solar panels and notwithstanding that the CFMEU can hold itself partly responsible for the Coalition doing so well in that state, we still anticipate that the new entity Cleanco will run at least a 400MW reverse auction over the next year. .

We anticipate that Cleanco will use that to notionally provide pumping power for the 550MW Wivenhoe station. It remains possible, but less so, that Genex’s pumped hydro and solar project will also get up.

NSW remains short of power and despite transmission constraints we think 600MW of unannounced new supply over 2-3 years remains entirely possible.

We’ve cut back in Victoria, but the state is still on the short side of power and there are many projects that would like to go ahead.

Excluding 250MW of Barkers Inlet and the 100MW upgrade of Bayswater, we also have 6.4GW of wind and solar projects expected to start commissioning in May 2019 or later. This includes the already or just about to commission Tailem Bend, Bannerton, Hayman, Collinsville, Bungala Stage 2 and Murrawarra projects .

So, in short, ITK still looks for over 8GW of new supply in total and that’s only up to 2022 when Liddell closes. More detail is on the website.

ESB wants to action the ISP

If we assume that federal politics won’t impact the personnel, culture or path that electricity market and reform takes place in the NEM, that is via the National Electricity Law, COAG Energy Council delegating to the ESB which runs the system with AEMO/AEMC/AER then there remains a huge number of long- and short-term changes running through the system.

The most primary of these over the next couple of years, and prior to 5 minute settlement is the ISP (Integrated System Plan). As recently as last Friday, the ESB released a document: ESB converting ISP to action.

As readers may aware, the Integrated System Plan [ISP] is becoming the prime planning document for AEMO. It essentially proposes new transmission lines be built and the creation of some Renewable Energy Zones [REZ]. In ITK’s view if the REZ are “declared” it will provide a pathway to reducing MLF risk for future generation developments.

As the ESB stated in Friday’s release:

“The ISP identifies and prioritises an optimised least cost portfolio of integrated system investments to maintain the reliability and affordability of the energy system as it transitions to lower emissions and more distributed generation”

The ESB has also prepared a paper proposing an underwriting fund to accelerate development of Group 1 transmission projects.

The ESB is now looking at formally replacing the National Transmission Delopment Plan with the ISP. In part, this means changing the role of the Regulatory Investment Test [RIT]

Again to directly quote the ESB:

“It is important to recognize in this approach that the ISP is a system wide least cost optimisation while the current basic approach to RIT-T tests has an individual project focus. “

We won’t go further into the ESB report, but it’s good reading for those interested in development of transmission. ITK considers that getting enough transmission in place in a timely fashion is one of the keys to transitioning the NEM to a largely renewable future. We make no bones about that. Never have.

The market action

Summary

Spot prices are softer than last year, but we have passed the annual seasonal low in demand and start to move into winter.

Commodity prices. Source: Factset

Compared to last year, only Australian bond rates have fallen materially. Coal prices remain high, but lower than they were.

Generation by fuel

The key point is the fall in hydro generation, a low of 6TWh annualized compared to PCP and offsetting 2/3 of the growth in VRE. We are also moving rapidly into the seasonal lows for solar and wind is just starting to pick up.

Figure 3 Generation by fuel. *30 day annualised, ** Variable renewables. Source: NEM Review

Figure 4 Wind & solar [VRE] share of output. Source: NEM Review

Figure 5 VRE by fuel Source: NEM Review

Figure 6 Raising the bar. Source: NEM Review

Volumes

Figure 6: electricity volumes. Source: NEM Review

Base Load Futures, $MWH

Figure 7 Baseload futures Financial year average. Source: ASX

Figure 8 Quarterly futures Source: NEM Review

Gas Prices

Figure 9 30 day moving average of Adelaide, Brisbane, Sydney STTM price. Source: AEMO