Mystery as South Australia pleads with gas generator to switch back on

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South Australia pleads with state’s most efficient gas generator to switch back on. But what was promised in return? Or was the generator just happy to help?

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The South Australian government has managed to convince the owners of one of the state’s mothballed gas fired generators to switch part of the unit back on – at least temporarily – to help the state through a mini energy crisis.

The state government turned to Engie, the owner of the Pelican Point gas fired power station, under pressure from local industry concerned about soaring electricity prices, which have been caused by a surge in gas prices and reduced capacity on the cable to Victoria because of planned upgrades.

south australia gas costs
Short run marginal costs of gas fired generators in South Australia (courtesy of Melbourne Energy Institute).

Pelican Point is one of the country’s newest and most efficient gas fired generators, but has been mothballed because its owners – the partially French government owned Engie, which also runs Australia’s dirtiest generator, the Hazelwood coal fired power station – say there is no value in it being switched on.

Engie blames the price of gas and the “lack of opportunity” in the market. However, it has also applied for a government contract under the state’s tender for “low carbon” energy supply – a tender many hope will go to new technologies such as solar tower and storage. (See Gas or solar towers? Will South Australia government blink in push to clean energy).

While Pelican Point has been offline, the market in South Australia has been filled by less efficient and more polluting gas fired power units such as Torrens Island (see table above), which – unlike Pelican Point – has reversed plans to mothball some of its units following the closure of the Northern coal fired power station.

Spokesmen for both the South Australian government and Engie said there was no financial assistance provided to Engie to temporarily switch on Pelican Point, but they would not discuss what other “arrangements” may have been agreed.

It is suggested that Engie were just “happy to help out” despite what Engie has described as the poor economic in the current market. It was suggested there was no link to the low carbon energy tender.

In a statement, energy minister Tom Koutsantonis, admitted the government’s intervention in the market was an “extraordinary step”, but was unavoidable due to the planned outage of the Heywood Interconnector to Victoria, coupled with higher than expected gas prices, as well as severe weather conditions.

This had contributed to large-scale price volatility in the energy spot market in recent days, and Engie had agreed to provide 239MW of additional supply to help system security, and calm the market.

Once the works on the inter-connector are complete, expected by July 25, then a higher import capacity will be available. The government expects this to have a “positive effect” on wholesale electricity prices.

Koutsantonis says the events are yet another example of the failure of the “so called” national energy market.

“A confluence of remarkable events has led to incredible volatility in the spot market over recent days which has resulted in higher electricity prices and put pressure on South Australian businesses, some of whom have raised their concerns with me,” he said in a statement.

The South Australia government been lobbying for another link to the main grid on the eastern states, and recently put aside $500,000 to help fund a feasibility study.

pelican point gas

 

An Engie spokesperson said in a statement that Pelican Point was likely to be switched off again once the current interconnector outage is resolved. (Engie does not have a significant retail base in South Australia to use as a hedge as other generators might do).

“While it makes sense for the higher efficiency gas turbine plant to be returned to service, replacing the operation of lower efficiency peaking plant in its portfolio, once the inter-connector outage is complete, current market conditions, tight gas supply and high gas prices will mean Pelican Point is likely to be again off-line in the near term,” the company said in a statement.

There are fears in renewable energy circles that South Australia may use its clean energy tender as a pretext to provide a contract or subsidy to have Pelican Point back in the market permanently. This is despite the fact that it is rated as one of the cheapest gas fired units to run.

Engie is competing with another of other proposals, including for a 110MW solar tower and storage power station to replace the retired coal generator in Port Augusta.

Studies by the Melbourne Energy Institute have suggested that dispatchable solar power will be a better option for South Australia, particularly given the volatility and soaring cost of gas. South Australia is more exposed than other states because it is at the “end of the line”, and has fewer competing power stations.

These graphs, from MEI’s Mike Sandiford, illustrates what has been happening to the cost of gas fired generation as gas prices go through the roof. Prices, for the same capacity, have risen as much as four-fold.

The first graph is from June, 2014, when gas prices were still relatively low. The average price was $54/MWh, and even when demand for gas fired generator was heavy, reaching towards 1,500MW, the price barely reached above $100/MWh.

EI South Australia gas June 2014

That is not the case now. With the price of gas hitting record highs in June, the average price is now more than $120/MWh, and when demand reaches towards 1,500MW, the average price soars to $400/MWh, with peaks way above that.

If gas prices were to remain that higher, it would seem fruitful to encourage new technology such as solar towers and storage which carries no fuel price risk, and can still supply on demand.

MEI south australia gas june 2016

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27 Comments
  1. JeffJL 3 years ago

    So. The most efficient gas turbine generator is mothballed due to low prices while less efficient ones are running.

    Surely this is a failure of the market system or collusion by the electricity suppliers.

    • iampeter 3 years ago

      The Australian Gov is making it economically un-viable to run fossil fuel energy companies in this country which is why this gas plant is sitting idle and why no new investment in fossil fuel energy has been made in years. How is this a failure of the market?
      It’s amazing to me that we are witnessing in SA right now the consequences of trying to power a grid with “alternative energy” and instead of correctly concluding that the green industry is a massive cash gobbling dud you are blaming “market failure”.

      • JeffJL 3 years ago

        My reference to the market system is that allegedly the most efficient/lowest cost production will be used by the market. This is not happening.

        • iampeter 3 years ago

          Of course its not. Decades of regulations have made fossil fuels less competitive. The pelican point plant in SA can’t make money half the time. This was done intentionally to try and make alternatives (solar/wind) more competitive as they cannot compete in a free market.

          The result is the situation in SA: dropping energy supply and skyrocketing price.

          So you should be blaming the regulatory state not the market and calling for a separation of state and our economy before we end up looking like Venezuela.

  2. Malcolm M 3 years ago

    Even more mysterious is why gas prices are so high in South Australia. At present (14 July 17:25) the spot gas price on the AEMO website is

    $22.22/GJ in Adelaide,
    $14.58 in Sydney,
    $20.44 in Victoria and
    $8.73 at the gas supply hub in Queensland
    $5.60 for LNG imported into Japan (USD4.50/MMBtu, http://www.meti.go.jp/english/statistics/sho/slng/result/pdf/201606-e.pdf)
    $3.20 at Henry Hub in the US (USD2.59/MMBtu)

    For a gas power station with a 30% energetic efficiency, the break-even power price in $/MWhr is about 10 times the gas price in $/GJ. So the break-even electricity price for a gas power station is $222/MWh in Adelaide, $146/MWh in Sydney, $87/MWh in Queensland, $56/MWh in Japan, and $32/MWh in the US.

    Why is the gas price so high in Adelaide, when the pipeline from Moomba to Sydney is longer ? Why does it cost 2-3 times the value of the gas to transport it in the 45 year-old Moomba-Adelaide pipeline, rather than the newer pipeline to Sydney ?
    Surely this is another failure of the market or collusion of the gas suppliers.

    This “free market” is a sure way to kill our own manufacturing industry.

    • Hamish Barker 3 years ago

      Pelican point combined cycle thermal efficiency is around 50%. I did the thermodynamic modelling at sales stage when I worked for then abb (now alstom) gas turbines in switzerland.

      • Malcolm M 3 years ago

        Perhaps the best outcome for Pelican Point could be achieved if sold to one of the major retailers, such as AGL, which could the close its Torrens Island A power station.

        If the SA spot price for gas is so much higher than seaborne LNG, an LNG ship could moored off Pelican Point at times of likely high gas prices supplying it with cheap gas at the world price rather than being dependent on Australia’s pipeline monopoly.

        A proposal by the SA government for an additional electricity transmission line to NSW for ~$1b would simply export SA’s price volatility. If the Silverton wind farm in NSW ever went ahead, this would have preferential access to transmission capacity within NSW over wind power exports from SA. There is also no guarantee that the power line owner would use it to bring down prices in SA, because its returns would be maximised by ensuring a large price differential between the two markets. Would it not be better to facilitate a pumped storage hydro ? The proposed Kidston pumped storage in Queensland is about 450 MW for $300m. There are good pumped storage sites in SA on the Fleurieu Peninsula, ranges just north of Whyalla, and the Iron Monarch mine, all of which have at least 200 m of head within 1 km.

        • Chris B 3 years ago

          South Australia does not have the available water for conventional pumped storage.

          There are three suitable sites for large seawater pumped storage with 150-180m head on the Eyre Peninsula. Technology is basically still proof of concept, there’s only one existing plant in Japan.

  3. Brunel 3 years ago

    Why not build an UHVDC link from WA to South AUS and onto Vic instead.

    It would help with any power supply into SA – be it solar, wind, LNG.

    • Sim 3 years ago

      As well as allow solar power to be used in NSW from further west after sunset. Sort of like pumped storage without the pumping. Of course there is losses over long distance but UHVDC would be the most efficient.

      • Brunel 3 years ago

        10% loss over 3000 km. Worth it.

        http://www.stri.se/wwwpublic/UHVDC11-1.JPG

        • Sim 3 years ago

          Yes, thanks for the info. Have to admit it really makes sense east west on any of the continents, Europe, North America etc. especially with solar.

          • Brunel 3 years ago

            Not AUS?

          • Sim 3 years ago

            Actually, I was asuming Australia but meant to add the others for the same reason. In addition, Western Australia has a lot of gas. which In the mean time while solar and wind are improving and growing in volume,( It will take years to transition to renewables) it is easier to have gas fired generators near to the gas fields to be buying at the best prices and transmitting to the east coast. Gas being the least poluting yet the hardest to move out of the three coal , oil and gas, it makes sense to produce the power at sight and transmit country wide. Power can be sent back to WA using the same facility. Purchasing prices at the gas field will be based on world prices and logistics. It cannot be brought online nearly instantly like Hydro but still a lot quicker than coal or Nuclear(Rather not even go there).
            Pumped storage has to become widely available as well as battery storage for renewables to meet demand constantly. Transition will be the important stage.

          • Brunel 3 years ago

            For one we could shut down 2 or more peak load power stations – which are not as efficient as base load gas power stations.

            So a more efficient gas power station could power the peak in SYD along with the peak in SA and the peak in Perth.

          • Sim 3 years ago

            Tasmania could be a great peak provider with hydro if they were linked with the capacity to do so.

  4. George Michaelson 3 years ago

    The great thing about regulators is that they have powers. If this was a regulated activity, the regulator could DIRECT the companies which units could be used, and why.

    Reductionist economics in the distorted market conditions obviously favours a dirtier, less efficient provider. Thats precisely what a regulator looks at, and says “yes economically that makes sense: but we have a non-financial outcome we’re seeking here, and so I am going to use my powers and direct that the nasty dirty one is turned off, and the cleaner more efficient one is turned on” and then everyone can go into a room, maybe even a courtroom and discuss why this happened, and why something has to change to make it stop being neccessary to apply a lever.

    Deus Ex Machina is just a fact of (regulatory) life.

  5. iampeter 3 years ago

    There is no mystery in SA . Here is a step by step breakdown of what has happened here and no amount of word-smithing or graphs is going to change it:

    1. Gov provides subsidies for alternative energy power generation in state as it is not able to stay in business any other way.

    2. Gov shuts down reliable and viable fossil fuel power generation.

    3. A few weeks later due to serious shortages in supply of electricity, the price spikes.

    4. Green advocates publish article puzzling over this mysterious turn of events.

    Still to come:

    5. SA businesses and residents start looking up costs of diesel generators…

    • Mike Shurtleff 3 years ago

      Solar PV + battery system + propane fireplace/heater + generator
      Better way to go when grid planning sucks due to politics. Why wasn’t NG set aside in case of a worse winter? Oh yeh, gentailers want to create a “situation” that makes it look like renewables don’t work. They can make extra money by price gouging in the bargain. Many gentailers are becoming modern day theives. This might not have the effect they intend.

      More storage, less dependence on fossil fuels!

      Also, better insulation of homes and other buildings and ground source heat pumps.

      • iampeter 3 years ago

        Or just have a free market and people can either choose to pay for fossil fuels, nuclear, solar, wind or live with open fire places and insulation or any combination of the above.

        The choice should be left to the individuals, not dictated to us by our elected officials.

        • EnGee 3 years ago

          I believe the individuals have already voted. Judging by the nil change in electricity consumption, and nile reduction in use of fossil fuel motor vehicles, the public have ‘voted to ignore climate change’ theory.

    • JeffJL 3 years ago

      0. Electricity prices in SA much higher than in other states.

      • iampeter 3 years ago

        Unable to meet a demand means a shortfall of supply. You’re just saying the same thing. This is something that generally doesn’t happen with fossil fuels because they don’t depend on random things like sun shinning and wind blowing which are outside of human control. Problems like those occurring in SA are incredibly predictable and lots of people have been warning this will happen if we continue to try to create artificial markets for solar/wind.

        This “gas prices are high” statement keeps getting repeated, but what has that got to do with solar/wind not been able to supply electricity at a price people want to pay?

        • JeffJL 3 years ago

          Just so we are debating with the same assumptions in place.

          Do you agree with the Australian Government and the IPCC that human induced global warming is true and that the world needs to limit global warming to 2C (preferably 1.5C)?

          If we are working from different assumptions then both of us can be right but based on different rules.

          • iampeter 3 years ago

            Hi Jeff, no I don’t agree with that statement nor do I think it even makes any sense. Having said that it’s neither here nor there with respect to the energy issues in SA or the article here.
            Even if some crisis were about to happen that we needed to avert the solution wouldn’t be to engage in immoral and economically un-viable activity which just creates a different crisis of its own.

      • EnGee 3 years ago

        Many in press publish a shortage of electrical engineers…..I have noticed this since 1979…when will the ‘shortage’ be filled?

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