In the second installment of our National Electricity Market (NEM) Year in Review series, we will be looking at how the energy mix has evolved over the past year. (See part one here.)
Figure 1 shows the percentage of electricity generated in the NEM by each fuel type. This data has been compiled using NemSight, a software developed by Creative Analytics (part of the Energy One group).
Note that we have included generation from small scale solar (≤ 100 kW) as it is increasingly becoming a significant source of power in the NEM. But strictly speaking, rooftop solar is treated as negative demand rather than generation.
During 2018, electricity generated from variable renewable energy (wind, small scale solar, and large scale solar) accounted for 12.6 per cent of total electricity generation in the NEM.
This is approximately a 30 per cent increase on 2017, when variable renewables represented 9.8 per cent of generation. Fossil fuels, and in particular coal, still dominate generation in the NEM, accounting for almost 80 per cent of all generation.
Exponential growth in large scale solar
Figure 2 shows the percentage change in electricity generation for each fuel type in 2018 compared with 2017.
The data in both Figures 1 and 2 is based on GWh generated, rather than capacity. As can be seen in Figure 2, 2018 was the year of large-scale solar. Generation from large-scale solar almost tripled in 2018, completely eclipsing the growth in any other fuel type.
Large-scale solar still only represents a very small portion (1 per cent) of NEM generation. However, it has experienced extraordinary growth in the second half of 2018, as new capacity has come online (see Figure 3). The biggest growth has been in Queensland. In 2018, the electricity generated from large solar in Queensland was more than 14 times higher than in 2017.
Small-scale solar has also seen strong growth, with the generation from these systems increasing by 21 per cent in the NEM (see Figure 2).
Queensland leads the nation in terms of both installed capacity of small solar (2220 MW) as well as having the highest percentage of dwellings with solar PV (33%) (Source: APVI). Furthermore, the statistics for 2018 will continue to grow as more systems are officially registered over the next 12 months.
The high growth in solar (both large- and small-scale) is already having a profound effect on wholesale electricity prices.
In a previous article, we used Queensland as a case study to demonstrate how solar is pushing down daytime wholesale electricity prices. We are seeing daytime prices fall out of the top quartile of pricing and into the bottom quartile.
This has big implications for developers of future solar projects, as they may see returns diminish.
Renewables (including hydro) are displacing higher priced gas generation
Figure 4 shows the change in electricity generation by each fuel type, but this time as a GWh change rather than percentage. The left-hand side shows the fuel types that had an increase in generation. The right-hand side shows the fuel types that had a decrease in generation. The difference between the two charts (approximately 1800GWh) is the load growth in the NEM.
We can see that in absolute terms, gas generation was the biggest loser in the energy mix in 2018.
Electricity from gas decreased by 5660GWh (27%) across the NEM as a whole. The overall capacity factor for gas generation fell to just 16.6 per cent, compared with 22.6 per cent in 2017. There are several reasons for the reduction in gas generation:
1. Gas generation was less available throughout 2018.
2. The gas generation that was available, was bid in at higher prices to reflect the higher pricing in gas markets.
3. Existing hydro generation, especially in Tasmania, offered its capacity at much lower prices as we explained in part one. This is the main reason for the growth in hydro’s capacity factor from 17.3% in 2017 to 22.3% in 2018.
4. Wind and solar have a zero marginal cost and hence tend to bid into the wholesale market at ≤ $0/MWh. This means they are at the very bottom of the bid stack. The growth in renewables combined with hydro offering lower prices, meant that any available gas was increasingly squeezed out of the market.
Brown coal decreasing with closure of Hazelwood
Hazelwood, a 1600MW brown coal fired power station in Victoria, was closed at the end of March 2017. As a result, brown coal generation fell by 18 per cent in 2017 compared with 2016, and again by 6 per cent in 2018.
Following the closure, existing coal-fired power stations have picked up some of the slack. Even though total coal generation is down, the capacity factor for brown coal has increased from 72 per cent in 2016 to 81 per cent in 2018. The capacity factor for black coal has also increased from 61 per cent in 2016 to 65 per cent in 2018.
As more ageing fossil fuel generation exits the market, and more renewable energy comes online, we can expect the energy mix to keep evolving. Stay tuned for part three of our series…
Source: Energy Synapse. Reproduced with permission.