The Queensland electricity market has been hit by a run of extraordinary price extremes – hitting both the market cap and the market floor – in recent weeks as a result of so-called “system strength” issues that can cause large scale solar farms to be suddenly switched off, or back on again, with little notice.
Market volatility is not unusual, and can be caused by sudden surges in demand, changes in supply, trips of major generators, and network issues. But the breadth of the volatility in Queensland in the middle of October has been unusual, and sparked numerous articles from market wonks, and analysis of how big batteries have been able to cash in and beat gas peaks thanks to their speed and versality.
The situation also highlights one of the challenges in negotiating the rapid transition of Australia’s main grid from one dominated by centralised fossil fuel generators – who have fed from largely predictable price surges during peak demand for decades – to one dominated by wind and solar with less predictable pricing events.
System strength issues have been emerging in several parts of Australia’s main grid, and most recently in north Queensland, where wind and solar farms have been warned they will be constrained, or switched off entirely, if the market operator decides there is not enough synchronous generation to maintain grid security.
But this also has an impact on market prices, and the Australian Energy Regulator has reported on a particularly volatile week in Queensland in the middle of last month that included a jump to the market price cap of $15,000/MWh in one dispatch period, and half a dozen falls to the market floor of minus $1,000/MWh.
The AER says most of the price excursions were caused by “system strength” issues, which can lead to constraints on solar farms if there is not enough synchronous generation on line. This can cause prices to suddenly skyrocket as more than 500MW of capacity is suddenly withdrawn, and can then cause prices to plunge when the constraints are relaxed and the solar comes back on line.
The AER’s report also notes other contributing factors, including the sudden withdrawal of coal and gas plants due to technical problems, sudden changes in consumer demand, and limits on the main transmission link to NSW, reducing the option for exports south.
The most dramatic event in this particular week occurred in the morning of October 13, at around 10am Queensland time, when the combination of higher than expected demand, lower than expected solar and wind generation and then the sudden loss of 200MW of fossil fuel capacity due to “plant issues” triggered a system strength constraint which resulted in 530MW of solar capacity being suddenly removed.
The prices hit the market cap of $15,000/MWh for one trading period, before settling down, and as other generators rushed in to try and cash on the high prices.
Over the next two days, and a day earlier, the opposite had happened, when solar constraints were relaxed bringing between 270MW and 340MW of additional solar into the market, sending the price to the market floor again, forcing many generators to then withdraw their bids as they tried to avoid negative prices.
The situation was further complicated by changes in anticipated demand and supply, and the sudden withdrawal of capacity or rebidding by other generators.
One of the issues in the current market is that the price over six 5-minute dispatch intervals is then averaged to make a 30-minute pricing settlement interval. This has been the subject of rorting, according to those who pushed successfully for a switch to 5-minute settlement periods, which after some lengthy delays will be finally introduced in October next year.
That is expected to favour fast moving technology such as battery storage and fast-start gas generators, and will be less kind to traditional coal and combined cycle gas generators, as Andrew Wilson explains in this analysis on how the University of Queensland battery performed during the recent pricing events.
Still, after all of those pricing swings, the Queensland wholesale electricity market still delivered the lowest average price in the National Electricity Market during the week of $37/MWh, and it has an average price in this quarter of $34/MWh, the second lowest in the NEM behind Tasmania and just ahead of South Australia ($35/MWh).