Regulator cites Loy Yang B coal unit failure for price surge in January

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Coal plant trip and low wind conditions provide perfect opportunity for gas generators to send prices sky-rocketing in January, but at least Tesla big battery kept them honest in FCAS markets.

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The Australian Energy Regulator has cited the failure of the Loy Yang B coal generator (one of 41 coal unit trips so far this summer), for sending wholesale electricity prices sky-rocketing in the middle of a heat wave in Victoria and South Australia on January 18.

The price surge to the market cap of $14,200/MWh in both states on both January 18 and 19 was immediately blamed on a failure of renewables by federal energy minister Josh Frydenberg and right wing media and thinks tanks. But they were dead wrong about the first day.

The AER, though it has yet to finish its full investigation into the price spikes, says the cause is clear for the January 18 price spikes: the trip of Loy Yang B and the sudden loss of 530MW of capacity, and the highest level of demand in both states for 12 months.

The wholesale price surged again on Friday, January 19, completing an ugly week for pricing in both South Australia and Victoria, where prices averaged $525/MWh and $383/MWh respectively, and it is the Friday volatility that is likely to be more contentious.

Again, the AER has yet to complete its report, but it cites several factors: one is low wind output, and less than had been forecast four hours earlier, the second is much lower level of demand. The issue was complicated by the market operator invoking its emergency reserve supplies (RERT).

Even though the prices spiked high, and above $12,000MWh for some intervals, the price was generally much lower on January 19 than had been forecast 12 hours earlier, when the market had predicted prices at or near the market cap for much of the afternoon.

Still, some gas generators didn’t miss the opportunity. Despite demand being some 500MW below forecast in the 4.30 interval, a couple of generators took advantage of lower wind conditions to hop back into the market and push the prices for their generators sharply upwards.

The AER notes that at 4.24 pm, effective from 4.30 pm, Ecogen Energy rebid around 170MW of capacity at its Jeeralang B and Newport peaking gas generators in Victoria from prices below $275/MWh to above $10,000/MWh, and the dispatch price increased to around $10,000/MWh in both Victoria and South Australia.

Which is one way of illustrating an important point: The market does not simply rise by itself when the wind don’t blow, or the sun don’t shine. The gas generators push it up, profiting in scarcity and the lack of competition.

This they have done, unchallenged, in associated markets such as that which provides frequency control and ancillary services (FCAS), a crucial contributor to grid security.

As RenewEconomy wrote recently, the presence of the Tesla big battery at the Hornsdale wind farm has punctured the ability of the South Australia gas cartel to charge whatever price it wants when a “constraint” is ordered by AEMO.

As we have reported, those constraints, and the need for 35MW of FCAS in a market with 10 times that much available, saw the gas generators systematically withdraw “cheap capacity” and push the price up to the market cap $14,200/MW even when only a megawatt or two were needed.

 

The presence of Tesla bidding into the market changed all that. Instead of reaping $7 million a day from the constraint as the gas generators have done in the past, this graph above from the AER report shows that FCAS costs on Sunday, January 14, was actually lower than average.

Over a year, and with an average of one constraint a month, that should save $50 million a year. Imagine when more battery and pumped hydro storage is playing in the wholesale market.

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2 Comments
  1. Joe 12 months ago

    This is bad news for The Coal Kissers and our mate in Canberra…the Joshie. Whenever there’s a problem he gives SA a huge public spray and he was at it again last night on Q&A. Then when it is found what the real cause of the problems are you never hear a peep from the Joshie. He has yet to comment about all of these Coalers tripping out this summer. The dude is a disgrace and should resign with his mate Baaaaaaananabee.

  2. john 12 months ago

    When the same FUD is trotted out people tend to believe it I am afraid.
    Once there is enough PHES as well as CSC on large scale together with battery farms and these are built from one end of the grid to the other the resultant downward pressure on prices will present a problem for the present group of politicians who trot out the same rubbish time and time again.
    If SA get to 75% RE the problem faced by the peaking plants will be obvious to all.

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