There is something very unusual going on in the state of Queensland. Over the past two months the number of negative pricing events has accelerated, in some weeks to an almost daily basis.
But it seems that the legacy coal generators are deciding not to ramp down as the market might expect. Instead, some observers suspect they are trying to force the solar plants out of the market on occasions. Some observers are comparing it to a Mexican stand-off, or even to the Survivor TV series.
On Wednesday, due to planned network outage in northern NSW, Queensland’s ability to export surplus electricity to NSW was dramatically reduced, and prices went down to zero early in the morning as the amount of solar increased significantly.
What happened then was highly unusual. Nearly all the 21 operating large scale solar plants switched off, some for short periods, others for longer.
But at the same time, as the output of large scale solar fell to negligible levels in the middle of the day, and the price of electricity went near the price floor (minus $1,000MWh), the amount of coal generation actually increased. And during all this time, the biggest pumped hydro facility in the state, Wivenhoe, owned by CS Energy, did not pump.
And, just for good measure, the same pattern looks like it is being repeated on Thursday. Most solar plants have switched off, the coal generators have increased output. Wivenhoe is not pumping.
This graph – from the OpenNem resource – illustrates how. It shows the amount of rooftop solar and utility solar generation throughout the last three days.
On Wednesday, (look for the vertical red line linking the output on top and the prices below) utility scale solar scaled right down, from more than 600MW to less than 100MW. You can’t blame clouds, otherwise that would have impacted rooftop solar as well.
But notice that vertical red line, that signals when the price hit the floor (minus ($1,000MWh), and the state owned coal generators increased production, before more solar plants chose to stop generating.
The same occurred on Thursday too – coal dials up as prices plunge into negative territory, large scale solar dials down.
To try and plot the actions of all the solar plants would look like a bowl of spaghetti (you can get the idea here, click on the solar tab), but Dylan McConnell from the Climate and Energy College produced these graphs to illustrate roughly what went on.
The first (above) is what happened at Daydream solar farm, which generated briefly in the morning, switched off as prices locked in negative territory and didn’t come on again until the price outlook was better in mid afternoon. Another seven solar farms, including Clare, Sun Metals, and Rugby Run had similar patterns.
The second graph below is Hamilton, which was off for a shorter period, (see graph below) and may have been managed more actively – either by their trading teams or by automatic software.
Or, they it have contracts that simply said “do not generate when prices go negative”. Another eight solar plants, including Haughton, Ross Over and Emerald, has similar outputs. Looks like they finally gave up when the coal plants increased output.
Only a handful of plants, mostly smaller installations of around 10MW, but also including the 118MW Lilyvale solar farm, kept on generating all the way through the day.
But here’s the interesting thing. As the solar plants turned off, the amount of coal output increased by around the same amount, even though the price was near the market floor. Anyone generating at that time were effectively paying $700/MWh or even up to $1,000/MWh for the right to generate.
This is not the first time that coal generators have increased generation at the worse possible point in the day, at a time of low or negative prices.
The Australian Energy Regulator reports regularly on the workings of the wholesale electricity market, and in late July noted that prices had fallen to the price floor on occasions because the government generator Stanwell plants had increased capacity by 130MW at Tarong and bid to the price floor (minus $1,000/MWh).
That inspired other generator to do the same, preferring to keep generating rather than switching off, and likely protected by some hedging.
The actions on Wednesday this week may have been random, or a mistake, or – as analysts at Watt Clarity suggest – it may have been motivated by the high prices gained from the FCAS market at the same time.
Although, as one observer noted, probably not enough to cover their costs at an electricity price of minus $1,000/MWh. Energy minister Anthony Lynham, in a statement to parliament, suggested the low prices in Queensland would enable the coal generators to lock in lower future contracts and that the coal generators are well hedged in any case.
It has some in the market wondering. Most of the solar contracts now being written in the market don’t pay out when price goes below zero, so the solar plants switch off rather than pay for the right to keep generating. Those that continue generating are likely to have an old-style fixed price.
But the actions of Stanwell are a mystery, As plants operated by CS Energy wound down, the other half did the opposite. The longer and deeper the negative prices, the more that solar plants will switch off. A similar thing transpired on Monday.
And analysts wonder: Why increase generation and burn more fossil fuel even if well hedged, as Lynham suggests, as it would dilute the gains.
Is this a deliberate strategy to restrict the amount of solar production? If so, how much is it costing the state-owned generators. (It is not so easy to find out because the nature of most contracts is not revealed, and they are likely to be heavily hedged).
If it’s deliberate, Why? Is this a last ditch attempt to skew the market before the emergence of the new “CleanCo” generator that will operate the Wivenhoe pumped hydro plant, and seek to encourage another 1,000W of wind, solar and storage into the market in coming years?
One industry insider, commenting anonymously on RenewEconomy late Wednesday, described the situation as a “Mexican stand off” against Solar (with no batteries). He (or she) even compared it to the TV series “Survivor”.
“Interesting to see who goes broke first? Queensland coal’s daily load weighted dispatch is still around $40ish during negative days. ( they will take a P&L hit but can probably still survive at those levels for a while).
“Those who have some PPA cover will be protected to an extent but based on the business cases I’ve seen…. could be some spectacular blow-ups on the way! It’s going to be the energy markets TV equivalent of “Survivor” ! :)”
One thing for sure: there’s usually more than meets the eye in electricity markets in Australia. This is going to be interesting to watch, particularly when the new CleanCo generator comes into operation, and operates assets such as the Wivenhoe pumped hydro facility.
Wivenhoe, as we report elsewhere, has been little used in recent years, but in August has been relatively busy, and notably only charging during the day, and discharging (or generating) at the early morning and evening peaks.
But it is still only using a small part of its capacity. And on Wednesday, with prices near the market floor, it did not pump at all. But it did generate when the prices went higher.
That sort of strategy is likely to change under new ownership, and give the solar plants a valuable ally – as will other storage projects due to be built, including the Kidston pumped hydro facility in north Queensland, with its own wind and solar additions, and the 1000MW of wind, solar and storage capacity planned by Cleanco.
Note: This story has been updated to replace some of the graphs, mostly to make them more beautiful, and to clarify that the solar plant generation graphs relate to specific plants, and not an average.