South Australia had lowest cost of supply in main grid in October

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South Australia had lowest average spot prices for electricity in Australia’s main grid in October as wind and solar provide bulk of state’s demand over the month.

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Pacific Hydro's Clements Gap wind farm in South Australia
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The renewable energy state of South Australia recorded the lowest prices in Australia’s main grid in October, a month when it sourced well over half of its its electricity supply from wind and solar.

According to data from the Australian Energy Market Operator, the average spot price of electricity in the wholesale market in South Australia was $67.34/MWh, lower than Queensland, which has usually held the record in recent times courtesy of the government edict to its state owned generators to bid low, and which recorded $74.16/MWh.

The average spot price for the month of October in the other states in Australia’s National Electricity Market – NSW, Victoria and Tasmania – were all  50 per cent higher than South Australia, and all averaged above $100/MWh for the month. Hydro-dominated Tasmania had an average price of $107.68.

There is a lot more to be done, but it’s a significant result for South Australia, which has been bedevilled by high electricity costs for decades, due to its reliance on expensive gas. As far back as the 1970s the state has been looking at wind and other sources of energy that could provide a cheaper supply.

Now its switch to wind and solar is starting to deliver tangible benefits, as other states have to deal with the rising costs of coal and gas generation. If it continues like this, it will help debunk the commonly held idea that renewables inevitably push prices higher.

Wind and solar are now clearly the cheapest form of new generation across the country, and the cheapest form of any generation in South Australia. So much so that the state Liberal government has set an aspirational target of “net 100 per cent renewables”, a level it will likely reach within a decade.

Gas is playing a declining role in the state, and this will diminish further as the share of wind and solar increases, more storage is added, and AEMO further relaxes market constraints and new machinery such as synchronous condensers are installed that will allow gas generators to be switched off for longer periods.

In October, wind and solar accounted for 66 per cent of the state’s demand during the month, and about 55 per cent of its total generation, according to this chart from Dylan McConnell at the Climate and Energy Institute.

This translates into 65 per cent of the state’s local demand, with the excess production being exported to Victoria. Wind provided the bulk of the renewables supply, followed by rooftop solar and then large scale solar. The state has two batteries in operation, the Tesla big battery at Hornsdale and the Dalrymple North battery.

McConnell’s price data differs slightly from AEMO’s as it is based on the “volume weighted” average, which reflects actual trades. But it still shows South Australia as the lowest cost state, at $73.40/MWh compared to Queenland’s $76.74, just over $103 for NSW and Victoria, and $108 for Tasmania.

One of the reasons the price has fallen in S.A. is that the number of directions by AEMO has fallen significantly (they reached a peak in 2018 when a unit of the state’s most modern and biggest gas generator was offline for repairs), and AEMO has gradually reduced the amount of “synchronous generation” that is needed when wind output is strong.

Wind farm operators say the level of curtailment in the September quarter had fallen to around three per cent as a result of AEMO interventions, although some operators – both wind and solar farms, have been obliged to switch off due to contract arrangements when prices fall below zero. That should occur less often as more storage is added.

AEMO data shows that the daily price averaged below zero for a whole 24-hour period in South Australia on four days in October. On the last day of the month it average just $2.96.

For the first four months of this financial year the average price in South Australia is $73.25/MWh, beaten only by Queensland ($65.20), and below Tasmania ($77.69), and well below NSW ($88.19) and Victoria ($99.04).

The absence of summer heatwaves and network faults also eliminates the huge price spikes the state is prone to when the more expensive gas “peaking” plants get to dominate the market and often send prices to the market cap if they can.

The use of gas generators is expected to reduce significantly later next year when ElectraNet starts to roll out synchronous condensers that will provide the “system strength” that AEMO says is needed. This should reduce prices well below where they would have otherwise been.

The addition of projects under construction such as the Lincoln Gap wind farm, the Cultana wind farm, and the addition of more battery storage, including at Lake Bonney and Lincoln Gap and the Playford battery in Port Augusta, as well as at least one pumped hydro project, will further reinforce the local grid and help eliminate the wild swings in prices that can affect South Australia, particularly in summer.

The target of “net 100 per cent renewables” is likely to be reached as a group of large scale solar, wind and battery plants queue for development, many in anticipation of the proposed new 750MW capacity link to NSW that should be built by 2023.

The South Australia government says this should reduce wholesale electricity costs even further, and give incentive to a whole range of major renewable and storage projects in the state. It will also use it cheaper and green electricity supply to underpin manufacturing industries in the state.

In a statement, South Australia energy minister Dan van holst Pellekaan said:  “It’s promising to see lower wholesale prices, but it’s not enough to deliver our aim of lower bills with cleaner power. 

“To do so, we need to deliver on our plan for the SA-NSW interconnector, synchronous condensors and grid scale storage to allow us to incorporate more renewables more securely and to reduce the cost of firming.”

 

 

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