The curious case of South Australia's fossil fuel bidding patterns | RenewEconomy

The curious case of South Australia’s fossil fuel bidding patterns

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When the main interconnector closed in South Australia prices surged. But the bidding patterns by the fossil fuels generators were curiously spaced.

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Federal energy minister Josh Frydenberg was right when he said this week that the spikes in South Australia’s electricity prices were not the fault of renewables, but due mostly to other factors such as soaring gas prices, high demand, and a constrained network.

But he might have added other factors – factors cited regularly by South Australia energy minister Tom Koutsantonis – and they are the lack of competition in the South Australian market, and the power of the energy oligopoly it wants to break by having another inter-connector and more renewable energy.

These two graphs provided below by the ever-vigilant energy experts at the Melbourne Energy Institute invite a further potential cause, and that is the bidding strategies of the fossil fuel generators at the time of these big peaks.

The MEI’s Mike Sandiford says these two graphs below are interesting because they reflect similar demand and similar amounts of wind power availability on two different days.

MEI july 7

MEI july 7 half hour

Wind dispatch was similar (94 MW v 105 MW). The main difference between the two was the availability of the Heywood interconnector, which governed how much gas was used and how much competition there was in the market. On the day that the interconnector wasn’t available, prices were nearly 10 times higher than when it was.

“It tells you that it is not wind that is the main factor in price swings, or the demand,” Sandiford says. “Conditions were almost identical on the 7th and the 15th (of July) in terms of wind output, but the inteconnecter flows were much more stable, and allowed much more flow into SA (608MW vs 175MW).

But it is what happens when the inter-connector is not working, and the market is pretty much in the hands of local gas and diesel generators, when things get curious.

One chart is the half hour bidding cycles. Note in this graph below, how the price spikes happen at the 5th minute and the 10th minute of nearly every half hour interval. That, says Sandiford, is strange.  He also notes that the 24 spikes above $10,000/MWh are a record in Australia.

july 7 half hour MEI
Wholesale electricity prices between 5pm and 11pm in South Australia on July 7, 2016

“The half hour cycling is very interesting,” he says. “Also note the peak prices don’t correlate well with gas dispatch, with gas declining during or just before peak pricing events which tended to be at the 5 and 10 minute period in each half hour interval.”

The way the wholesale electricity market works is that prices are set at five minute intervals, but financial settlement occurs at half hour intervals, based on an average price.

Big energy consumers, and the energy regulators and market operators, are concerned that this bidding pattern allows for distortions and higher prices.

They support a change in the rules to have settlement every five minutes, which would encourage new and fast responding technology such as battery storage to enter the market, bringing down wholesale electricity costs.

But these rule changes are being fiercely resisted by the owners of the gas generators, such as AGL Energy and Origin Energy, and their main lobby group, the Australian Energy Council.

It will be fascinating to see what conclusions the Australian Energy Market comes to when it releases its assessment of that week’s trading.

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12 Comments
  1. Analitik 4 years ago

    You do realise that at the Heywood end of the interconnector is exactly the sort of generation mix that South Australia has been transitioning away from, don’t you?

    What happens if the amount of brown coal generation capacity falls in Victoria and is replaced by wind farms which operate in wind patterns that are highly correlated with the South Australian wind farms? Has Mike Sandiford detailed the consequences for South Australia?

    • iampeter 4 years ago

      They will blame it on brown coal generation falling in Victoria and call for an ACCC investigation. All without a single hint of irony.

    • Malcolm M 4 years ago

      Victoria has some access to pumped storage through the NSW inter-connector, which can even out the highs and lows. Tumut 3 has 900 MW of pump and 1800 MW of generation, while Shoalhaven has 240 MW of pump and generation.

      • Analitik 4 years ago

        Victoria has direct access to output from the Snowy Mountains scheme already and it is already used to full capacity at certain times of the year. Interconnectors just pass the buck and pumped storage has severe limits in both capacity and output.

        South Australia’s changeover has pushed current infrastructure to its limits – the Grattan Institute has already warned of the coming need for capacity payments to keep thermal plants online.
        https://theconversation.com/australias-energy-sector-is-in-critical-need-of-reform-61802
        Meanwhile, they also bring back the “gold plating” of the grid’s “poles and wires” as big cost issue – what the heck are interconnectors, then?

        • EnGee 3 years ago

          The Heywood interconnector between Victoria and SA was never ‘a planned infrastructure project’ anyway. Anyone who knows the history of Portland Aluminium would know this. Shame that politicians are always detracting from our daily lives rather than contributing to them.

      • iampeter 4 years ago

        So am I understanding this correctly? You’re saying once the 100% alternative powered state of SA – which is producing so much power it is now entirely dependent on Victoria – has sucked Vic dry, both SA and Vic can then start sucking NSW dry?

        Where to after NSW is sucked dry?

      • Chris B 4 years ago

        Tumut 1-3, Guthega, Blowering and Murray 1-2 have a combined peaking capacity of 3950MW, of which 1900MW is exportable to VIC.

        Because of seasonal rainfall and water shortages there are obviously limits to how long they can generate for, but they can easily integrate with westerly facing solar to smooth the evening peak.

  2. Malcolm M 4 years ago

    The difference in Victoria is that there are more fossil fuel bidders, and hydro. The Tasmanian link is potentially up to +- 400 MW, about 1000 MW of short-response hydro, and about 1000 MW of inter-connector capacity to New South Wales. A limitation is that most of the hydro is on the same power lines and transformers as the NSW inter-connector.

  3. nakedChimp 4 years ago

    Self optimizing entities.. and as always, the ‘invisible hand’ doesn’t cater to a best outcome for the majority, but the oligopolistic/monopolistic entities.
    Get rid of those constructions and if there are natural oligopolies/monopolies put them under public scrutiny and strong personal punishment for wrong doers – only solution.

    • iampeter 4 years ago

      So you are calling for punishment of alternative energy businesses? They are the only state-sanctioned oligopoly/monopoly on energy in this country.

      Meantime fossil fuel companies are going out of business.

  4. Charlie 4 years ago

    Surely we should not be crying wolf but to me this is a real sign of a coming crisis – duck curve if we ever heard of it will become a real thing sooner than later. Wind is not the blame but the grid is. Coal-fired power has a much higher total cost than that of today’s renewable if extensities are taken into account – it’s just a market failure not to have them taken into account.
    The SA price spikes threw a case of pressure test for the grid in real-world situations setting a new ground for us to re-evaluate the cost-effectiveness of more innovative and potentially more sustainable solutions, battery storage, accurate wind / solar forecast, micro grids etc, not just adding one or two new interconnectors. The latter may delay the crisis a bit but how about Vic and NSW fast-track renewable uptake that is going to happen soon?

    • john 4 years ago

      Duck Curve has been evident as soon as PV was implimented.

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