Lift in market price cap to encourage batteries and gas to fill coal gap
Australia’s energy regulators have proposed a dramatic increase in the price cap of the electricity market to encourage big batteries and gas peaking plants to replace the country’s ageing coal fleet.
The proposal says the wholesale market price cap should be lifted from from $16,600/MWh to $22,800/MWh by July 2027.
This would ensure there is enough capacity to deal with those rare times when generation doesn't meet a surge in demand – for example during a heatwave.
The modelling shows that price settings in the electricity market are currently too low to ensure enough generation and battery storage to keep the system reliable as it transitions.
The current price is already far above the operating cost of any generation asset, but the price needs to cover the increasing capital costs and interest rates for such an investment.
Open cycle gas generators, used to deliver market responses that inflexible coal can't achieve, may only be required to operate less than 100 hours a year.But they need to recover financing, fuel and maintenance costs in those short hours.
A big battery also needs higher prices to provide an incentive to make sure its capacity is actually available when needed.
The modelling cites a big increase in capital costs.That's thanks to rising interest rates, and a 30% increase in the cost of battery storage (though some analysis suggests that is being reversed).
Various state programs have provided incentives for big batteries to support the network, and to act as a kind of “shock absorber” that allows transmission lines to transport power at full capacity.