Electricity: price and reliability of supply

Many people are concerned that pricing carbon will necessarily increase the price of electricity. Others say that the cost of additional and replacement infrastructure will have a much bigger impact. Here's another take on the whole subject: http://www.climatespectator.com.au/commentary/why-solar-parity-scares-big-utilities/

Thursday January 29, 2009, was a big money day for Victoria’s brown coal generators.

After a night of uncomfortably warm temperatures, and a dawn reading of 32 °C, Victoria’s residents turned to their air-con and pedestal fans in near record numbers. By 9am, demand had spiked so high that electricity prices had soared to $10,000 a megawatt hour as utilities switched on every last generator they could find to meet demand. These wholesale prices are normally between $35-$50/MWh.

During that day, which reached a peak of 44.3 °C in Melbourne in mid afternoon, the wholesale electricity price never fell below $1,000/MWh. For nearly four hours, it hovered around the $10,000/MWh price. The way the National Electricity Market works means that every generator switched on at that time receives that price, even though it still only cost the brown coal generators around $4/MWh to shovel the coal into their power plants. Over an eight-hour period, the state’s generators would have pocketed an estimated $550 million in revenue, near one fifth of their total revenue for the year.

It was, needless to say, an absolute jackpot for the generators. But while this was an extreme case, it was not an atypical event in the NEM. It is estimated that, on average, around one quarter of the revenue from electricity sales each year is generated from the prices gleaned from around 24-36 hours of peak production. The business models of the energy utilities depend on it. But now those models are under threat.

What, for instance, would have happened that day to electricity prices had there been large amounts of solar deployed along the eastern seaboard available to meet demand? ...

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This Sunday I'm going to a workshop which is seen as a first step towards establishing renewable power generation for the Southern Highlands region in NSW. Other areas have already set up community co-ops that own their regional scale solar or wind generators. Even without considering the CO2 effects of burning fossil fuel, the benefits of owning generators that are driven by fuels that no one can own (or charge for) are obvious and the costs, which are overwhelmingly in set up, are steadily declining. Exciting times.

That is a fascinating insight into the economies of power generation. The idea that in one 8 hour period the power companies pocketed a quarter of their annual revenue. Just doesn't seem right. I'm assuming that we as consumers ended up paying fro this windfall profit.

The idea of community owned renewable power supplies looks very attractive. Almost certainly a steady financial return. Good value in terms of economies of scale. Non polluting. Certainly worth a look.

Although I generally support the public ownership of utilities, in Australia it is a disaster.

Our states have a woefully inefficient and downright ****ty tax system. Now that property is in a downturn and they are getting scrap all stamp duty, they are forcing their energy producers to ramp up prices to collect higher dividends, to add to state budget's revenue.

This sets a precedent for the private producers to raise by just as much, because hell why not.

This country

A few points I'll state...

1. Some companies (I'd better not name which ones...) go as far as dumping steam (so as to crash their own output) in order to send prices (and CO2 emissions) through the roof when market conditions are suitable. It's more profitable for them to generate 150MW at $9,500 per MWh than to generate 500MW at $30.

2. Other generating companies have business models which involve sitting back, waiting for others to play the games and then profiting from the situation.

The old state-run electricity authorities may not have been overly efficient in their use of labour, but they were far, far more technically efficient at actually generating electricity. Going back to that model would cut CO2 emissions, and electricity prices, far more than we're ever going to achieve by putting solar panels on roofs etc. The other major change post-deregulation is that new construction has shifted away from a small number of large, efficient plants toward a greater number of small, less efficient plants.

The electricity market is a constructed market where a market does not naturally exist. It has driven some efficiency gains in terms of reducing investment in capacity and reducing labour. On the other side, it has directed investment toward less efficient capacity, and operates existing power stations less efficiently than the old utilities ran the exact same plants.

The only prediction I'm willing to make is that there's a crisis ahead at some point within the next 10 years affecting most likely Vic but also possibly SA and/or NSW. Either the retailers jack up unit rates hugely in order to offset declining net consumption and this ends in a political crisis (or the industry actually does go broke) or alternatively the generation system spectacularly fails and the lights really do go out. Both are distinct possibilities looking ahead and it's really a question of which one happens first.

For the other states, Qld is somewhat better at least on the generation side. NT it's still pretty much an old style utility with the same inherent risks (huge dependence on individual power stations due to the small scale of the industry) that it always had.

In Tas the generation system remains pretty much bullet proof in the short term but is of course always at the mercy of the weather in the long term. A bigger issue is likely to be Aurora and the ridiculous cost of retail electricity for households and small business. That plus the fact that Aurora isn't exactly popular these days which isn't helping either. At some point I think we'll see Transend take over the distribution system and the Hydro get back into the small consumer retail business (and I'm sure they won't need to spend $60 million on a computer to send the bills out like Aurora did...).

Smurf1976 said:

The old state-run electricity authorities may not have been overly efficient in their use of labour, but they were far, far more technically efficient at actually generating electricity. Going back to that model would cut CO2 emissions, and electricity prices, far more than we're ever going to achieve by putting solar panels on roofs etc. The other major change post-deregulation is that new construction has shifted away from a small number of large, efficient plants toward a greater number of small, less efficient plants.

The electricity market is a constructed market where a market does not naturally exist. It has driven some efficiency gains in terms of reducing investment in capacity and reducing labour. On the other side, it has directed investment toward less efficient capacity, and operates existing power stations less efficiently than the old utilities ran the exact same plants.

The only prediction I'm willing to make is that there's a crisis ahead at some point within the next 10 years affecting most likely Vic but also possibly SA and/or NSW. Either the retailers jack up unit rates hugely in order to offset declining net consumption and this ends in a political crisis (or the industry actually does go broke) or alternatively the generation system spectacularly fails and the lights really do go out. Both are distinct possibilities looking ahead and it's really a question of which one happens first.

For the other states, Qld is somewhat better at least on the generation side. NT it's still pretty much an old style utility with the same inherent risks (huge dependence on individual power stations due to the small scale of the industry) that it always had.

In Tas the generation system remains pretty much bullet proof in the short term but is of course always at the mercy of the weather in the long term. A bigger issue is likely to be Aurora and the ridiculous cost of retail electricity for households and small business. That plus the fact that Aurora isn't exactly popular these days which isn't helping either. At some point I think we'll see Transend take over the distribution system and the Hydro get back into the small consumer retail business (and I'm sure they won't need to spend $60 million on a computer to send the bills out like Aurora did...).

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Pretty well spot on smurf.
In W.A they seem to be taking a more holistic approach, well for the time being.
The government is encouraging new generators by increasing prices, while ensuring their own portfolio is able to cover a crisis situation.
Well that's how it appears.:eek

Where the money goes

Tisme said:

Where the money goes

View attachment 68603

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Get rid of the retail (I presume this is bloodsucking hangers-on in the private sector) and save 22%.

Close to 1,000 workers will lose their jobs following the announcement of the closure of the Hazelwood power station in Victoria’s Latrobe Valley.

The brown coal fired plant currently generates 22 percent of the state’s electricity and around four per cent of demand across the national electricity market.

Power prices in Victoria are expected to rise by 10 percent, experts say, not the four Premier Daniel Andrews’ government is touting.

There will also be flow-ons across the border, including in already-uncompetitive South Australia.

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Engie to sell Loy Yang B, St Baker wants Hazelwood

http://www.afr.com/news/engie-to-sell-loy-yang-b-st-baker-wants-hazelwood-20161103-gshbng

SirRumpole said:

Get rid of the retail (I presume this is bloodsucking hangers-on in the private sector) and save 22%.

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I reckon its more than that %.

There would also be an enormous % waste merely for the new Australian preoccupation for risk aversion and the ar5e covering paperwork that cocoons it. Then there's "Labor's Fault" penalty and the "Union's Fault" levy balanced out by the negative salaries the pressed shirts get for being great negotiators with govt and unions on behalf of the consumers.

Question.

Why isn't there a continued and maintained push toward
Solar power for home and business with incentive to feed
into the grid?

Wouldn't this go a long way in say 10 yrs to help
solve supply and pollution issues?

tech/a said:

Question.

Why isn't there a continued and maintained push toward
Solar power for home and business with incentive to feed
into the grid?

Wouldn't this go a long way in say 10 yrs to help
solve supply and pollution issues?

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Tech, i think part of the problem with that scenario is, among other things, how will the maintenance of the grid be paid for as more people move to solar? I guess one way would be to levy all home owners with solar a fee to pay for the grid maintenance....however, to be honest i can't see that working unless the grid stays in public hands. If you are connected to the grid then your going to pay for it....regardless of energy use. They can't just keep raising energy costs to cover the cost of the grid, as its unfair to those with out solar or self sustaining energy. The US is also facing similar problems and in Arizona the energy suppliers are fighting elections over this.

Its a real conundrum, how can we transition to greener sources without running down the grid that distributes the power?

Smurf? Calling our resident traveling energy specialist.....

tech/a said:

Question.

Why isn't there a continued and maintained push toward
Solar power for home and business with incentive to feed
into the grid?

Wouldn't this go a long way in say 10 yrs to help
solve supply and pollution issues?

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Because the coal industry and the current Federal government are in bed together via political donations and the Libs look after their mates.

The Hazlewood situation shows what you get when you hand over essential infrastructure to private enterprise. Some stuffed shirt in Paris just made a decision to take generating capacity and jobs out of our network and the economy. The Liberal party just shrugs it's shoulders and says "that's life, get used to it".

SirRumpole said:

Because the coal industry and the current Federal government are in bed together via political donations and the Libs look after their mates.

The Hazlewood situation shows what you get when you hand over essential infrastructure to private enterprise. Some stuffed shirt in Paris just made a decision to take generating capacity and jobs out of our network and the economy. The Liberal party just shrugs it's shoulders and says "that's life, get used to it".

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I agree that unfortunately there is a tremendous amount of fossil fuel politics here. I do agree with shutting down dirty coal fired plants if they are longer efficient. It takes political will power to make break through changes such as investing public money into a sustainable clean energy future infrastructure. Who has this?

On shutting down dirty and inefficient plants, my mate in Harbin runs a the North Eastern region of a French company that has put thousands out of work and shut dozens of old in inefficient heating plants and built one large state of the art coal fired, scrubbed, heating plant that supplies millions of households in Harbin and a couple of other cities. The air is cleaner from that one plant than all those dozens of other little plants. ITs still coal though....There are new, more highly skilled positions in that new plant....they took half my team when they started up...

Sir Rumphole, it is very frustrating to see Australia wasting its glorious sunshine opportunity the way it is...The Liberal government i fear will not see a future through the haze of external influences....similar to the US.

CanOz said:

I agree that unfortunately there is a tremendous amount of fossil fuel politics here. I do agree with shutting down dirty coal fired plants if they are longer efficient. It takes political will power to make break through changes such as investing public money into a sustainable clean energy future infrastructure. Who has this?

On shutting down dirty and inefficient plants, my mate in Harbin runs a the North Eastern region of a French company that has put thousands out of work and shut dozens of old in inefficient heating plants and built one large state of the art coal fired, scrubbed, heating plant that supplies millions of households in Harbin and a couple of other cities. The air is cleaner from that one plant than all those dozens of other little plants. ITs still coal though....There are new, more highly skilled positions in that new plant....they took half my team when they started up...

Sir Rumphole, it is very frustrating to see Australia wasting its glorious sunshine opportunity the way it is...The Liberal government i fear will not see a future through the haze of external influences....similar to the US.

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I also agree with shutting down inefficient coal plants, but there has to be a replacement strategy. The French company that owned this plant doesn't have a replacement strategy, and neither does any government State or Federal.

I reckon that if this plant was still in government hands they could say "we will shut Hazelwood down when we have built a new gas fired plant to replace it (or whatever the best replacement option is)" , rather than looking like stunned mullets when the decision is made for them by someone overseas.

SirRumpole said:

I also agree with shutting down inefficient coal plants, but there has to be a replacement strategy. The French company that owned this plant doesn't have a replacement strategy, and neither does any government State or Federal.

I reckon that if this plant was still in government hands they could say "we will shut Hazelwood down when we have built a new gas fired plant to replace it (or whatever the best replacement option is)" , rather than looking like stunned mullets when the decision is made for them by someone overseas.

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Absolutely, if the station was going to dent supply that much...but from what is only available in the news it doesn't sound like that is the case? I'm sure you wouldn't be advocating building a plant to just replace the jobs?

CanOz said:

Absolutely, if the station was going to dent supply that much...but from what is only available in the news it doesn't sound like that is the case? I'm sure you wouldn't be advocating building a plant to just replace the jobs?

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No of course I'm not advocating building plants just for the jobs. If Hazlewood can be done without, say because of increased rooftop solar then that's fine. The point I'm making is that foreign owners of generating capacity have no interest in the entire network, their decisions are made for themselves rather than the national interest.

ie there has to be a national strategy, private enterprise should not have the power to remove generating assets from the grid.

SirRumpole said:

No of course I'm not advocating building plants just for the jobs. If Hazlewood can be done without, say because of increased rooftop solar then that's fine. The point I'm making is that foreign owners of generating capacity have no interest in the entire network, their decisions are made for themselves rather than the national interest.

ie there has to be a national strategy, private enterprise should not have the power to remove generating assets from the grid.

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Ok, so if the plant was owned by the state, and decided to mothball it, you'd be ok with that if it was part of a wider strategy...?

CanOz said:

Ok, so if the plant was owned by the state, and decided to mothball it, you'd be ok with that if it was part of a wider strategy...?

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Yes indeed.

All power stations have a life and need to be replaced and someone has to decide when that happens and what it's replaced with. That can only be a National Energy Authority that makes the decision based on current and future requirements of the national energy market.

SirRumpole said:

Yes indeed.

All power stations have a life and need to be replaced and someone has to decide when that happens and what it's replaced with. That can only be a National Energy Authority that makes the decision based on current and future requirements of the national energy market.

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I agree that on some occasions, the state can run utilities efficiently....i can't think of any off hand, but i'm sure they must be out there. Maybe Norway or something?

CanOz said:

I agree that on some occasions, the state can run utilities efficiently....i can't think of any off hand, but i'm sure they must be out there. Maybe Norway or something?

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The Snowy Mountains scheme was run efficiently by the State for many years.