The future of energy generation and storage

[noco]

More home truths on the situation in South Australia are hitting the news daily.......Wind power is costly and unreliable......If the wind does not blow then South Australia is reliant upon base load from other sources.

http://www.theaustralian.com.au/nat...e/news-story/76f0fdb110c998fe959bfb343c1d370a


Wind turbines in South Australia were using more power than they generated during the state’s electricity crisis, which has prompted major businesses to threaten shutdowns and smaller firms to consider moving interstate.

The sapping of power by the turbines during calm weather on July 7 at the height of the *crisis, which has caused a price surge, shows just how unreliable and *intermittent wind power is for a state with a renewable *energy mix of more than 40 per cent. Australian Industry Group chief executive Innes Willox *yesterday said the rise in prices, *already the highest in the country, had disrupted industry and served as a warning for the rest of the ****nat*ion. “That is a serious blow to energy users across SA and has disrupted supply chains upon which thousands of jobs depend,” he said.

“The real risk is if this volatility becomes the norm across the *National Electricity Market.

“In June, electricity cost South Australia $133 per megawatt hour on average — already a high price. But since July 1, electricity prices have spiked above $10,000 per MWh at times.”

Mr Willox echoed warnings of the South Australian government on the weekend, saying “We will see similar episodes again, and not just in SA”, and backing calls for major reform of the NEM.

“Changes in the pattern of *energy demand and the ongoing build-up of wind and solar make life increasingly difficult for ‘baseload’ electricity generators across the country,” he said.

Olympic Dam’s supply woesOMore: Olympic Dam’s supply woes

The power crisis comes amid growing pressure from independent senator Nick Xenophon to invest hundreds of millions of taxpayer dollars into struggling South Australian businesses to save jobs, and as the Turnbull government attempts to establish a hi-tech *submarine manufacturing industry in the state.

An analysis of data from the Australian Energy Market Operator, responsible for the administration and operation of the wholesale NEM, shows the turbines’ down time on July 7 coincided with NEM prices for South Australia reaching almost $14,000 per MWh

NEM prices in other markets have been as low as $40 per MWh with the AI Group estimating this month’s power surge in South Australian electricity prices had cost $155 million.

While all wind farms in South Australia were producing about 189.72MW between 6am and 7am, by early afternoon the energy generation was in deficit as the turbines consumed more power than they created. By 2.20pm, energy generation by all wind farms was minus-2 MW. The situation forced several major companies, including BHP Billiton and Arrium, to warn the state government of possible shutdowns because of higher energy prices, forcing Treasurer and *Energy Minister Tom Koutsantonis to intervene by asking a private operator of a mothballed gas-fired plant in Adelaide for a temporary power spike.

BHP, which employs about 3000 people at its Olympic Dam mine in the state’s far north, said its operations in South Australia were under a cloud.

“The security and reliability of power have been a significant *concern for BHP Billiton and the sustainability of Olympic Dam,” the miner’s head of corporate *affairs, Simon Corrigan, said.

Opposition energy spokesman Dan van Holst Pellekaan said the snapshot of wind power operations in the state showed the Labor government’s energy policies had created an oversupply of cheap wind energy at times but that forced it to import from interstate when prices shot up.

“This wouldn’t be a problem if we still had a reasonable amount of base load generation but we don’t,” he said.

Mr Koutsantonis yesterday said improved interconnection for a “truly national electricity *market” would drive prices down immediately. Federal Energy Minster Josh Frydenberg declined to be interviewed yesterday, but said he would convene a Council of Australian Governments meeting as soon as possible.

Not everyone is unhappy — farmer Peter Ebsary hosts four turbines from the Snowtown wind farm in South Australia’s mid north. The wind farm, owned by TrustPower, is the state’s largest.

“We get a financial return and don’t have to do anything ... we just sit back and collect the money as long as the wind blows,” he said.

 

[Junior]

Re SA, so all this concern is about prices skyrocketing for ONE DAY. Nothing wrong with importing/exporting power between states as long as supply is not disrupted surely? The pricing clearly needs some kind of ceiling, however.

Also, that article keeps quoting a BHP spokesperson.....I would think BHP might have a little bit of an agenda regarding renewables.

 

[Smurf1976]

The South Australian government was warned back in 2005 of the poor state of those transmission towers with corrosion having taken place over a 50 year period and no action was taken......They were warned that the towers could collapse in high winds.

I must point out that whilst the SA government probably did get the same warning, the network in SA is privately owned and there's a realistic limit to what government can do when it comes to forcing private owners (of anything) to spend big $ on maintenance.

Transmission, distribution and virtually all generation in SA is privately owned. The only exceptions would be if there's any backup generators in SA government office buildings, water treatment plants and so on but they're not a normal part of the power supply.

The only other exception is the small Terminal Storage power station but that's owned by the State of Tasmania (trading as Lofty Ranges Power, a subsidiary of Hydro Tasmania) not SA. Even in that situation however, Tasmania is simply operating in the SA market as though it were a private for-profit company (which it is in terms of how the business is structured).

 

[SirRumpole]

I must point out that whilst the SA government probably did get the same warning, the network in SA is privately owned and there's a realistic limit to what government can do when it comes to forcing private owners (of anything) to spend big $ on maintenance.

The crux of the problem nationwide.

Such assets should NOT be sold to private enterprise. It may be the IPA's wet dream , but it's $hit for the consumer and the national interest.

 

[Smurf1976]

Re SA, so all this concern is about prices skyrocketing for ONE DAY. Nothing wrong with importing/exporting power between states as long as supply is not disrupted surely? The pricing clearly needs some kind of ceiling, however.

There is a price limit and that's the limit that prices did actually reach. Probably would have gone higher if not for the limit.

Overall it's a bit like saying that you normally buy petrol at $1.20 per litre. Then one day you fill up and it's about $400 per litre and it costs you $20K to fill the tank. Even averaged over 12 months that's still a significant hit financially especially if you've got no choice other than to pay up (can't really store electricity like you could with petrol if you knew the price spike was coming).

Or it's like saying you normally pay $2 per day for your home broadband but on one random day, which we won't tell you about until after the event, it will be $700 as soon as you turn the computer on. That's going to upset a few people.

 

[noco]

I must point out that whilst the SA government probably did get the same warning, the network in SA is privately owned and there's a realistic limit to what government can do when it comes to forcing private owners (of anything) to spend big $ on maintenance.

Transmission, distribution and virtually all generation in SA is privately owned. The only exceptions would be if there's any backup generators in SA government office buildings, water treatment plants and so on but they're not a normal part of the power supply.

The only other exception is the small Terminal Storage power station but that's owned by the State of Tasmania (trading as Lofty Ranges Power, a subsidiary of Hydro Tasmania) not SA.

So why did Jay Weatherall jump to their defense.......Why didn't he condemn those private operators......Were they reliant on Government subsidy to fix the power poles.......The poles had severe corrosion and the foundation had also deteriorated......Did you bother to read that in the article? ......I think the South Australian Premier has also a lot to answer.

You say there is a limit to what the SA government can do....Well I suggest to you there are authorities who can check the condition of the poles and in the interest of work place health and safety can force those private operators to implement maintenance on a regular basis.

I would say the SA Government were neglect in their duty of care.

 

[Smurf1976]

Should have added to my previous post that Red Energy (Snowy Hydro) and Momentum Energy (Hydro Tasmania) are both active as retailers in the SA market.

Whilst both are ultimately publicly owned they are both operating as "private" businesses in the SA market on a for-profit basis. Neither is associated with the SA government in any way beyond a normal commercial relationship if the SA government chose to buy electricity from them in the same way as any other customer does.

 

[Junior]

There is a price limit and that's the limit that prices did actually reach. Probably would have gone higher if not for the limit.

Overall it's a bit like saying that you normally buy petrol at $1.20 per litre. Then one day you fill up and it's about $400 per litre and it costs you $20K to fill the tank. Even averaged over 12 months that's still a significant hit financially especially if you've got no choice other than to pay up (can't really store electricity like you could with petrol if you knew the price spike was coming).

Or it's like saying you normally pay $2 per day for your home broadband but on one random day, which we won't tell you about until after the event, it will be $700 as soon as you turn the computer on. That's going to upset a few people.

Is that price limit way too high? Or is the lack of baseload generation the key issue?

 

[Smurf1976]

The poles had severe corrosion and the foundation had also deteriorated......Did you bother to read that in the article? ......I think the South Australian Premier has also a lot to answer.

Yes I've read the article but it doesn't change the fact that it's a privately owned asset.

Well I suggest to you there are authorities who can check the condition of the poles and in the interest of work place health and safety can force those private operators to implement maintenance on a regular basis.

I won't claim to know the situation in SA but in Tas at least workplace safety regulators don't really have the technical expertise to be assessing the structural integrity of transmission lines. Assessing the safety of work practices certainly, but not the structural integrity of the asset itself. In any event, that would really only be relevant to the extent that it's a workplace - a moot point if nobody's doing any work on it for maintenance anyway.

I'm not seeking to defend the SA government as a whole when it comes to power but the hands of the present government are tied somewhat. A previous government caused the mess by selling off ETSA, using the State Bank disaster as a convenient excuse to justify the sale. Never mind that the loss of profits from ETSA since privatisation now exceeds the cost of the State Bank disaster and the gap will only grow wider as each year passes. It was all about ideology really, the State Bank was just a convenient excuse and if it hadn't been for that they'd have found some other reason to sell ETSA instead.

One thing though, they leased (not sold) some of the assets and that includes Northern power station (and the next door Playford B station) both of which Alinta has now closed. That one could get interesting - will Alinta maintain the plant and hand back to government a working power station at the end of the lease? Government needs to get tough on that one - if Alinta doesn't want to run it then they can't really do much about that if there's nothing saying it has to run but as with anything leased they need to keep it in good condition and return it to the owners upon expiry of the lease. Given that they've already started work to clear other things on the site I'm guessing they've no intention of doing so (some of the machinery's worth considerable value for sale by the way if that's what they're planning to do with it, Northern power station isn't worn out by any means although Playford B is in poor shape).

 

[Smurf1976]

Is that price limit way too high? Or is the lack of baseload generation the key issue?

It comes down to the inherent nature of electricity as a "commodity" which can't economically be stored being traded via what is effectively a commodity market (the National Electricity Market).

Long story short, most of the time there's simply no money to be made in generation and practically all the profits come in during a very short period each year when prices spike. From a consumer's perspective that's somewhat crazy but it's the reality of the situation.

Looking at it right now (and ignoring SA due to the present unusual circumstances there) prices:

Qld = $29.13 / MWh. That will cover the operating costs of a coal-fired plant (but won't cover the fuel cost alone in a gas-fired plant) but provides minimal return on the original investment (not enough to warrant building it in the first place).

NSW = $29.96 so much the same as Qld.

Vic = $-1.17. Yes, the price is negative. Needless to say you can't make money generating power if you've got to pay someone to take it.

So the price spikes are basically keeping the power stations in business.

 

[SirRumpole]

It comes down to the inherent nature of electricity as a "commodity" which can't economically be stored being traded via what is effectively a commodity market (the National Electricity Market).

Long story short, most of the time there's simply no money to be made in generation and practically all the profits come in during a very short period each year when prices spike. From a consumer's perspective that's somewhat crazy but it's the reality of the situation.

Looking at it right now (and ignoring SA due to the present unusual circumstances there) prices:

Qld = $29.13 / MWh. That will cover the operating costs of a coal-fired plant (but won't cover the fuel cost alone in a gas-fired plant) but provides minimal return on the original investment (not enough to warrant building it in the first place).

NSW = $29.96 so much the same as Qld.

Vic = $-1.17. Yes, the price is negative. Needless to say you can't make money generating power if you've got to pay someone to take it.

So the price spikes are basically keeping the power stations in business.

Given that the electricity market is non profitable as you say, are the corporations buying into our power assets a) stupid, b) overly optimistic or something else ? In other words, why would they bother ?

 

[noco]

I must point out that whilst the SA government probably did get the same warning, the network in SA is privately owned and there's a realistic limit to what government can do when it comes to forcing private owners (of anything) to spend big $ on maintenance.

So why did Electra Net ignore the warnings........The maximum wind gusts reached 115 kph.....Barely a category cyclone 1 and the poles could not stand that force ...Psst.

ElectraNet was first warned in 2005 of the risk that 43 of its *towers could collapse in windy conditions because of corrosion and degradation of foundations.

Nearly a decade later, Electra*Net sought approval from the Australian Energy Regulator to recoup the cost of repairing the towers in its asset refurbishment plan for 2013 to 2018. The company noted that in some cases, foundation reinforcement bars and stubs were missing.

 

[Smurf1976]

Given that the electricity market is non profitable as you say, are the corporations buying into our power assets a) stupid, b) overly optimistic or something else ? In other words, why would they bother ?

I don't think those who bought the power stations have made anywhere near as much money as they were expecting but it's profitable overall (just). What happens is that most of the time it's a loss or break even, the market spends a lot of time around the marginal cost of putting fuel into power stations (recovering none of the fixed costs) but every now and then there's a huge spike which sends the price to the moon and then the money rolls in for as long as it lasts (generally 30 minutes to a few hours at most).

Needless to say it's a real bummer if your power station(s) just happen to not be working when a price spike occurs. Couldn't run on that day or three = there goes the whole year's profit.

That said, there's a lot of hedging cover so most aren't directly exposed to the spot price for all (or in some cases any) of their production but ultimately any hedging contract will reflect the average of spot prices in the longer term. If average spot prices double then nobody's going to enter a contract that doesn't reflect that to a reasonable degree.

Different participants take very different strategies in how they operate either at the company or power station level. Retailers do likewise. To pick a few:

Hazelwood power station = just sits there and generates. Price is whatever the market says and they keep plodding along even if there's not a cent to be made. They just mine the coal and generate power, price is whatever it is and at most they'll back off very slightly (few %) but even that isn't too common.

Yallourn power station = much the same as Hazelwood although they tend to back off production to a greater extent if the price gets seriously low.

Company that I won't name (privately owned) = ramps output up and down according to price (nothing wrong with that) but is pretty well known for having some sort of "problem" suddenly arise that requires an immediate drop in output when they've worked out that doing so will send the price to the moon. So they generate a third less power and sell it for 100 times the price.

Origin Energy is both a generator and a retailer (as well as an upstream gas supplier) but is net short on generation, they only generate about half of what they retail. Their official line is that they've avoided heavy investment in generation, buying from others instead to support their retail base, due to the risk of fossil fuel generation ending up a stranded asset depending on what happens with CO2 etc at the political level.

Then there's an assortment of "pure" retailers who generate absolutely zero themselves. Buy either under contract from someone else or at spot and sell to consumers, that's what they do.

Broadly speaking, there has been a trend for generation and retail to combine themselves (the so-called "gentailers") over the years as a financial risk management strategy. Not everyone has done that but it's the trend overall either by outright buying generation / retailers or by retailers locking in contracts with generators.

Something that may surprise many is that of every $ consumers spend on electricity, most of that money finds its way nowhere near an actual power station. In Tas the figure is 22.7% for residential consumers, that's the amount that pays for generation, and in other states it's not overly different. So where does the money go? Networks are the big one and the rest is retail, market costs and so on.

 

[SirRumpole]

Thanks for the comprehensive reply Smurf.

It only reinforces my view that the consumers are being ripped of when a) companies can manipulate the price of power by varying supply and b) consumers have no idea what they are paying for power at any particular time.

It's political of course, but I won't be voting for any Party that tries to con us that privatisation of assets is good for consumers.

 

[Smurf1976]

So why did Electra Net ignore the warnings........The maximum wind gusts reached 115 kph.....Barely a category cyclone 1 and the poles could not stand that force ...Psst.

Agreed that the winds were not extreme, at least 115 km/h isn't extreme looking at what happens elsewhere in Australia. So it's not a truly extreme event as such but obviously it's more wind than SA has experienced for quite a while.

As for why the warnings were ignored, well I've absolutely no idea on that one and won't pretend otherwise. I can only assume they either didn't have (or weren't willing to spend) the $ and/or thought something else was more important. One thing's almost certain sure though. I very much doubt such warnings will be ignored in future.

 

[Smurf1976]

Thanks for the comprehensive reply Smurf.

What will really upset the public is if the idea of passing wholesale prices directly through to small consumers (eg households) on a half hourly basis gains traction.

Put the oven on to cook a roast. Price shot up in the meantime and you didn't notice or didn't want a cold dinner. That's not going to be popular.

 

[SirRumpole]

Put the oven on to cook a roast. Price shot up in the meantime and you didn't notice or didn't want a cold dinner. That's not going to be popular.

How are we supposed to notice ? I've heard of "smart meters" but I've not seen them advertised and I don't know how much they cost, what their capabilities are or where I can buy them.

Are they just supposed to tell you how much your power is costing atm, do they cut off appliances if the power goes too high, or can they schedule such things as washing machines or driers when prices are low ?

It seem that they are a way of power companies putting the onus back onto consumers to cut their own power consumption, rather than the utilities supplying power at a reasonable price during the whole consumption cycle.

 

[Smurf1976]

How are we supposed to notice ? I've heard of "smart meters" but I've not seen them advertised and I don't know how much they cost, what their capabilities are or where I can buy them.

A smart meter in the Australian context is normally just a meter that records consumption in half hourly intervals.

Vic has gone down the track of putting them in everywhere, other states have been less enthusiastic but they do exist.

At the moment whilst the half hourly data is recorded the price is either a flat rate 24/7 or has a few price brackets which apply at set times of the day and which don't change from day to day.

But the idea to pass through the actual wholesale rates, which vary hugely, to consumers is certainly there in some states so it's probably only a matter of time until someone does it.

So it's not an issue now but it's a looming one depending on where you live.

Here in Tas it was concluded that it was all too hard for what it offered really. Confusing to consumers, almost certainly unpopular, and not a lot of benefit to the industry anyway. There was a focus group put together with representatives from networks, generation, retail, community and welfare groups and so on and that was the conclusion. Not worth the hassle.

So we've come up with a workaround - a simple two rate system with one rate during peak times (7am - 10am and 4pm - 9pm Monday to Friday) and the other rate at all other times. That achieves the objective of encouraging consumers to shift loads away from the peak times where practical without anyone needing to do a degree in economics and start speculating on power prices.

So two prices, both of which are fixed rates with any change of pricing done once a year (1 July) and what should be an easy to remember set of times when the higher price is charged.

The thinking there is that there are some benefits now if consumers choose, so as to save themselves money, to run things like dishwashers, dryers and so on at some time that isn't the peak. The bigger thinking though is that if electric cars become common well we sure don't want everyone charging them at 6pm in the middle of Winter otherwise we'll end up with some pretty big problems. If they can do it for half price starting at 9pm then logically that's what most will do and that fixes any issues.

Even that's completely voluntary by the way. Households in Tas can certainly continue to have flat rate (same price 24/7/365) pricing if they want to although the hope in the industry is that the two rate system will be seen as good enough for consumers to want it as such and change voluntarily. Time will tell.

The NT has decided to go down the same track as Tas by the way. The details differ, since their consumption patterns are different as is the means of generation but overall it's the same concept. Two rates, cheap one and expensive one, with the cheap one applying for long enough that consumers ought to be able to use it quite easily for things that aren't time critical - dishwashers, clothes dryers, charging batteries and so on.

In both cases the "expensive" rate is only moderately higher than the standard 24/7 flat rate price whilst the "cheap" rate is cheaper than the standard flat rate. The idea is to give consumers an incentive to shift some loads away from the peaks where practical but there's no need to send anyone broke in the process.

So Tas and NT have gone for simplicity. Vic is keenest on having prices go all over the place for households but hasn't actually done it yet (yet....). SA has similar thoughts but doesn't have the infrastructure in place. Other states are somewhere in the middle.

 

[SirRumpole]

The two rate system sounds reasonable, most consumers could find some way to reduce their consumption at peak times and therefore ease the load on the grid.

Pushing wholesale prices through to consumers would almost certainly lead to electoral backlash, I doubt if any sensible government would allow it, but then what is sensible these days ?

 

[Boggo]

The two rate system sounds reasonable, most consumers could find some way to reduce their consumption at peak times and therefore ease the load on the grid.

Pushing wholesale prices through to consumers would almost certainly lead to electoral backlash, I doubt if any sensible government would allow it, but then what is sensible these days ?

Anything that may impinge of the profit of the Asian "owners" will not be tolerated and Jay Weatherdill seems to be a puppet and they are the puppeteers.

The Chinese don't "donate" $5.5 mill to Australian political parties without expecting a return.
Shanghai Sam falling on his sword is just the scapegoat tip of the iceberg.

In SA the new Royal Adelaide Hospital is up for grabs too by the current SA Gov.

This is the same Gov that paid China $8 mill for a 10 year lease of two smelly panda's for the Adelaide zoo, they will probably do it again when the lease is up !

Extract from the CKI report to the Hong Kong stock exchange in July last...