Why South Australians Pay the World’s Highest Power Prices

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South Australia is “blessed” with energy market gurus like Labor’s Mark Butler – who loves giant fans and is currently fighting a rear-guard action to save the RET (or, more to the point, the huge wind farm investments held by Union Super funds run by his mates, like Greg Combet and Gary Weaven). His State counter-parts are just as “helpful” when it comes to ensuring South Australians are supplied with cheap, reliable sparks.

In Sunday’s post we took a look at what a “low-yield wind week” looked like from the perspective of small business owners from Port Fairy in Victoria who were left without power – yet again – as Victoria’s wind farms took another holiday.

Across the border in South Australia the story wasn’t much better.

In SA, 40% of its total generating capacity is supposed to come from wind power.  That means – in reality – SA is often left with only 60% of its own (notional) generating capacity available to service its demand – when wind-watts go missing over 100 times each year.

When SA’s wind farms run out of puff the slack is picked up by operators like AGL, Energy Australia and Origin – with peaking plants deliberately designed to cash in on regular power price bonanzas.

The shortfall is made up by peaking power operators – who run Open Cycle Gas Turbines (that cost $200-300 per MW/h to run):

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Or diesel generators (see our post here) – like those set up as a 65 MW peaking power plant at the Adelaide Desal Plant – which cost even more to run:

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In addition, SA imports power from NSW and Victoria through the MurrayLink and Heywood inter-connectors.

Last week, as temperatures rose and demand surged SA’s 1,203 MW of wind power went AWOL. As a result, SA’s dispatch price (the amount the grid manager pays generators) for power went through the roof.  Here’s The Advertiser’s take on the debacle.

South Australian electricity wholesale prices spike to $10,515 MWh due to heatwave
The Advertiser
David Nankervis
14 January 2014

ELECTRICITY prices hit a massive $10,515/MWh on the wholesale energy market on Tuesday, but householders are urged to continue using their airconditioners despite the prospect of higher summer power bills driven by the heatwave.

While state wholesale “spot prices’’ for electricity have a long term average around $70/MWh, the prices soared briefly beyond $10,000/MWh at 1pm and again around $5000/MWh at 2pm before falling back to less than $1600/MWh.

The enormous spike, which is not expected to be reflected in household electricity bills, was blamed on “high energy demand driven by high temperatures’’, the Australian Energy Market Operator said.

The state’s leading welfare lobby group said the sharp rise was “surprising’’ but it couldn’t be sure why it happened.

“Maybe the wind just stopped blowing and wind farm power output dropped off,’’ SA Council of Social Services executive director Ross Womersley said.

“But it is really important industry regulators monitor what is going on in the wholesale market to ensure there is no price gouging.’’

Mr Womersley said it was vitally important that householders – especially the elderly and those in poor health – did not switch off airconditioners or fans in fear of running up higher power bills during this week of extreme heat.

“It’s crucial people take advantage of any device that can keep them cool,’’ he said.

“Hopefully, this heatwave is a one off event over the next few months and people won’t see higher bills than usual.

“But the fact people are using more electricity may mean we end up paying more when the bills come in.’’

Mr Womersley said householders could look to reduce their use of airconditioning when temperatures were “not so diabolic’’, if they wanted to reduce their summer power bills.

He added that the huge take up of solar energy by householders in recent years is helping the energy network keep up with peak demand.

However, despite solar system output surging with the summer, weather householders have been hit this month with a 22 per cent cut to the mandatory feed-in tariff paid by retailers.

From January 1, the tariff was reduced from 9.8c/kWh to 7.6c/kWh by the Essential Services Commission of SA.

It said the cut was made because “electricity wholesale cost forecasts have declined significantly”.

The commission ruled there will be a further cut of the feed-in tariff to 6c/kWh if the carbon tax is abolished.

The State Government said these decisions have no impact on the its 44c/kWh or 16c/kWh feed-in tariff.
The Advertiser

David Nankervis clearly doesn’t get it. Someone might be kind enough to send him the link to this post to help him understand just what’s happening in his own backyard.

But SA Council of Social Services executive director Ross Womersley was getting pretty close to the jackpot when he said: “Maybe the wind just stopped blowing and wind farm power output dropped off?’’.

In total, SA’s fans have a (notional) “nameplate” capacity of 1,203 MW, which means that IF the wind was blowing at a perfect, constant speed (around 11m/s) at every wind farm (from Millicent in the South-East, to Jamestown in the Mid-North to Cathedral Rocks on the Southern end of Eyre Peninsula) and there were no fans out of action with dodgy gearboxes, worn-out bearings etc – SA’s wind farms would generate 1,203 MW to add to the grid. However, that’s to dream the impossible dream – it’s never happened and it never will.  For short bursts (5 or 6 hours) SA has produced around 1,000 MW at night-time, but rarely more than that – and never for more than 12 hours at a stretch.

So what happened to drive SA’s dispatch price through the roof?

Well, let’s tell the story in pictures. If the graphs look a little “furry”, click on them and they’ll pop up in a new window and look sharp as tacks.

The graphs above show the sad and sorry “picture” painted by SA’s huge fleet of fans on Tuesday, 14 January 2014.

As demand hits the peak around 2pm, wind power output plummets from 440 MW (or 36.5% of total capacity) to 110 MW (or a piddling 9% of SA’s total wind power capacity).

And – just to meet the usual greentard retort that: “the wind is always blowing somewhere across Australia’s Eastern Grid” here’s the “bigger picture”.

About the same time wind power output took a dive in SA, the output of all fans on the Eastern Grid amounted to less than 400 MW – or a derisory 15% of the total nameplate capacity of 2,660 MW.

At the same time (around 7pm) SA’s fans were producing 110 MW – ALL of the fans in NSW, Victoria and Tasmania collectively managed to add a laughable 290 MW to the 400 MW total – which represents a woeful 20% of their total nameplate capacity of 1,457 MW.

Every time this happens (and it happens over 100 times each year – see our post here) the dispatch price skyrockets and often hits the $12,500 per MW/h regulated cap.

The grid is (mostly – save for “load-shedding”) kept up and running – but at an INSANE cost.  By comparison with the $10,515 per MW/h being paid for sparks last Tuesday – the National average dispatch price is around $40 per MW/h.  SA’s is higher (around $70 per MW/h) because such a high proportion of its generating capacity is in wind power – it tends to rely even more heavily on high-cost peaking plants when its considerable volume of wind-watts go missing.

This is not the first time this has happened in SA and it won’t be the last (see our post here).

Each year, retailers – who pay the “pool price”, based on the dispatch price – pitch a case to the regulator that they should be allowed to increase the prices they charge power punters.

Faced with an increasing number of occasions when the dispatch price approaches or hits the cap, retailers have every incentive to see retail prices match the frightening reality of the wholesale market.

In order to maintain their margins, they are bound to keep asking the regulator for “more” – ie the chance to up their retail prices.  With dispatch prices hitting $10,000 per MW/h (or more) on repeated occasions (thanks to wind power “outages”) the regulator is hard pressed to deny retailers’ requests to lift the rates they get to charge customers. Accordingly, the only way for retail power prices is up.

SA’s infantile reliance on wind power has led to outright chaos in its power market and it’s only going to get worse (see our post here).  Is it any wonder then that South Australians are paying the highest power prices in the World? See page 11 of this paper: FINAL-INTERNATIONAL-PRICE-COMPARISON-FOR-PUBLIC-RELEASE-19-MARCH-2012 – the figures are from 2011 and SA has seen prices jump since then.

Tom Playford – the South Australian Premier who was ready to die in a ditch to ensure SA enjoyed the cheapest power in the World – would be turning in his grave (see our post here).