The Federal Energy and Environment Minister seems to hold a belief that he can tiptoe around the toxic political quagmire that is South Australia’s power supply and pricing calamity. As they say ‘well, good luck with that!’
Already the target of sniggering Australian satire, South Australia’s wind power ‘experiment’ has turned it into an international laughing stock. Although its few big remaining employers, like BHP, Arrium and Nyrstar don’t appear that keen on being the butt of the joke. Indeed, business leaders are furious and out to see that political heads roll. Another 10,179 South Australian homes were cut from the grid last year and there have been another 8,253 homes disconnected, so far this year: cash-strapped families unable to meet their rocketing power bills.
Here’s Graham Lloyd mapping out the politically toxic swamp that’s waiting for Josh Frydenberg in SA.
Josh Frydenberg’s new power struggle written on the wind
23 July 2016
With electricity prices spiralling as South Australia struggles to digest a world-breaking build of wind farms without firm power backup, federal Environment and Energy Minister Josh Frydenberg is facing a challenge that defines the conflict and mixed signals of his new super portfolio.
The challenge was delivered on a windswept blustery paddock about 200km west of Melbourne where Victorian Premier Daniel Andrews announced state approval for the $650 million, 96-turbine Dundonnell wind farm.
What the Premier did not tell reporters was that the 300 megawatt project, claimed to be the state’s biggest, had yet to receive federal government approval under the Environmental Protection and Biodiversity Conservation Act.
If Frydenberg does not give EPBC approval for Dundonnell he can expect a fiery backlash and accusations of turning his back on renewables and new economy jobs.
If he does give EPBC approval Frydenberg will be accused of grand-scale environmental vandalism against the Victorian brolga, which is listed as threatened and nests at the proposed wind farm site.
The New Zealand wind farm developer, Trustpower, claims to have accommodated the brolga in its layout plans. But the planning process for Dundonnell has been long and tortured with accusations of hidden records and dodgy environmental investigations.
The complaints have not come from peak environment groups but local bird enthusiasts because — rather than endangered fauna — organised environmental activists such as Friends of the Earth have preferred to concentrate on the need for renewable energy and a long-running campaign to make permanent the existing moratorium on coal-seam gas exploration in the state.
In the great circle of energy and environmental politics it is all connected.
For Frydenberg, the gas ban is as significant as the brolgas and the windmills.
And it has all been supercharged by the parlous state of South Australia’s electricity network and what it may portend for the rest of the nation, under pressure to roll out of renewable power.
Frydenberg is clearly aware of the scale of the challenge. He argued for amalgamation of energy and environment portfolio responsibilities and he knows Australia must respond to a fundamentally changing energy world.
In an address to the Brookings Institution in the US earlier this year, Frydenberg said “technology will be the swing factor to achieving the world’s climate goals”.
“Home batteries, carbon capture and storage, high-efficiency, low-emissions coal-fired plants, large-scale solar, are all likely to feature going forward,” he said.
But, politically, Frydenberg’s task is to avoid becoming known as the minister for sky-high electricity prices.
Events in South Australia — where wholesale power prices have spiked, household electricity costs are the highest in the nation and industry is threatening to quit— provide a good opportunity for a reality check.
Wholesale prices are usually below $100 per megawatt hour but in South Australia they have repeatedly spiked past $10,000 and sometimes touching the $14,000 limit.
There are many reasons advanced for the unstable electricity situation in South Australia.
These include high demand for electricity and gas during a cold snap, restricted competition, limited interconnector capacity to the national grid and the high costs of transporting gas. The gas squeeze has been exacerbated by fierce objections to coal-seam gas exploration in NSW and Victoria as the giant liquefied natural gas export projects in Queensland suck vast quantities of what used to be domestic supplies.
Clean Energy Council network specialist Tom Butler says the reasons for South Australia’s high power prices compared with the rest of the country remain the same as they were before a single wind turbine or solar panel was installed.
A briefing paper released by the Australian Conservation Foundation says renewable energy wrongly is being blamed.
“In fact the problem is not a failure of renewable energy; it is a failure of the national electricity market,” the ACF says. This may be true. But it is disingenuous to suggest renewable energy is not having a leading impact.
The Australian Energy Market Operator conducted a survey of why wholesale prices spiked during the same period last year.
An analysis of the findings by Frontier Economics says the common denominator was a low level of wind generation at the time.
“As has been long predicted, increasing penetration of wind, and its inherent intermittency, appears to be primarily responsible for the (price spike) events,” the Frontier Economics report says.
“While the events have coincided with relatively high demand conditions in South Australia and some minor restrictions on imports of electricity from Victoria, low wind production levels are the key common feature of every event.
“The market response at such times has been to offer higher-priced capacity to the market, leading to high prices, just as the National Electricity Market was designed to do under conditions of scarcity.”
The Frontier report says the level of wind and solar penetration in South Australia presents a fascinating natural experiment in the impact of intermittent generation on wholesale prices.
“Unfortunately, this test is anything but academic and the people of South Australia are increasingly likely to bear increased electricity costs as wind makes up a greater proportion of South Australian generation,” Frontier says.
“While policymakers may be tempted to act to force thermal and/or wind to behave uneconomically, the likely outcome means South Australian consumers will bear more costs.”
Fast forward 12 months and the same weather conditions have produced the same outcomes in the wholesale market, with higher prices to consumers starting to flow through as well.
In the meantime, Alinta Energy has been forced to close its two coal-fired power stations in South Australia early because their business model has been wrecked by the introduction of low-cost, subsidised wind generation into the wholesale market.
Renewable energy champions have always argued the so-called merit order effect, in which abundant cheap renewable energy suppresses the wholesale market, is a positive for consumers. But the evidence is that there are limits.
South Australia is being watched closely by traditional energy companies and renewable energy specialists worldwide as a test case for what happens when high levels of intermittent energy, such as wind and solar, are introduced into a system that is not fully covered by other sources of readily available power.
Elsewhere, such as Denmark, where there is a high percentage of wind power in a national market there is also access to sufficient baseload power from hydro, nuclear or coal from neighbouring countries available to cover the fluctuations.
In South Australia the backup from the Victorian interconnection is 23 per cent.
Modelling by Deloitte Access Economics suggests that by 2019 the interconnector will be importing all the Victorian electricity it can handle into South Australia for almost 23 hours a day. It does not leave much margin for error if things go wrong.
“The last few weeks in South Australia have been a perfect storm but it shows that we have to be very careful how we design markets and policies to decarbonise,’’ Australian Energy Council policy specialist Kieran Donoghue says.
This is the real challenge for Frydenberg in his new portfolio.
The ACF wants a national plan to manage the transition to clean energy. It says this plan should “deal with intermittent generation and energy security, appropriate interconnections, careful placement of renewable facilities to maximise flexibility, an orderly closure of coal-fired power plants and detailed strategies to help affected communities with the transition”.
“The benefits of renewable energy are numerous, but without national leadership and a national plan to transition our energy sector we are certain to see a rocky transition with more price fluctuations,” the ACF says.
Powerful South Australian senator Nick Xenophon has said he will support a Senate inquiry to examine the mix of renewable energy in Australia.
Australian energy ministers are due to meet soon to consider exactly these issues. But no one has yet put forward a credible plan of how this should be done or what the cost would be.
At best, there will be a Band-Aid solution to the immediate problems in South Australia.
Industry specialists say the Council of Australian Governments certainly will look at options for additional interconnectors to deepen ties between states in the national electricity market.
The cheapest option will be to expand the connection to Victoria, but that is unlikely to give South Australia the sort of diversity of supply it is seeking.
It is further complicated by Victoria’s own plans to lift renewables — through projects such as Dundonnell — and the desire of environment groups nationally that Victoria’s big baseload brown coal generators, which underpin the system, be forcibly retired as soon as possible.
Another option would be to connect to NSW or Tasmania.
The cost of a new interconnector is high, with estimates of up to $3.75 billion for a connection between NSW and South Australia. Experience shows costs can blow out by almost double.
Meanwhile, rapid advances in technology, particularly in battery storage and grid management, make it uncertain whether expensive interconnectors are the right solution for the long term.
South Australian Energy Minister Tom Koutsantonis wants the ability to ship his state’s wind power to other states, something coal-fired generators in NSW and Queensland would resist.
The challenge is to stop what is happening in South Australia from occurring elsewhere as the amount of intermittent power is expanded nationally to meet the state-based and federal renewable energy targets.
Already, existing generators are arguing for greater payment for the ancillary services they provide to keep the electricity network stable.
Payments for standby reserve power and voltage regulation that cannot be provided by wind and solar would lessen the dependence of baseload plants on the spot electricity market.
But is this not a Band-Aid solution rather than long-term vision?
Central planning can be a slippery slope.
“It is important to be clearer that this transition is not costless,” Donoghue says.
“Instead of thinking that the wind and sun are free, it would be better to give a more realistic understanding of what the costs will be.”
The more governments mandate things such as the amount of renewable energy in the market, the likelier they are to find themselves having to also support remaining dispatchable generators.
“If they (governments) want to direct the transition they are going to be on the hook for all the infrastructure as well,” Donoghue says.
And under the pathways put forward by the ALP and Greens they are also going to be on the hook for the heavy social transition costs as well.
It remains uncertain what pathway Frydenberg intends to take.
In his Brookings Institution address in February, Frydenberg said it was clear the global energy supply dynamic was moving to lower emission energy sources.
He said country comparisons showed that lowering emissions from the energy sector could not be one-dimensional because countries were starting from different positions and faced different challenges.
“One such challenge will be the need to question traditional energy supply” and “such a discussion is currently taking place in South Australia”, he said.
He was talking about the South Australian royal commission into nuclear energy, which he said had “revived the discussion about the role nuclear power could play in a low carbon economy”.
“Given South Australia has 78 per cent of Australia’s uranium reserves and the stable geology to store high-level waste, this debate is shifting community attitudes and has some way to run,” he said.
The Environment and Energy Minister has a substantial challenge ahead.
A half-decent effort there from Graham Lloyd with his usual sense of ‘balance’, which may have led to this silly throwaway:
“Elsewhere, such as Denmark, where there is a high percentage of wind power in a national market there is also access to sufficient baseload power from hydro, nuclear or coal from neighbouring countries available to cover the fluctuations.”
If Denmark is accessing sufficient base-load power then why is it paying the highest power price in Europe; and more than three times the price paid for power in the USA?
The other glitch in Graham’s analytical Matrix is his line about battery storage and grid management:
“Meanwhile, rapid advances in technology, particularly in battery storage and grid management, make it uncertain whether expensive interconnectors are the right solution for the long term.”
There isn’t a single example of grid-scale battery storage of electricity operating anywhere in the World. The bulk storage of electricity is a fanciful pipe dream: an engineering impossibility and, if not, the cost of storing Terawatt/hours of power would be astronomical; and the resulting cost of the power delivered an economic disaster.
Like Graham Lloyd, Josh Frydenberg has been letting his unbridled ‘Meccano set – I can build anything – imagination’ run away with the idea that grid-scale battery storage is due to arrive on our doorsteps next week. If it ever happens (and we strongly doubt it) it will be decades away. Miracles aside, South Australia will be little more than a smouldering economic wreck in a year or two.
Graham’s redemption comes from his reference to the report done by Frontier Economics which scotches the “hey, quick look over there” response by the wind industry, its parasites and spruikers, that blames everything else but the patently obvious target for South Australia’s chaotic power supply and consequent rocketing retail prices.
Graham – aided by Danny Price of Frontier Economics – points to the elephant in the room when he says that: “the common denominator was a low level of wind generation at the time”. Indeed it is.
Here’s the full report from Frontier Economics.
OUT OF PUFF
WHOLESALE PRICE IMPACT OF WIND IN SOUTH AUSTRALIA
South Australia has experienced a spate of high wholesale electricity price events in July 2015. As has been long predicted, increasing penetration of wind, and its inherent intermittency, appears to be primarily responsible for the events. This briefing from Frontier Economics examines the causes of these incidents and discusses how a change in policy might be required to ensure the South Australian market operates efficiently in the future.
South Australia has experienced a spate of high wholesale electricity price events in July 2015 as shown in Figure 1, which shows the daily average and peak prices in South Australia this month.
Figure 1: South Australian average daily and peak wholesale electricity prices
Source: Frontier Economics analysis of AEMO data
These high daily and peak prices have been driven by a small number of 5 minute dispatch intervals where prices have spiked greater than $1,000/MWh.
These events trigger a requirement for the market operator AEMO to produce a pricing event report analysing the cause of the price event.
According to AEMO, these price events have all had a common factor – low levels of wind production in South Australia.
AEMO pricing event reports – South Australia July 2015
Electricity Pricing Event Report – Wednesday 22 July 2015
Market Outcomes: South Australian spot price reached $2,296.07/MWh for trading interval (TI) ending 1830 hrs…During the high priced TI, wind generation in South Australia was low at 39 MW.
Electricity Pricing Event Report – Sunday 19 July 2015
Market Outcomes: South Australian spot price reached $2,372.11/MWh for trading interval (TI) ending 1830 hrs…During the high priced TI, wind generation in South Australia was low at 3 MW for TI ending 1830 hrs.
Electricity Pricing Event Report – Friday 17 July 2015 (TI ending 0000 hrs on 18 July 2015): South Australia
Market Outcomes: South Australian spot price reached $2,256.25/MWh for trading interval (TI) ending 0000 hrs (on Saturday, 18 July 2015)…Wind generation in South Australia was approximately 120 MW for TI ending 0000 hrs on 18 July 2015.
Electricity Pricing Event Summary – Tuesday 7 July 2015
Market Outcomes: South Australia spot price reached $1,221.54/MWh for trading interval (TI) ending 1900 hrs…Low levels of wind generation in South Australia at approximately 60 MW at TI ending 1900 hrs.
Electricity Pricing Event Report – Friday 03 July 2015
Market Outcomes: South Australian spot price reached $2,296.32/MWh for trading interval (TI) ending 0830 hrs…During the high priced TI, wind generation in South Australia was low at 45 MW for TI ending 0830 hrs.
Whilst the events have coincided with relatively high demand conditions in South Australia and some minor restrictions on imports of electricity from Victoria, low wind production levels are the key common feature of every event. The market response at such times has been to offer higher priced capacity to the market leading to high prices, just as the NEM was designed to do under conditions of scarcity.
A GATHERING FRONT
Numerous commentators have predicted for years that increasing penetration of intermittent renewable generation would lead to more volatile wholesale market prices. In December 2008, as part of advice Frontier Economics provided on the potential expansion of the Renewable Energy Target we stated that:
The increase in intermittent generation (by itself) is likely to increase the volatility of the pool price compared to an equivalent increase in thermal capacity, since wind cannot guarantee supply of energy at times of high demand.
South Australia, with its high levels of both utility scale wind and residential solar generation, was always going to be the first region of the NEM to see significant wholesale price volatility arising from this effect. Whilst we can expect to see related issues arising in other regions, the biggest question is what happens in South Australia in the future?
In June 2015, Alinta Energy announced the permanent closure of the Flinders Power Stations – Northern and Playford – from as early as 2016. This represents the exit of the only major baseload power station in South Australia.
Intermittent wind has led to volatile prices in July that have occurred at times when South Australian demand is around 2,000 MW. What will happen when Northern’s 576 MW is absent from the market? Northern’s exit introduces additional issues around maintaining inertia and frequency stability in South Australia. This could be further exacerbated by additional wind investment in South Australia in the future.
In the extreme case, with higher and more volatile wind output, less inertia and increasing dependence on the Heywood interconnector, South Australia may face load shedding events and potentially even a state-wide black out.
WHAT TO DO?
Potential policy responses fall into three broad categories:
Do nothing – Over time, higher levels of price volatility and, potentially, the level of prices, would provide incentives to existing peaking and mid-merit power stations to run more often and potentially lead to new investment in peaking capacity.
If left alone, the market will eventually respond to limit wholesale prices. However, continued policy uncertainty, for example vaguely defined proposals to significantly increase the RET, may frustrate generators’ desire to operate and/or invest to capture higher prices in South Australia. In the interim, customers are likely to bear the cost of higher wholesale energy prices and increased risk in supplying a retail load.
Force thermal generators to run – If higher cost capacity were in operation before wind output dropped, then there would be less opportunity for sudden price rises as there would be no supply delay arising from generators having to switch on peaking power stations. In industry terms, this would equate to operating additional ‘spinning reserve’ to manage the fluctuations in wind and solar output, which could also be sourced from other states via imported electricity. Of course, this means high cost generators would need to be running all the time even when the wind was blowing. Whilst higher levels of spinning reserve would be likely mitigate very short term wholesale price rises in South Australia, they would impose additional costs at all other times. Again, consumers are likely to bear these costs, which could be higher than the volatile wholesale prices they replace.
Force wind generators to not run – Aggregate South Australian wind generation could be limited to ensure the remaining generators are capable of meeting demand. Putting aside the issue of the financial impact this would have on existing wind generators who invested in good faith, this may not even be operationally possible in South Australia after Northern exits the market as there is simply not enough thermal generation in South Australia to meet demand when the wind is not blowing. Consumers would be likely to see higher wholesale prices and potentially higher RET costs under this option.
The level of wind and solar penetration in South Australia presents a fascinating natural experiment in the impact of intermittent generation on wholesale prices. Unfortunately, this test is anything but academic and the people of South Australia are increasingly likely to bear increased electricity costs as wind makes up a greater proportion of South Australian generation. Whilst policy makers may be tempted to act to force thermal and/or wind to behave uneconomically, the likely outcome means South Australian consumers will bear more costs.
Frontier Economics (PDF available here: out-of-puff)
For more detail and data on what was happening in SA’s spot market in July 2015: South Australia’s Unbridled Wind Power Insanity: Wind Power Collapses see Spot Prices Rocket from $70 to $13,800 per MWh
What we covered in that post and the subject of the Frontier Economic’s report occurred at a time 12 months ago when South Australia had plenty of available base-load capacity and its two interconnectors with Victoria were functioning, as designed.
Frontier Economic’s prediction that South Australia “may face load shedding events and potentially even a state-wide black out” has played out with disastrous results.
A few months after their report, on 1 November, a sudden 550MW wind power output collapse overloaded the interconnectors with Victoria, which shut down to prevent catastrophic thermal damage, plunging almost the entire State into Stone Age darkness: Wind Industry’s Armageddon: Wind Farm Output Collapse Leaves 110,000 South Australian Homes & Businesses Powerless
One measure of the quality of a country’s organisational skill is whether the trains run on time. In SA, however, whether its trains run at all depends on the weather: South Australia – Wind Powered Train Wreck: Power Supply Chaos Strands Thousands of Commuters
With Alinta’s Port Augusta Northern plant’s 576MW of reliable base-load power sitting idle (for the time being) South Australians can expect much more of the same.
As Josh Frydenberg is about to learn, wind power comes with a whole grab-bag of unexpected costs: social and economic. And, unless he unscrambles the LRET egg very quickly, he will be paying a punishing political price, as well.
Welcome to your wind powered future, Josh.