South Australia’s ludicrous attempt to run on sunshine and breezes has rendered it an international laughing stock. Daily, routine, total and totally unpredictable collapses in wind power output result in price gouging efforts that see the spot price for power rocket from around $70 per MWh to $2,000 to $4,000 per MWh, in a matter of minutes and, on plenty of occasions, zipping all the way to the regulated market price cap of $14,000 per MWh.
Businesses and households bear the ultimate brunt: back in July, SA’s biggest miner, BHP Billiton paid $2.57 million in a single day for power that would normally cost them around $250,000, during yet another total wind power output collapse (see our post here).
Understandably, businesses like BHP, Nyrstar and Arrium are furious about the opportunists cashing in and have taken their, justifiable, complaints to Australia’s competition regulator, the ACCC. But, to no avail. The competition watchdog has given the green light to rampant power price gouging; provided, of course, that it coincides with wind power output collapses.
When wind drops, AGL free to gouge for power
Australian Financial Review
26 August 2016
Competition regulator Rod Sims has no problem with AGL Energy exploiting its market dominance to charge higher prices for gas-fired power in South Australia when the wind and the high voltage line from Victoria are both down.
Some large energy users and renewable energy advocates have blamed AGL for huge electricity price surges in South Australia in the past two months because it raised the price it charges for gas-fired power from its Torrens Island power station.
But Mr Sims told the Victorian Energy Users Conference that AGL wasn’t doing anything wrong when it took advantage of the Torrens Island being the only supplier for short intervals. In June AGL reversed plans to mothball Torrens Island.
“What happened in South Australia was a function of a lot of players being out [of the market],” Mr Sims said.
“I think the energy market does allow people when they’re in that position to price the way they want. That’s how the market works.”
Large energy users such as BHP Billiton’s Olympic Dam mine, steelmaker Arrium and Port Pirie smelter owner Nyrstar threatened to shut plants in July when prices hit the National Electricity Market’s $14,000 a megawatt hour cap price – more than 100 times the typical price.
This forced South Australia’s Weatherill government to lean on Engie to re-open its mothballed Pelican Point gas plant to provide more competition for AGL.
Mr Sims said price volatility was why people people hedged and gas generators could recoup the revenue lost when wind generators bid into the market at zero cost, by charging more when the wind was down.
“It’s not illegal to use your market power. We should never criticise people for using their market power, because you and I would do it as well,” Mr Sims said. “I don’t think that was the problem in South Australia at all.”
Asked by Nyrstar executive Greg Zoeff if futures prices of more than $100MWh in South Australia – twice the Victorian level – suggested AGL’s transitory market power was turning into a permanent problem, Mr Sims said market power came in different ways.
He said the rapid expansion of renewable wind and solar energy in South Australia had created problems for traditional fossil fuel generators because it came on to the market at zero cost, and some players had sold their gas to Queensland’s liquefied natural gas industry.
“There’s just less players around. And those people left standing may well have contingent market power because they’re needed at certain times,” Mr Sims said.
“How you work out that issue I don’t know but it’s extremely difficult – particularly when you’ve got renewables as large as they are in South Australia.”
He said studies suggested that once renewable got to a certain level in a market “it causes issues”. South Australia’s last coal-fired plant closed in May, and wind and solar energy provide two-fifths of its power, a world-leading level.
Mr Sims said Mr Zoeff could well be right, “but if that was the case I am not quite sure what you’d do about it. That’s the problem we have in our energy markets.”
Australian Financial Review
Rod Sims seems to think that this was all about “a lot of players being out of the market”. In reality, it was about one player doing what it’s done since the dawn of time: it simply stopped blowing.
Now, in a ‘compare and contrast’ moment, let’s have a look at what AGL’s Torrens Island gas-steam plant was doing in relation to the weather.
Firstly, AGL’s Torrens Island plant was never designed to operate as a ‘peaking’ power plant: it uses gas to heat pressurised boilers, the steam from which drives turbines, hence its designation as a ‘gas-steam’ plant.
This contrasts with the use of gas in gas turbine plant: Open Cycle plant are simply jet engines, which burn gas (or kerosene or diesel) in the same way; a Combined Cycle plant use a gas-fired turbine in the first instance, but then employs the super-heated exhaust gases from the gas-turbine to heat a pressurised boiler, the steam from which drives a turbine like a ‘gas-steam’ plant; thereby multiplying the thermal efficiency and overall power output per unit of gas expended.
Torrens Island was designed to run constantly and, in order to be profitable, to be dispatching power to the grid constantly. If it was dispatching power constantly, AGL would be making a tidy profit selling the power produced at around $50-70 per MWh.
However, when the wind starts blowing in South Australia, the REC subsidies that support fixed and guaranteed prices and the power purchase agreements between wind power outfits and retailers allow them to dump power into the grid; on occasions at negative prices (ie wind power outfits literally pay the grid manager to take their skittish wares – as much as $20 per MWh).
This market perversion is all made possible by the REC Subsidy – a $3 billion a year Tax on all Australian electricity consumers, which results in wind power outfits being able to recover guaranteed prices of around $110 per MWh from retailers under their PPAs – irrespective of the spot price; hence their ability to pay the grid manager to take it.
Now, with the help of Aneroid Energy here’s how AGL is running a plant that ought to be dispatching a solid proportion of its 1,280MW of base-load capacity 24 x 365, in line with fluctuations of daily demand (not at the whim of the Wind Gods and Federal Government policy).
Here’s the combined output of South Australia’s 18 wind farms (with a notional capacity of 1,580MW) during July:
Hmmm. Remember all that talk from the wind industry, its parasites and spruikers about that wondrous new wind farm that was going to power tens of thousands of South Australian homes? No? STT’s forgotten it, too. And so have South Australians.
While the combined efforts of South Australia’s wind farms look like the meanderings of a drunken spider with one leg dipped in ink, there is an almost uncanny resemblance to what was being pumped out of AGL’s Torrens Island plant – albeit as a reverse mirror image:
What’s depicted above is not the product of any design: it’s the consequence of chaos, pure and simple. The ‘pattern’ above should be one that rises and falls in sequence with the gentle (and predictable) rise and fall in SA’s daily power demands; rather than one that looks like a mad-man’s deranged doodlings.
Base-load plant – like Torrens Island – are meant to run around the clock, every day of the year. But AGL is, self-evidently, running its Torrens Island base-load plant as if it were a ‘peaking’ plant: dispatching only when the wind drops.
Plants that use steam to power turbines (whether fired by coal or gas) have to keep water boiling constantly and their boilers up to pressure, which means they are burning fuel constantly – irrespective of whether they are able to pump any power into the grid and thereby profit from it.
Heating up large volumes of water takes time: getting the boilers used in power plants up to the temperature required to produce constant steam at pressure takes up to 24 hours.
Accordingly, it’s not a matter of simply shutting off the fuel supply whenever the wind picks up. The plant’s owner is simply forced out of the market and has to keep its boilers up to steam, until such time as the wind drops and it gets a chance to start dispatching power to the grid, once again.
This is the principal reason that wind power cannot and will never reduce CO2 emissions in the electricity sector: whether or not plant like Torrens Island are putting power into the grid, they are forced to burn fuel around the clock, to be ready to start dispatching power, in an instant, when wind power output drops without warning every day.
Putting aside the fact that it was AGL that drove South Australia into its wind power calamity (it’s responsible for a large swathe of the turbines that carpet SA), it is understandable that it would use its market power to gouge whatever it can out of a grid manager, desperate to keep the lights on and the grid from collapsing.
Prevented from enjoying a reasonable profit margin – of the kind that would follow from dispatching cheaply produced power 24 hours a day every day of the year – AGL (and every other generator who can supply power on demand) will naturally look to make up for lost time. And that is precisely why South Australians are witnessing regular spot price gouging of the kind that made Enron notorious (see our post here).
None of this comes as a surprise to STT: we’ve been harping on about it since December 2012.
South Australia is now locked into a downward spiral in which social and economic chaos is the inevitable consequence.
Welcome to your wind powered future.