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Power Lines: Dr Barry Manor, Sustainability Consultant, uncovers a few shocks in the murky world of electricity prices. The energy market is an incredibly complex animal. There are two key players in the National Energy Market (NEM) that incorporates all the eastern states from Queensland down to Tasmania and across to South Australia. Wholesalers run the generators and sell electricity they produce to the retail market, which adds a margin to the price consumers pay. The wholesale spot price for electricity is fixed every 30 minutes (24 hours a day) which at the moment is around $80-90 per megawatt hour, or 8–9 cents per kilowatt-hour, depending on the state (SA is usually most expensive, VIC is often the cheapest). But during peak demand times (e.g. a very hot day when hundreds of thousands of households are running air conditioning in the late afternoon) the price for a single megawatt hour can jump to $12,000, which may seem unbelievably high but is a legislated maximum wholesale price. Retailers then, who are selling electricity to consumers at a fixed rate, have to hedge against these wholesale price explosions. Retailers can predict when such peak demand events are coming up from weather forecasts so they factor that into their retail price.
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Other factors that affect spot market pricing include renewable energy generators without energy storage (e.g. solar and wind power), because they are not always available. Gas is becoming increasingly expensive (because, due to weak legislation, we are forced to pay prices linked to export markets) and coal-fired power stations are being retired as they reach the end of their service lives. The closure of Hazelwood in Victoria’s Latrobe Valley, for instance, triggered crazy pricing activity by causing an ongoing shortfall in generating capacity within the NEM. Some fear mongers say we are facing an imminent gas shortage (and therefore need to do CSG more fracking) when there is no shortage. Major gas extraction companies that operate in Australian territorial waters undertook to reserve a certain proportion of the gas they extracted for the domestic market when they applied for their drilling permits. Such companies have found they can get very attractive prices when they sell the gas overseas and have conveniently forgotten that undertaking. The federal government is within its right to legislate for gas reserves and to decouple the domestic price from high gas pricing in overseas markets.
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There is still another factor pushing up electricity prices – transport of electricity from generator to consumers. High-voltage long distance transmission is one component, as is the price for the distribution system, known as the poles and wires. Distribution network owners are putting in massive investments (tens of billions each year) into new poles and wires for higher capacity to neighbourhoods where most houses have an air conditioner; these costs (known as “gold-plating” the network) are passed through to customers. An alternative to building high-capacity distribution systems (to cover only a few peak demand days per year!) is to implement a practice known as “load shedding”, where at times of peak demand factories and other large electricity consumers agree to shut down equipment temporarily or supply their own power from backup generators to reduce demand on the grid. There is no doubt that Australia is undergoing a gradual shift in energy sources. Our coal-fired power stations, many of which are 40-50 years old, are at the end of their service lives and are not economic for the operators to keep them going. A recent report released by Australian Energy Market Operator, AEMO, says that when NSW’s AGL Liddell power station is closed in 2022 it will create a 1,000 MW hole in our capacity to generate enough electricity for the NEM. One solution to managing this change is to use gas-peaking power stations which can be fired up and plugged into the grid very, very quickly, some within 10 minutes. But of course that would need vast quantities of gas at a reasonable domestic price. At this point in time, there is a policy vacuum on Australian energy sources. There is no political will to manage the changes beyond extending the life of coal-fired power stations. In these circumstances electricity prices will continue to fluctuate wildly and energy users will pay the price for the politicians’ reliance on old generation technologies. Dr Barry Manor was interviewed for A Question of Balance by Ruby Vincent. Images from Dr Manor. Summary text by Victor Barry September 2017
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What is currently being done in terms of renewables in the Australian energy market?
There are still mechanisms in place that provide incentives for investment in renewable energy. One is the Renewable Energy Target (RET) that sets a percentage of renewable energy generation to be reached by 2025 and is an economic tool that drives renewable energy investment. Others include state-specific schemes, e.g. in NSW, a Renewable Energy Certificates (REC) is created for every megawatt hour of energy that is produced by renewable energy sources. The market for RECs means that coal burners can either buy RECs or install renewable generators themselves. While companies like AGL and Origin have publicly stated they want to move to renewables, other coal-fired generators kick and scream and remain firmly committed to coal (e.g. in QLD). At the moment what is lacking in the renewable energy sector is storage. Solar panels can only supply the grid at particular times (usually peaking in the middle of the day) so storage, such as batteries or pumped hydro, is needed to buffer the energy and release it when required. The big 100 megawatt Tesla battery (to be built in 90 days!) will be part of the solution in South Australia, the point being not so much to supply electricity to consumers, but crucially, to stabilise the grid. When South Australia suffered its black system in September 2016, the usual 50 Hz frequency drifted down to 48.5 Hz and triggered all sorts of mayhem. Interconnectors from VIC tripped out, wind farms disconnected, gas-fired generators failed to start and the entire state of SA was plunged into darkness! The electricity grid is a complicated system in terms of production, delivery and consumption and many homes on the domestic front have already installed solar panels in an effort to be more independent. There are still people with their heads in the sand in relation to transition technology, many still wedded to fossil fuels.
The issue of extending the life of the coal-powered Liddell power station, while there is a range of alternatives centring on renewables and storage, is a case in point. Australia’s current energy policy is truly embarrassing. There may be light at the end of the energy tunnel, but at the moment our political leaders are seeing black and the rest of us are just seeing red!
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