Record high clean power ratio in Oz

 From The Age

Australia’s clean-energy revolution is continuing to accelerate, with new data revealing renewable power supplied more than 60 per cent of the nation’s main grid for the first time during a half-hour period in September.

The influx of large wind and solar farms coupled with a boom in rooftop solar have been radically reshaping the National Electricity Market in the past 12 months, driving down daytime wholesale prices to levels where the dominant sources of power – coal and gas – are struggling to compete.

In a report to be released on Friday, the Australian Energy Market Operator (AEMO) has declared the penetration of renewables reached a record high, accounting for 61.4 per cent of total electricity on September 24 from 1-1.30pm.

Over the whole September quarter, renewables made up an average of 31 per cent of the generation mix, also a record.

AEMO attributed the rise to the ramp-up of new wind and solar farms, a seasonally windy period, higher distributed rooftop solar, and higher average rainfall driving increased hydro-power output from Tasmania.

Higher renewable output also helped push wholesale electricity prices below $0 more often than ever before.

“The increase in renewable energy supply, combined with a mild August and COVID-19 restrictions reducing demand, led to wholesale electricity prices being negative or zero for 16 per cent of trading intervals, more than double the previous record of 7 per cent in the fourth quarter of 2020,” AEMO said.

Rock-bottom wholesale prices – which regulators say are good news for consumers because they may eventually translate to lower bills – have been piling enormous pressure on the viability the coal-fired generators that supply the bulk of Australia’s power. Coal plants are now regularly running at a loss as they are unable to compete with cheaper renewables during the day.

“In Victoria, average spot prices between 10am and 3.30pm fell from $30 a megawatt-hour in 2020 to just $0.01 a megawatt-hour during August and September,” AEMO chief markets officer Violette Mouchaileh said.

“This follows South Australia achieving average daytime prices below zero consistently between 10am and 3.30pm during the March 2021 quarter, the first time in the National Electricity Market’s history.”

It's obvious that coal is on the way out.  Though not if the right-wing Federal Government of Australia can help it.  

However, the Morrison government and some energy industry leaders are ramping up warnings that unexpectedly early shutdowns of coal-fired generators could raise the danger of blackouts or power bill spikes in the future.

Federal Energy and Emissions Reduction Minister Angus Taylor is driving development of a capacity mechanism to spur private investment into “dispatchable” assets, capable of supplying on-demand power to support renewable energy when the wind isn’t blowing and the sun isn’t shining.

The policy has drawn fierce criticism from environmental advocates who have dubbed it “CoalKeeper” because it may see coal plants paid to guarantee future supply by remaining in the grid for longer. Mr Taylor has insisted the mechanism would be designed to be technology-neutral, with equal opportunity for gas, pumped hydro and batteries.

Source: The Age

Why Australia's coal subsidy was cooked up

 I talk here about the proposed "capacity payment" which is really just a horribly expensive coal subsidy.

The authors of the report I mention also wrote this article, which points out that most coal power stations will be loss-making by 2025.  The response of the government was the new coal subsidy plan.  There is a case for capacity payments, but they should only go to generators that can supply "dispatchable electricity", in other words, electricity supplies which can be rapidly ramped up and down, like gas, hydro and batteries, and unlike coal.

Coal-fired power stations in Australia’s National Electricity Market (NEM) will confront grave financial difficulties within the next 5 years due to extra competition from a large influx of renewable energy supply. 

The analysis detailed in this report suggests that the financial viability of several coal generators in the NEM will become severely compromised by 2025 such that closure becomes an attractive or even unavoidable choice for at least one power plant owner. An additional 28 gigawatts (GW), or 70,000GWh (annualised) of renewables is expected to be installed by 2025, compared to our 2018 baseline year. 

By 2025, it is forecast that the installed renewables capacity will be 8GW of utility scale solar, 12GW of wind, and 22GW of rooftop solar. Renewables is forecast to provide 40-50% of NEM 2025 demand. The additional renewable energy generation coming online from 2018 to 2025 will be enough to supply 99.9% of the Australian Energy Market Operator’s (AEMO) expected demand growth and 98% of the gap expected to be left from the Liddell power station retirement. Even after filling the demand growth and Liddell gap there will be surplus renewable generation of approximately 57,000GWh. 

As a result, coal and gas generators will be displaced in the wholesale market, due to the merit order effect. Renewable generators have extremely low operating costs (economically defined as short run marginal cost or SRMC) largely due to having no fuel costs (as wind and solar resources are free). Renewable generators can therefore bid into the market at prices close to zero, undercutting other generators on price. Increasing amounts of renewable installations therefore reduce the output of other generators with higher operating costs. 

We expect around three-quarters of gas generation and one-quarter of coal-generation to be replaced by renewable energy generation in the seven year period. The incoming renewables will also have a deflationary impact on wholesale electricity prices, further decreasing the profitability of existing plants. Coal plants will see a double hit to their electricity sales: both volume and price is forecast to decrease out to 2025. The considerable reduction in coal generation and wholesale electricity prices is expected to drive reduction in coal plant wholesale spot market earnings (Earnings Before Interest and Taxes or EBIT). 

Coal plants could suffer an estimated EBIT reduction of up to 119% comparing 2018 to 2025. In a scenario where prices in 2025 are the same as NEM-wide 2020 prices (Scenario A in our study), Eraring, Mt Piper and Vales Point B would be expected to be losing money. In a scenario where price reduces down below 2015 prices (Scenario B), Eraring, Mt Piper, Vales Point B, Gladstone and Yallourn W be making a loss. This is based on EBIT estimations in the case that the generators are, theoretically, fully spot market exposed (i.e. does not include contracts) and excludes revenue from other services such as FCAS.

With this magnitude of reduction in EBIT, coal generator exits are likely to occur far sooner than AEMO has planned for in its Integrated System Plan (ISP). Once a coal generator exits the market, the dynamics outlined in this study will change: prices are likely to then increase near term and other coal generators that remain online may benefit from increased revenue. Electricity sector investors are recognising that the plunging cost of solar, its rapid speed to deploy, and its vast popularity with investors and Australian householders has led to an irrevocable change in the shape of the electricity supply-demand curve and market that leaves inflexible and high fixed cost baseload coal plants ill-suited to the future grid. 

Unfortunately for investors in coal plants, while there remains plenty of evening demand after the sun sets, the amount of daytime demand is becoming so small that coal plants are left in a battle amongst each other to remain online. This is a serious problem for aging coal plants because once they switch off, it typically takes several hours to start back up again and then several more hours to be capable of reaching full output, and by then the evening peak demand window of opportunity has passed. In addition, such modes of operation place considerable stress on the components of a coal plant, increasing maintenance costs and reducing their life. 

Other dispatchable power plant technologies are much better suited to this new future, dominated by solar and wind, because they can ramp their output up and down more quickly and with less stress on their components. Given this context, the New South Wales Government’s Electricity Infrastructure Roadmap (2020) provides an essential and timely response to ensure coal plant capacity is replaced in advance of their exit. 

Supporting the findings in our report are that several energy market corporations have already substantially written-down the value of their generation assets or cancelled upgrade plans, as announced over February 2021: 

 Origin Energy has downgraded its energy market full year EBITDA by 8.6% (earnings before interest, taxes, depreciation, and amortization), blaming low wholesale prices and the drop in demand due to the pandemic 

 AGL has written down over $2.7 billion of value, due to reduced wholesale power prices, a failure to account for coal closure site rehabilitation and government plans to underwrite plants 

 More than $1 billion has been wiped off the value of Queensland government-owned fossil fuel generators as falling wholesale electricity prices slash generator profits. Profits generated by Queensland government-owned generators, including those controlled by Stanwell Corporation, CS Energy and CleanCo, fell by 88% in the 2019-20 financial year.  

 Delta Electricity, the owner of Vales Point coal plant, dropped its bid for an $8.7m publicly funded upgrade. 

This report has chosen to focus its analysis on coal plant profitability, as exit of coal plants has substantial implications for energy security, price and emissions outcomes but gas power plants will also suffer substantial deterioration in profits (exacerbated by recent dramatic hikes in gas prices). Yet this is partly mitigated by the fact that gas power plants tend to have lower fixed costs and much greater ability to ramp output up and down quickly. Peaking gas will thus play a role into the future, however the high short run marginal cost compared to renewables and batteries is likely to drive significant reduction in gas generation. 

Energy storage technologies such as batteries or pumped hydro have a feature that gas does not possess; they can take advantage of periods of plentiful sun or wind to replenish their storages at very low cost. This is in addition to having significantly faster ramping capabilities than gas plants, let alone coal power plants. Furthermore, for short peaks in demand batteries are already the lowest cost option for providing dispatchable capacity.  

It is expected batteries will play a growing role into the future due to ongoing technology improvements that have been characterised by double-digit percentage annual cost reductions. These physical and economic realities mean that efforts to keep inflexible coal plants afloat, let alone build new plants, are likely to be counter-productive in terms of both energy affordability and reliability as well as being contrary to both Federal and State Government’s commitments to address climate risk. Rather than seeking to delay or even deny the inevitable exit of coal, governments, as well as investors, need to be planning to replace them. 

Australia's new coal subsidy

 From IEEFA

Households may soon face a new charge on their power bills – potentially double that from the carbon price – if Energy Ministers agree to a proposal for a new capacity payment to power companies, according to a new report prepared by the Institute for Energy Economics and Financial Analysis (IEEFA) and Green Energy Markets analysing the cost and reliability aspects of this capacity payment recommendation.

The Energy Security Board (ESB), with the backing of Australia’s Federal Energy Minister, wants electricity consumers in the national electricity market (the “NEM”) to start paying capacity payments to generators.

Johanna Bowyer, report co-author and IEEFA electricity analyst says under the scheme, electricity consumers would pay power plants not just for the electricity they actually generate, but also for the size of capacity installed in the power plant, irrespective of how often it might be needed.

“The ESB’s new proposal will require electricity consumers to pay primarily conventional generators such as coal and gas plants for what they could produce if the plant was operating at its full level of capacity, regardless of whether or not, or how often, the generator uses all of its capacity to produce electricity,” says Bowyer.

According to the ESB and Federal Energy Minister Angus Taylor, this new payment is necessary because many coal-fired power stations are becoming financially unviable and if they were to exit suddenly, it could lead to blackouts.

“While it is true that several coal power plants are facing financial difficulties, our analysis finds that reliability is not at threat by the level of likely coal power plant exits over the next ten years,” says Bowyer.

“Thanks in part to actions of the Federal Government, there is a flood of dispatchable capacity entering the NEM. This covers a range of controllable sources of power from hydro to batteries, bioenergy, gas and even some small coal power plant upgrades.”

Report co-author, Tristan Edis of Green Energy Markets says the grid is in a very different situation to when Hazelwood was shut down in 2017.

“From 2017 to 2027, almost 6,500 megawatts of dispatchable power project capacity will be added to the grid,” says Edis.

“To put this into perspective, this is almost double the capacity that will be lost from the next three coal power stations due to close after 2027 – Yallourn, Callide B and Vales Point B.

“This means that all states across the NEM have enough power capacity for the next decade to meet the strict reliability standard of satisfying more than 99.998% of demand.

“There are also thousands of megawatts of further battery projects in development which could be committed to construction if required.

“Meanwhile, the extra cost imposed on consumers to keep coal power plants afloat could be very large.”

IEEFA found that based on the range of capacity market prices seen in the Western Australian electricity market, consumers in the NEM would face a cost of between $2.9 billion to $6.9 billion each and every year if the capacity payment goes through.

Bowyer says the cost for households would be substantial.

“We found households in the NEM would see their electricity bills increase anywhere between $182 to $430 a year,” says Bowyer.

“By way of comparison, the cost increase faced by New South Wales, Victorian and Queensland consumers from the carbon price was between $112 to $150.

“Based on the Western Australian capacity payment experience, consumers could be facing a new charge which is potentially more than double that of the carbon price.

Make no mistake―this might be called a "capacity payment" but it is in fact a simple subsidy to coal.  It doesn't apply to wind and solar or batteries.  Now, a capacity payment to gas generators would make sense, because gas can be ramped up rapidly to fill supply gaps.   But coal power stations take many hours to ramp up.  And just how much battery storage could be bought for the lowest estimate of the cost of this boondoggle?  Ten times the amount of the Victorian big battery, which  cost $300 million, and provided 1200 MWh of storage would provide about 30 minutes of storage for the NEM (Oz's east coast grid)  Every year!  4 hours of storage is all that's needed to allow us to get to 90% renewables.  Yet battery storage is excluded from this capacity payment.  

The Right screeched and shouted about the carbon tax when it was introduced.  They won an election based on their hysteria.  They claimed that they were worried about the "Aussie battlers", that higher electricity prices because of the carbon tax would crush Australia (hint: it didn't―almost all the proceeds were handed back in the form of tax cuts).  And yet they are happy to enthusiastically support an impost which could cost twice as much as the carbon tax.  As ever, the well-being of their donors matters more than the public interest.  Shameful.

The Australian is Murdoch's right-wing "quality paper" in Australia