South Australia pays the price of big system peaks

South Australia pays the price of big system peaks

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More than one-third of SA wholesale electricity costs over summer came from price spikes in less than 1% of the time. They pushed overall costs up by 50%.

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South Australia is once again being assailed for having the most expensive wholesale electricity prices in the country – and new data underlines why it is the state most vulnerable to extraordinary jumps in prices at times of high peaks and interrupted supply.

Last week, we published this graph (above) to show how South Australia’s price premium over other states has existed for the best part of two decades – courtesy of its small grid at the end of the line, the control of a few big players, and its “peaky grid”, exacerbated by its mild climate and the occasional heatwave.

The problems over South Australia’s “peaky grid” were identified more than a decade ago by the local grid owner (well before the emergence of renewables) which noted its exposure to sharp rises in prices, particularly in the midst of heatwaves.

This summer has been no exception. From December 1 to February 28, the total cost of wholesale electricity (market turnover) in the South Australia market was $929 million, according to data put together by Dylan McConnell of the Climate and Energy College in Melbourne.

Of this sum, around 34 per cent was attributable to price spikes above $300 – the standard cap contract strike price – that occurred in just 42 half-hour trading intervals. That’s a total of 21 hours and represents just 0.97 per cent of time.

Such events were typified by January 18, when a heatwave was likely to push prices higher as more customers turned to air conditioning.

But prices soared following the trip of the big Loy Yang B coal generator in Victoria – an event that sent prices near to their market peak in both Victoria and South Australia.

This is not atypical. Peaking gas plants and diesel generators typically operate for just a few hours of the day – and need to recoup as much as they can in those periods. Hence the high prices. But it is wrong to put the finger on renewables, as the first graph above explains.

One of the fundamental problems of the design of the NEM is that both generation and network design have delivered enormous gains for assets that are just used for a few hours of the year.

Yet, at the same time, regulators have consistently rejected proposals that could ease that peak demand – energy efficiency, demand response, storage incentives – under pressure from incumbent interests wanting to defend the gold plating of prices.

It explains the government’s eagerness to encourage new forms of storage – including the Tesla big battery, which is already slashing peak prices from the small and little known FCAS market, pumped hydro and solar thermal.

The data from McConnell showed that in South Australia over summer:

  • In the 42 trading intervals that the price was above $300, the volume weighted price was $3,171.42/MWh
  • For the remainder of summer (i.e. intervals below $300) the volume weighted prices was $93.50/MWh
  • The average over the whole summer was $146.15/MWh (i.e. those 42 hours added about $50/MWh to volume weighted prices over summer)

On that last point, it is interesting to note that in December, when there were no major pricing peaks above $300/MWh, South Australia’s wholesale electricity prices were lower than both Victoria and Tasmania.

The peak pricing events in South Australia over January and February happened on six different days – Jan 18 and 19, Jan 25, Jan 28, Feb 7 and Feb 8.

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  1. Paul McArdle 3 years ago

    For other readers here is some further context to those volatile days:

    1) For Thu 18th and Fri 19th January 2018 the hot weather forecasts saw spikes in demand forecast for both VIC and SA:

    2) Here’s some snapshots from the day on Wed 7th February, where we can see SA prices rising together with VIC prices:

  2. Andrew Roydhouse 3 years ago

    The figures suggest that on top of the ancillary services revenue the Hornsdale Battery may have recouped a signifcant % of its cost in January and February alone.

    At 100 MW it would have been recouping over $300,000 per 59 minutes of supply. Why 59 minutes? As 30 MWh of its 129 MWh capacity is contracted to the SA State Govt.

    Would be good if someone with access to the detailed time data (hint hint) could run the numbers. Sure would make a nice annualised rate of return!

  3. Jon 3 years ago

    Good to see that S.A.s underlying wholesale power price is coming down, being cheaper than Vic and Tas in Dec.

    Increased solar generation will help shave the hot weather related spikes that made up some of the 42 trading intervals.

    Demand management is the most obvious point of call to shave some more of the spikes, especially until more large scale generation and storage become available.

  4. Ray Miller 3 years ago

    Why do we consistently try to solve the wrong problem?
    On a recent visit to your State South Australia, what I saw and experienced was poor thermally performing buildings with outdated inefficient air conditioning equipment. This is the heart of the problem, the built environment with a high energy sensitivity to temperature is causing a major hit on our health and productivity. While I support investments in low emissions energy infrastructure, the solutions need urgently to be expanded into the route cause area.
    Even new buildings which pass the minimum Building Code of Australia with a 6 star Building Energy Efficiency Rating are sub standard, using decades old climate data then only use averages applied to the buildings, excluding performance for that record summer hot week etc. It’s even worse in Queensland as the code is only 4.5 stars thermal performance!
    Until we collectively recognize the “energy system” more broadly and stop this obsession with only the NEM being the energy system we are doomed to even more of our scarce money going up in smoke and being burnt by the fire.

    • George Darroch 3 years ago

      Some of it is so obvious you can train a child to see it. Black rooftops, for example.

    • Ray Miller 3 years ago
      Just take a look at the variation in Peak demand over the last week as the temperature varied. SA network’s load has a very significant temperature sensitivity.

      • Mike Westerman 3 years ago

        Which would also suggest that after improving building envelope performance, the next step would be thermal storage, not electrical. Thermal storage is significantly cheaper. Several buildings in Adelaide have geothermal storage for heating and cooling – more expensive that tanks but if space is limited offers an economic solution.

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