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Victoria sets new record for electricity prices

Victoria has traditionally been considered the “boring state” when it comes to volatility in wholesale electricity prices. But that all changed last month when the average spot price for Victoria hit $133.48/MWh, setting a new record for January prices for the state. January 2018 narrowly missed out being the highest flat average for any month, only being surpassed by June 2007 ($143.28/MWh).

This increase in volatility comes on the back of 2017, which saw several factors come together to create an unprecedented energy crisis in the National Electricity Market (NEM). Some of these key factors include a decade of policy uncertainty, exit of ageing generation, high gas prices, outdated market rules, and a lack of competition. The energy crisis during 2017 produced the highest annual average spot price for Victoria ($66.58/MWh) since the commencement of the NEM in the late 90s. Despite energy becoming one of the hottest issues in government and the media over the last 18 months, high pricing has continued into 2018 as seen in Figure 1.

January 2018 has been unusually hot for Victoria. According to long term climatic data from the Bureau of Meteorology, Melbourne has an average of 0.7 days with temperatures ≥ 40°C during January. January 2018 had three days that exceeded 40°C. In contrast, January 2017 had none, and January 2016, only one. Furthermore, this is the first summer without Hazelwood, a 1600 MW brown coal fired power station that closed at the end of March 2017.

Victoria had four days in January where spot prices exceeded $2,000/MWh, compared with zero in the whole of 2017, and only two during 2016. The highest pricing came on Thursday the 18^th of January 2018. The spot price peaked at $12,931.04/MWh during the 5pm trading interval, setting a new record for the highest ever 30 minute spot price in Victoria. A scorching heatwave drove electricity demand up to relatively high levels. However, the 18^th was only the third highest demand day in the month. We were able to take a deeper dive into how the day unfolded by using NemSight, a software created by Creative Analytics (part of the Energy One Group).

Coal and wind generation were both less available

As can be seen in Figure 2, Loy Yang B, Victoria’s newest and most efficient brown coal-fired power station, tripped in the afternoon resulting in a sudden loss of 525 MW. Furthermore, wind power availability was about 700 MW lower than earlier in the day. Although this loss of generation was much more gradual. Nonetheless, reduced availability of coal and wind were both significant. This is because both are very cheap sources of power.

The generator bidding data in NemSight shows that all Victorian wind farms were bidding 100% of their output at prices ≤$0/MWh. Similarly, Loy Yang B was bidding all of its output at prices ≤$25/MWh. The reduced availability of this cheap electricity made Victoria more dependent on the highest priced gas and hydro generators, who were bidding in excess of $10,000/MWh, and thereby driving up prices. Figure 3 shows a summary of the bidding behaviour during the peak price period from 3 to 6pm.

Smart energy to pave the way forward

The events of the 18^th of January highlight another point. When it comes to the reliability and affordability of electricity, it is not a battle between renewable energy and fossil fuels.  Thermal generators are susceptible to failure at high temperatures. While intermittent renewables, such as wind, are dependent on prevailing weather conditions and hence are largely out of our control. Neither characteristic is effective for meeting peak demand reliably. Rather than waging a war between renewable energy and fossil fuels, we should be thinking about how we can make our energy systems more intelligent and resilient with enabling technologies such as energy storage, demand response, and predictive analytics. Smart energy is the key to a cleaner, cheaper, and more reliable electricity grid.

Author: Marija Petkovic, Founder & Managing Director of Energy Synapse
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Emissions intensity of NEM below carbon tax levels for 6th consecutive month

October 2017 marked the 6th consecutive month where the emissions intensity of the National Electricity Market (NEM) was below the average level during the carbon tax. Emissions intensity is a measure of how many tonnes of carbon dioxide equivalents (tCO2-e) are emitted for each megawatt hour (MWh) of electricity that is produced. Figure 1 shows the average monthly emissions intensity of the NEM from June 2011 to October 2017. The data has been compiled from AEMO publications*.

Effect of the carbon tax on emissions

The carbon tax was in force in Australia from 1 July 2012 to 30 June 2014. It started at a price of $23/tonne in FY 2012-13 and increased to $24.15/tonne in FY 2013-14 before being repealed by the Abbott Government.

The carbon tax had a significant impact on curbing carbon in the electricity sector. The average emissions intensity of the NEM during the carbon tax period was 7% lower than the average in the 12 months prior to its implementation (0.87 tCO2-e/MWh, down from 0.93 tCO2-e/MWh). Unfortunately, emissions crept back up to almost pre-carbon tax levels after the carbon tax was repealed.

Renewable energy growth and the exit of coal

Electricity generation from renewable sources in the NEM has grown by over 50% from approximately 25,000 GWh in 2011 to 39,000 GWh in 2016**. As a percentage of total generation, this represents an increase from 12% to 18%. This growth has been an important factor in helping to control emissions in the NEM. However, it is the exit of major coal fired power stations that has resulted in the very sharp decreases in carbon intensity that we see in Figure 1. Firstly, Northern, a 520 MW black coal power station in Port Augusta, SA, was permanently closed in May 2016. This was the last coal fired power station in South Australia. Secondly, Hazelwood, a 1,600 MW brown coal power station in Victoria, closed at the end of March 2017. Hazelwood was not only Australia’s dirtiest power station, but also one of the worst in the OECD.

Despite the closure of Hazelwood, Victoria still has the highest emissions intensity in the NEM. Figure 2 shows the carbon emissions profile for each state, in terms of both intensity and absolute figures, over the last six months. The renewable heavy states of South Australia and Tasmania lead the NEM on both emissions measures.

It is evident that the closure of coal-fired power stations will be a critical step in decarbonising Australia’s electricity sector. A stable policy framework will be essential in fostering an orderly and efficient transition.

*From 1 June 2014 onward, AEMO changed the methodology for calculating emissions data from estimated to actual data (from NGER). We have adjusted the pre-June 2014 data to reflect the change in methodology as per AEMO’s impact assessment.

**Australian Energy Statistics published by the Department of Energy and Environment.

Author: Marija Petkovic, Founder & Managing Director of Energy Synapse
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