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Small solar owners saved the NSW electricity market $888 million during heatwave

New South Wales recently experienced a severe heatwave, which saw parts of the state exceed 45°C. These extreme conditions put significant strain on the electricity market from the 9th to the 11th of February 2017.

During this three day period, small solar PV (i.e. PV systems that are not registered as generators in the NEM), generated about 17 GWh of power. This was 2% of the state’s total power needs. If we match up small solar generation with the wholesale price in the NSW market, we can see that small solar was worth about $9.6 million, or $550/MWh. However, a small solar owner is lucky to receive 8 c/kWh or $80/ MWh as a feed-in tariff.

The story of the value of small solar during the heatwave doesn’t stop there. The interesting question to me was how would the electricity market cope if there was no small solar. This is difficult to quantify, but my attempt considered three factors:

1. What would electricity demand in NSW look like if the generation from small solar had to be met by the market. Data published by the Australian PV Institute was used for this analysis.
2. Given this new demand profile, what would the 30 min electricity price be in the wholesale market. To develop the likely set of prices without small solar, the 5 min bid stacks published by AEMO were examined for each period where small solar was generating power.
3. What would be the cost to the market with small solar (i.e. the actual cost that was incurred) vs the cost without small solar (i.e. the estimate derived from 1 & 2).

Figure 1 shows the data for the 9-11 Feb 2017 study period. The light green shading shows the actual electricity demand that was seen by the market. The dark green shading shows the estimated generation from small solar PV. The effect of small solar was to reduce the length of peak demand and to push the peak to later in the afternoon.

The black line is the actual 30 min pool price that was seen in the NSW wholesale market. The grey line is the pricing that would have resulted if the power generated by small solar had to be met by the market, assuming that bidding behaviour remained the same. Under these conditions, the effect of small solar was to significantly depress pricing in the wholesale market. Furthermore, it is likely that AEMO would have called for involuntary load shedding during the afternoon of Friday 10 Feb, as there were periods with not enough generation bids to meet the extra demand that small solar was covering.

The final consideration is the total cost impact to the market with and without small solar. In part 2, we derived the likely pricing without small solar. However, it is not just the solar portion of demand that would be subject to this new pricing. The way that the NEM is settled means that the entire demand in the state for a given 30 min trading interval would be subject to the new 30 min price. Figure 2 shows the daily electricity cost in the NSW wholesale market with small solar (i.e. the actual costs incurred by market participants) and without small solar (derived from our analysis).

Over the three day period, small solar reduced the cost to the market by roughly $888 million. Even though small solar only covered 2% of electricity demand, it cut the price of electricity by 60% from an estimated volume weighted average price of $1920/MWh to $780/MWh.

Author: Marija Petkovic, Founder & Managing Director of Energy Synapse
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Jan 2017 records highest ever electricity price in QLD but flexible energy users could pay 37% less

The average pool price during January 2017 in the QLD wholesale electricity market was $197.65/MWh. This is the highest monthly average since the commencement of the National Electricity Market (NEM). It exceeded the previous record for QLD of $192.46/MWh set in June 2007.

Figure 1 shows the average January pool price for QLD over the last two decades. Since 2013, January pricing has been at an elevated level, creating a challenging time for QLD energy users, particularly those who are exposed to wholesale prices. However, for energy users with flexibility in their operation, this high volatility presents an opportunity to save big and leap ahead of competitors. This can be achieved by engaging in a type of Demand Response, where energy users alter their electricity consumption depending on the price in the wholesale market.

To illustrate the opportunities that were available during January, we will use Facility A and Facility B as an example.

Facility A (Flexible/Price responsive operation)

• Facility A is a manufacturer that operates 24/7. The entire load is exposed to the QLD pool price.
• At maximum production output, power usage is 11 MW.
• At minimum production output, power usage is 9 MW.
• The production process can also be completely shutdown in 30 minutes. When the Facility is shutdown, it still consumes 0.5 MW.

It would be nice if Facility A had an unlimited ability to respond to every single event in the market. However, this is simply not feasible for most energy users. Facility A’s primary obligation is to supply its customers and hence it needs to manufacture enough product to do so. The flexibility of Facility A is also limited by how much product it can store, as storage can be used to buffer changes in production.

Given these constraints, Energy Synapse utilises in-house predictive modelling of energy markets to develop an operational strategy for Facility A with the goal of minimising the cost of electricity.

Facility B (Does not respond to price)

Facility B is the reference scenario. Facility B is identical in every way to Facility A, except that Facility B does not take wholesale electricity prices into account when developing its operational strategy. Facility B operates continuously at a level that is required to meet product demand. Over the long run, Facility B can be expected to pay the market average price of electricity.

January 2017 Results: Facility A pays 37% less than Facility B ($533k saving)

The strategies employed by Facilities A and B were tested during January 2017. The total pool cost for each Facility is in Figure 2. The flexible price responsive strategy used by Facility A results in a pool cost that is $533k (37%) lower than Facility B. Remember, this saving is just for the single month of January and both Facilities use exactly the same amount of electricity. The difference is all in the timing.

Savings that can be achieved by other facilities will vary depending on their unique operational characteristics as well as the characteristics of the electricity market at the time. Feel free to get in touch with Energy Synapse to discover the opportunities for your sites across the NEM and WA.

Author: Marija Petkovic, Founder & Managing Director of Energy Synapse
Follow Marija on LinkedIn | Twitter