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Why Queensland could lead the next clean energy boom

Australia’s National Electricity Market (NEM) is going through the biggest transformation in its history, as we move from fossil fuels to renewable energy. This has created a once-in-a-lifetime investment opportunity in the clean energy sector.

The Queensland market, in particular, has very strong fundamentals driving this transition. This article summarises five key takeaways for project developers and investors when considering the Queensland market.

1. State government leading the clean energy transition

Coal currently generates 70% of the state’s electricity (see chart below). However, under the Queensland Energy and Jobs Plan, the state plans to end its reliance on coal by 2035. The plan includes targets for 70% renewable energy by 2032 and 80% renewable energy by 2035. Achieving these targets will require a massive build in new renewable generation and storage capacity. However, it is not just about filling the gaps left by coal…

2. Strong load growth

Electricity usage could increase significantly due to electrification and green hydrogen over the medium to long term. Research by Energy Synapse shows Queensland as having the strongest opportunity for green hydrogen out of any NEM state. Additional renewables and storage will be needed to meet this growth in electricity demand.

3. Above NEM average volatility

Queensland has had some of the highest wholesale electricity prices over the last two years (see chart below). Energy Synapse modelling shows a high probability for continued above NEM average volatility over the next 10-15 years. This could provide a significant revenue ‘uplift’ for local assets.

4. Wind patterns are complementary to solar

The wholesale energy price changes every five minutes in the NEM. Prices change based on live grid conditions and the supply/demand balance. The chart below shows the average wholesale energy price throughout the day in Queensland during 2022.

Prices can vary significantly throughout the day, and hence it is critical for developers and investors to understand the “shape” of their power projects. Wind is particularly interesting in Queensland, because several regions have an intraday profile that is complementary to solar. This means that wind farms in these areas can mitigate the risk of low daytime prices, while taking advantage of higher prices on the solar shoulder period.

Large spreads in intraday wholesale electricity prices also create significant arbitrage opportunities for energy storage.

5. Data is king

Queensland has a development pipeline of 140 power projects totaling over 50 GW. However, these projects are far from equal. In fact, some may end up having returns 3X higher than others. High quality data and analytics is key to picking the most profitable clean energy opportunities. Learn more about how the Energy Synapse Platform can help. 

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

Batteries earn record energy arbitrage revenue in 2022, but FCAS still dominates

Large-scale batteries in Australia’s National Electricity Market (NEM) earned record high revenue from arbitraging the energy market during 2022.

2022 was arguably the most dramatic year in the history of the NEM. The year saw record high wholesale electricity prices due to the global fossil fuel crisis coupled with numerous outages at domestic thermal generators. The situation became so dire that at one point the Australian Energy Market Operator (AEMO) determined the market was “impossible to manage” resulting in an unprecedented suspension of the energy market from 15 June to 24 June 2022.

However, high energy prices on their own are not enough for batteries to profit. The greatest potential for energy arbitrage occurs when there is a high spread in pricing. This increases the difference between the charge (buy) price and discharge (sell) price. Data from the Energy Synapse Platform shows that the spread between the 10th and 90th percentile of wholesale energy prices during 2022 was far above normal levels.

It is this spread in pricing that is responsible for grid-scale batteries earning record high energy arbitrage revenue. Batteries across the NEM earned the highest energy arbitrage revenue from both a total dollar perspective as well as a percentage of “market revenue”. As can be seen from the chart below, in previous years, energy arbitrage contributed an average of 12% to total BESS market revenue, with the remainder coming from frequency control ancillary services (FCAS). In 2022, the energy arbitrage share jumped to 40%. Batteries that have longer storage durations (for example, two hours) were able to capture significantly more arbitrage revenue than batteries with shorter storage durations (e.g. one hour or less).

Despite unprecedented volatility in the energy market, FCAS continued to supply the bulk of total battery market revenue (60%). The biggest FCAS gains came in November 2022, when South Australia separated from the rest of the NEM for an entire week. The Hornsdale and Dalrymple batteries did particularly well from this event. FCAS has continued to be a strong revenue stream despite the build-out of new battery systems. See our previous blog on the status of BESS in the NEM.

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