National Electricity Market year in review part 2/2: Changing energy mix

January 18, 2019

National electricity market changing energy mix

In the second installment of our National Electricity Market (NEM) Year in Review series, we will be looking at how the energy mix has evolved over the past year.

If you missed part one, we examined the major events that shaped wholesale electricity prices during 2018.

Figure 1 shows the percentage of electricity generated in the NEM by each fuel type. This data has been compiled using NemSight, a software developed by Creative Analytics (part of the Energy One group). Note that we have included generation from small scale solar (≤ 100 kW) as it is increasingly becoming a significant source of power in the NEM. But strictly speaking, rooftop solar is treated as negative demand rather than generation.

National Electricity Market energy mix 2018

During 2018, electricity generated from variable renewable energy (wind, small scale solar, and large scale solar) accounted for 12.6% of total electricity generation in the NEM. This is approximately a 30% increase on 2017, when variable renewables represented 9.8% of generation. Fossil fuels, and in particular coal, still dominate generation in the NEM, accounting for almost 80% of all generation.

Exponential growth in large scale solar

Figure 2 shows the percentage change in electricity generation for each fuel type in 2018 compared with 2017. The data in both Figures 1 and 2 is based on GWh generated rather than capacity. As can be seen in Figure 2, 2018 was the year of large scale solar. Generation from large scale solar almost tripled in 2018, completely eclipsing the growth in any other fuel type.

Change in generation by fuel type

Large scale solar still only represents a very small portion (1%) of NEM generation. However, it has experienced extraordinary growth in the second half of 2018, as new capacity has come online (see Figure 3). The biggest growth has been in Queensland. In 2018, the electricity generated from large solar in Queensland was more than 14 times higher than in 2017.

electricity generated from large scale solar national electricity market

Small scale solar has also seen strong growth, with the generation from these systems increasing by 21% in the NEM (see Figure 2). Queensland leads the nation in terms of both installed capacity of small solar (2220 MW) as well as having the highest percentage of dwellings with solar PV (33%) (Source: APVI). Furthermore, the statistics for 2018 will continue to grow as more systems are officially registered over the next 12 months.

The high growth in solar (both large and small scale) is already having a profound effect on wholesale electricity prices. In a previous article, we used Queensland as a case study to demonstrate how solar is pushing down daytime wholesale electricity prices. We are seeing daytime prices fall out of the top quartile of pricing and into the bottom quartile. This has big implications for developers of future solar projects, as they may see returns diminish.

Renewables (including hydro) are displacing higher priced gas generation

Figure 4 shows the change in electricity generation by each fuel type, but this time as a GWh change rather than percentage. The left hand side shows the fuel types that had an increase in generation. The right hand side shows the fuel types that had a decrease in generation. The difference between the two charts (approximately 1800 GWh) is the load growth in the NEM.

GWh change in electricity generation from 2017 to 2018

We can see that in absolute terms, gas generation was the biggest loser in the energy mix in 2018. Electricity from gas decreased by 5660 GWh (27%) across the NEM as a whole. The overall capacity factor for gas generation fell to just 16.6%, compared with 22.6% in 2017. There are several reasons for the reduction in gas generation:

1. Gas generation was less available throughout 2018.

2. The gas generation that was available, was bid in at higher prices to reflect the higher pricing in gas markets.

3. Existing hydro generation, especially in Tasmania, offered its capacity at much lower prices as we explained in part one. This is the main reason for the growth in hydro’s capacity factor from 17.3% in 2017 to 22.3% in 2018.

4. Wind and solar have a zero marginal cost and hence tend to bid into the wholesale market at ≤ $0/MWh. This means they are at the very bottom of the bid stack. The growth in renewables combined with hydro offering lower prices, meant that any available gas was increasingly squeezed out of the market.

Brown coal decreasing with closure of Hazelwood

Hazelwood, a 1600 MW brown coal fired power station in Victoria, was closed at the end of March 2017. As a result, brown coal generation fell by 18% in 2017 compared with 2016, and again by 6% in 2018.

Following the closure, existing coal fired power stations have picked up some of the slack. Even though total coal generation is down, the capacity factor for brown coal has increased from 72% in 2016 to 81% in 2018. The capacity factor for black coal has also increased from 61% in 2016 to 65% in 2018.

As more ageing fossil fuel generation exits the market, and more renewable energy comes online, we can expect the energy mix to keep evolving. Stay tuned for part three of our series…

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

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Gas generators getting 20% higher price than wind farms in South Australia

November 25, 2018

Gas generators are getting 20% higher price than wind farms in South Australia

Wind farms in South Australia contributed 42% to electricity generation within the state in the first 22 days of November. Gas generation also contributed 42% as seen in Figure 1. Solar came in third at 16%. The vast majority of this (84%) came from rooftop solar PV. We have compiled this data using NemSight, a software developed by Creative Analytics (part of the Energy One group).

South Australia electricity generation by fuel type

Despite the fact that gas generators and wind farms generated almost identical amounts of electricity, they received very different prices for their power. On aggregate, wind farms received an average price of $87/MWh from the spot market. In contrast, gas generators received a price $18/MWh (20%) higher. Note that we have not adjusted these figures for marginal loss factors (MLFs) in order to isolate the effect of price alone.

Solar and wind farms pushing down wholesale electricity prices

Figure 2 shows the electricity generation from wind farms and solar (both rooftop and large scale). Overlaid on top of this is the 30 minute spot price. We can see that when total generation from variable renewables is low, the price tends to be higher. In contrast, when variable renewables are generating high amounts of power, the price dips.

South Australia variable renewable energy versus spot price

Figure 3 shows this effect more clearly. Here we see the distribution of spot prices in two scenarios: low variable renewable energy (≤ 250 MW) and high variable renewable energy (≥ 1000 MW). We have also shown the average spot price as a red dotted line. Figure 3 shows that wholesale electricity prices are significantly lower when output from variable renewables is high.

South Australia spot electricity prices at low and high levels of variable renewable energy

Price setting in the NEM

In the National Electricity Market (NEM), generators submit bids to AEMO for each five minute dispatch interval. They state how much electricity they are willing to supply and at what price. These bids are then ordered from least to most expensive. The least cost generators (taking into account constraints) are dispatched to serve the demand in the market. The marginal bid (i.e. the last/highest cost generator that is selected) sets the price for everyone in that dispatch interval.

Rooftop solar is already subtracted from demand before we even get to this selection process. Large scale solar and wind farms have a zero marginal cost and hence tend to bid into the market at or below $0/MWh. Therefore, when wind and solar are generating a lot of power, we have high amounts of zero price generation in the market. This means that the market clears at a lower price. In contrast, when there is low generation from wind and solar, the market is more reliant on more expensive generation sources (e.g. gas) and hence clears at a higher price.

Flexibility will become increasingly valuable

Wind and solar have the advantages of being clean, renewable and cheap. However, their major disadvantage is that they are weather dependent and hence difficult to control.

As more and more wind and solar generation enters the market, the wholesale price of electricity will become lower and lower at the times when generation output is high from these assets. In contrast, power sources that are flexible and controllable (e.g. gas, hydro, batteries, demand response etc) and able to ‘fill in the gaps’ in Figure 2, will become increasingly valuable.

Another implication of this is that variable renewables may not be able to provide an effective hedge against prices spikes in the wholesale market. Therefore, any retailers or large energy users who are considering adding high levels of renewables to their portfolios, will also need to think about how to complement this with dispatchable power sources.


Want to know more about how solar and wind farms are performing in the NEM and what revenues they are receiving? Get a copy of our detailed analysis.


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

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