NEW TOOLS FOR AEMO

We all agree having a safe, reliable, and secure National Electricity Market (NEM) is the key deliverable for AEMO. AEMO have flagged that there is a shortfall in the participants able to provide key services to keep the grid stable as the generation mix changes and they are running out of tools to keep the grid stable.

The biggest issue for AEMO and market participants is as synchronous generators such as thermal power stations reduce availability and eventually retire the much-needed system security services such as inertia and voltage control that they provide, drops.

As a result of AEMOs concerns, the Australian Energy Market Commission (AEMC) has developed ways of valuing the much-needed services.

The AEMC has just released a directions paper outlining mechanisms that could provide the system security services to the NEM. The AEMC has also highlighted support for innovative technologies to provide these services.

At this moment in time, AEMO has limited tools to improve system security at times of scarcity apart from using its intervention powers to direct generators online to provide the services. The problem with using its direction powers is that additional costs associated with the directions are passed onto end users and as a result this does not meet the requirement of the National Electricity Objective (NEO) of providing the lowest cost solution and it also distorts the market.

AEMC’s directions paper covers two rule changes proposed by Delta Electricity and Hydro Tasmania. The Delta proposal is to introduce a capacity commitment mechanism to provide system security and reliability services. In Hydro Tasmania’s request they propose to create a market for inertia, voltage control and system strength products.

Both these rule changes will form part of the Energy Security Boards (ESB) ‘post 2025’ market design. AEMO is also working with participants to develop the engineering to meet these challenges. These challenges include a changing market due to an increased reliance on weather dependent generation such as solar and wind and new technologies such as batteries.

The options in the directions paper are about providing a transitional approach as we move to a different generation mix while keeping the cost of the solutions to a minimum over the long-term. Solutions may include a similar process to direction but increasing the transparency of what assets should be online to maintain system security while keeping the costs down. Some of the options available to AEMO could be scheduling assets to provide specific services like voltage control while other would be scheduled for inertia. These arrangements would likely transform into stand-alone services similar to the current FCAS services.

The market is changing at a rapid pace and these extra tools in AEMO’s toolbox should allow the NEM to operate safely and securely for many years into the future.

SNOWY 2.0

With the release of the latest Electricity Statement of Opportunities (ESOO) some of the assumptions used in it have raised concerns of the viability of Snowy 2.0 and the impact it will have on security of supply for the market. Snowy 2.0 had been given the green light under AEMO assumptions even though the project would not have hit the hurdle rate AEMO uses for all other projects.  The second concerning point is when you build one of the largest generation assets in the country it is crucial that it is linked to the market via appropriate transmission lines. Information from transmission line providers suggests the full capacity of the powerlines will not be in place when Snowy 2.0 comes online. Our third concern is the cost of the new transmission line projects are rapidly rising. These costs will go directly to the end user.

Transmission provider TransGrid outlines information on HumeLink, the transmission line earmarked to connect Snowy 2.0 to the NEM. TransGrid estimates HumeLink costs have increased from $1.3B in the draft assessment to $3.3B. The more worrying statement is TransGrid saying the final cost could be up 50% or more.

Apart from HumeLink, to be full unconstrained, Snowy 2.0 will need the Victoria to NSW interconnector West (VNI West) transmission to be built. HumeLink is labelled the largest transmission project in history, VNI will be a similar size and most likely a similar price however costing have not been released.

The cost of these two transmission lines will eventually be passed down to end users via increases in transmission tariffs. Modelling has indicated that the $3.3B for HumeLink will add 40% to NSW costs. While these costs are met by all end users, large users will be impacted the most as these fees are paid for on a proportional basis.

Latest costing suggests HumeLink, VNI West and Snowy 2.0 has the potential to cost $12 billion. This will make Snowy 2.0 the most expensive generation and transmission project in history.

The question is, with far cheaper renewable projects that do not require 2 huge transmission lines to make them effective for system security, are there better options the federal government and the consumers of NSW could be spending their money on.

NATIONAL CUSTOMER CODE – PROCUREMENT CHECKLIST

Edge2020 & Edge Utilities are proud members of the National Customer Code.

If you are considering using an energy broker or consultant to support you in your energy needs, please read this first – National Customer Code-Procurement-Checklist

This guide has been created by the National Customer Code for Energy Brokers, Consultants and Retailers to assist you navigate key terms and conditions in your energy procurement contracts to ensure that you are making informed decisions about costs, commissions and fee structures, including any ongoing fees and terms.

It also includes practical questions to ask your broker or consultant if you need more information.

If you have any questions about your energy needs, please call us on 1800 334 336 or email save@edgeutilities.com.au

 

END USER TO PAY TO KEEP COAL FIRED GENERATORS ONLINE

Large companies with coal fired generation are pushing for the market to pay them to remain operational rather than retiring their assets. As profit margins fall across the industry, owners of coal fired assets are hoping that households and businesses could pay them to stay available. End users would be hit with increases to their electricity bill if the proposed new subsidy is approved by state and federal energy ministers.

The Institute for Energy Economics and Financial Analysis (IEEFA) and Green Energy Markets have released costings for capacity payments made to thermal generators, under the proposed plan. The report indicates it could cost end users as much as $6.9B. Previous estimates put a cost on end users of between $182 and $430 a year.

Federal and state energy ministers met on Friday to discuss the Energy Security Boards (ESB) proposal for a ‘Physical Retailer Reliability Obligation’. The capacity payment would see large coal and gas generators receive payments to remain operational. The Morrison government hopes the capacity payment will prevent the early retirement of Australia’s fleet of coal fired generators.

The ESB developed the new mechanism following consultation with industry. In previous weeks the owners of the coal fired generators have been very supportive of the concept as many are facing financial difficulties on the back of falling wholesale electricity prices.

Apart from the physical presence of the coal fired generators on the grid to provide system security services it is also hoped that any payments could be used to improve reliability of the assets. Recently the AER raised concerns over forced outages of thermal generators.

Following the energy Ministers meeting it is understood that each state has a different view of the market post 2025.

The biggest areas of concern are over the concept of the capacity market and the proposal for a physical retailer reliability obligation. The states are concerned that end users will pay for the capacity and obligations, but the companies will spend excessive amounts of money on aging assets and the reliability of these assets will not improve.

AEMOs latest plans include a scenario to decarbonise the grid by around 2040 and is now putting together a more ambitious plan to meet the targets by mid-2030. A key to the success of AEMOs plan is the utilisation of new and existing transmission assets.

While AEMO pushes forward a plan for a grid capable of reaching 100% renewables, the federal government is lobbying the CEOs of the large coal fired generators to support the ESBs proposals and the inclusion of capacity payments.

Industry has labelled the capacity payments as “coal-keeper”, but a growing number of companies are pushing back on the concept. Even companies like Snowy Hydro, which is owned by the federal government fear an incentive like this will discourage investment in renewable energy and more new flexible technologies like battery storage.

The Clean Energy Council cautioned the market to look beyond the capacity markets and PRRO, and the “congestion management model”, and said it wanted to see more clarity about what is proposed for distributed energy resources.

On the flip side, the coal generation companies wrote to ministers urging that an “appropriate body” draft new rules on the PRRO or alternatives by June 30 next year.

The Minister for Energy and Emissions Reduction, Angus Taylor, released a statement late Friday saying that ministers agreed on the need for more design work on the mechanisms to support “dispatchability”, and a “final package” of reforms would be presented to ministers in late September.

NEM BACK IN BLACK

On Wednesday last week the Energy Security Board (ESB) released a statement outlining that they had finalised advice on the redesign of the national electricity market (NEM) and handed the report to the Energy National Cabinet Reform Committee. This advice comes from a 2019 request to redesign the market to support the orderly transition to a modern energy system that allowed a rapid increase in the growth of large and small scale renewable energy.

Details of the advice is not publicly available but wording in the media release indicates that coal fired generation will play a key role in the transition. The statement outlines that there must be a coordination of the exit of aging coal fueled generation to maximise the opportunities and minimise risks associated with the transition to deliver affordable, smart, and clean energy.

The ESB consulted widely with industry stakeholders, conChanges to the generation mixsumer bodies, academics, government bodies and interested parties over the last two years. An options paper was released in April and the final advice is expected to closely reflect the options discussed.

Key areas we expect to be tackled in the final redesign advice is preparing for the older coal fired generation retirement, backing up power system security, unlocking benefits and opening the grid to cheaper large-scale renewables.

In preparing for the retirement of the older coal fired generation, the ESB want to give an incentive for the right mix of resources including renewables and non-renewable generation. This was to restore confidence in consumers that energy will be available when required and the mix will include intermittent generation like wind and solar as well as firm dispatchable generation like gas.

To tackle the need for a more secure power system, the ESB will require different ancillary services like inertia, voltage, and frequency control. A market for these services will be required to ensure the procurement and dispatch of these services save money while keeping the network electrically secure.

Further work will also include unlocking the benefits for all energy consumers to gain the advantages of rooftop solar PV, batteries, and smart appliances. Improvement in these areas may also include how consumers source their energy.

As generation is only part of the equation the need to reform the way electricity is transported is also a key redesign topic. Upgrading the network with the construction of transmission lines will reduce congestion and allow cheaper generation to be built in regional areas and improve the diversification of the grid by opening up more geographic locations.

The question most end users are asking is who is paying for all these improvements. As usual the end user will pay. The ESB is understood to be recommending capacity payments for electricity generators to remain online. These generators are likely to be the older coal fleet so consumers will be paying to keep higher carbon intensive technologies online rather than supporting renewables.

This situation will pay generators an available payment to generate when required. In reality, these units will not generate unless the market is at the point of load shedding.

Capacity payments are used in the Western Australian electricity market, under their current arrangements, generators receive capacity credits in line with their units generating capacity.

In the NEM if capacity payments are introduced, they will essentially offset the Reliability and Emergency Reserve Trader (RERT) costs currently used to provide a similar service.

EDGE NEWS – JULY NEWSLETTER

In this issue we look at the following;

  • We recently contracted 3 of Brisbane’s Largest Towers. How do we do it?
  • What is causing the increase in the spot &futures market prices?
  • What is aggregated electricity procurement and should you do it?

National NAIDOC week was celebrated during July and Edge acknowledge the Turral and Yuggera peoples as the traditional owners of the land on which our offices sit. We pay respect to elders past, present and future.

BIGGER BATTERIES AND LARGER STORAGE

Back in 2017 following the black out of South Australia, the Tesla big battery was announced as the largest lithium-ion battery in the world. Weighing in at 100MW/150MWh the unit was big and provided enough storage to get regions through short duration period of high price of low availability. At the time, most people in Australia thought of batteries as a small segment of the industry and did not predict batteries to make any meaningful impact on the market for the next 10 to 20 years.

The Tesla big battery has now grown to 150MW/194MWh with the addition of extra batteries but has lost its title as the world’s largest and is likely to lose the title as Australia’s largest battery with Neon installing a 300MW/450MWh big battery near Geelong.

Now even Australia’s newest largest battery is about to be pushed off the top step as large scale wind and solar projects are installing larger, high-capacity batteries.

Most large-scale batteries in Australia have not been operating as storage devices, instead offering a service to “time shift” generation out of intermittent generation such as solar or wind to the time where the energy is required and returns better prices. The big batteries have predominantly been operating in the frequency market where they deliver network services such as frequency control ancillary services and synthetic inertia. To provide the network service the batteries operate for short sharp periods and as a result do not require large amounts of storage duration. As the competition in the network services segment of the industry increases the price for these services has reduced. Battery developers are now focusing on “time shifting” to provide better return for their projects rather than being exposed to low solar hour prices.

As coal fired generators retire the “duck curve” will deepen opening more opportunities for batteries to time shift the wind and solar generation into the evening peaks.  Developers are now looking for large duration storage to optimise their returns over the evening peaks. It now appears a 4-hour storage duration is the norm.

In recent weeks we have seen the large market players with significant thermal generation installed entering the battery developer market. Energy Australia is planning a 350MW big battery with four-hour storage at Yallourn.  AGL is constructing a 250MW big battery with four-hour storage at its Torrens Island site in South Australia which has announced the mothballing of its gas units. AGL also plans to replicate the 250MW battery at its Loy Yang coal site in Victoria. At Eraring, Origin is planning to install a big battery to offset generation when the coal fired power station closes.

The question is, if “time shifting” occurs, the times when the battery charges will likely raise spot prices as demand increases and the evening peak prices should drop. To make money battery operators will need to arbitrage the charging cost with the price they receive when they discharge. With the increased penetration of wind and solar generation into the generation mix the spot prices during the solar hours are likely to fall further however with many large-scale battery developers still heavily reliant on coal fired generation the optimisation of their exist portfolio will be interesting to see.

AGL DEMERGER

Last week AGL shared its plans to split the existing business into two. The announcement on Wednesday was not taken well by investors as shares dropped 10% when chairman Peter Botten made the announcement. The share price continued to fall through the week closing on Friday at $8.13 well below the $17.72 price a year ago. Investors are concerned that the two entities will lack the financial capacity to grow the businesses.

Accel, the coal fired part of the business will be led by current AGL CEO Graeme Hunt while Christine Corbett will run the retail business. Accel will earn its returns from carbon intense assets so institutional investors are steering clear of the business, Accel will also retain a 15-20% ownership of AGL Australia. Apart from a lower share price pushing investors away, it is also expected dividends will continue to fall for the 2022 financial year. AGLs retail business will retain the clean energy assets and the retail business.

The previous CEO of AGL Brett Redman proposed the demerger to evolve the business in a rapidly changing marketplace. Prior to the demerger AGL had consolidated to form a vertically integrated business, this worked well over recent years however the business structure is no longer optimal.

Customers are after a cleaner alternative to coal fired generation so the retail business that will retain the customers will be merged with the carbon neutral portfolio of assets resulting in customers sourcing their power from cleaner green generation sources.

While AGLs demerger does not seem to be seen by investors as a positive direction, Edge has previously highlighted that the splitting up of generation businesses is gaining momentum overseas with many fossils fuelled businesses creating businesses to develop a green focus and meet the customers’ demands. Time will tell if the demerge strategy will benefit to AGL.

Despite the negative outlook for Accel with its fleet of coal fired assets there is a positive light at the end of the tunnel. As the existing coal fired assets are retired Accel will retain their key location on the grid. Their favourable locations on the grid will allow Accel to transform the connection points from a high carbon emitting locations to low carbon hubs as new cleaner generation and storage is installed.

POWER BILL ON THE WAY UP

With Australia moving back to more lock downs it is interesting to see how COVID is impacting individual households.

Household electricity use has increased by 10% as people have been working from home and as a result household power bills increased by 7%. The bill increases are related to the increased consumption even though the underlying wholesale electricity prices have dropped by 4.8%.

The Australian Competition and Consumer Commission (ACCC) reported that even though household consumption increased it was at the demise of small business electricity use which decreased by 17%.

With wholesale prices dropping they are putting pressure on the profits of the retailers but despite the pressures the ACCC expects household bills to drop further as the wholesale prices flow through to the end user.

Low spot prices following COVID and the penetration of renewable energy triggered profit warnings from Origin Energy, AGL Energy, Stanwell, and Energy Australia.

As safeguards end on 1 July, the ACCC has warned retailers they are obliged to pass on the lower wholesale prices. This is despite the increases experienced in May and June when spot prices increased following the failure at Callide power station.

The “big stick” legislation that started in June 2020, obligates retailers to adjust their prices in line with their costs of securing electricity.

The ACCC is currently investigating several electricity retailers’ prices to see if recent wholesale price reductions were being passed on to consumers.

Edge News – June 2021 Newsletter

As we head into a new financial year consider the usual activities at this time of year. Consumers on financial year contracts would (should!) be recontracted by now, leading to a temporary decrease in demand for forward contracts from a consumer perspective. Wholesale contract traders will be squaring away positions for financial year end, so we should expect some profit taking from those in long positions and vice versa!

One thing we all know with contracting energy… timing is everything!  Edge2020 clients provide tips on how to contract better.

We’ve been working with some amazing clients these past couple of months, and we highlight one in particular who was an absolute pleasure to work with (and who we helped save nearly half a million dollars).

We also review Callide – what happened and what now?