What caused the $15,000 Price Spike in Queensland?

After what seems like months of negative spot prices due to the increased penetration of renewable generation into a market, with lower than normal demand, we saw a glimpse of volatility yesterday.
In QLD for dispatch interval ending 09:45, we saw the first real spike for 2020. The 5-minute price reached $15,000/MWh!

What caused it?

  • Generation units tripping?
  • An increase in demand?
  • A constraint, or something else?
Prior to the price spike everything looked normal. Demand was tracking as expected. Generation availability was good. There were no unexpected constraints that could cause a price spike.
The only thing I could see was that it looked like demand and supply moved around a bit, before and after the event.
It should be noted that following the 5-minute price spike, which caused generators to ramp up in load, as a result of a higher spot price and the raise of Frequency Control Ancillary Services (FCAS) which also increased in price, the following two 5-minute dispatch intervals dropped to negative $1,000/MWh, as a result of oversupply. This quick reversal in price resulted in spot exposed generators changing their output to minimise exposure.
From the available market data, no units tripped to cause the price spike.
It was likely the result of forecast renewable generation, forecast demand constraint and the generation bid stack that resulted in Australian Energy Market Operators (AEMOs) National Electricity Market (NEM) dispatch engine, resolving a 5-minute $15,000/MWh price.
Most of the inputs outlined above cause spot prices to increase but not spike. For this reason, I would lean towards a system constraint in North Queensland, limiting renewable generation north of Gin Gin. This would trigger these results causing a rapid jump in price.
I have previously experienced a similar situation in my years as a Trader, dispatching units within Queensland. This experience has taught me not to just look at changes in generation and constraints in isolation. It has taught me to dig deeper and assess if there were any sudden changes in load.
In Queensland, a large load is the Wivenhoe pumps and as expected Pump 1 at Wivenhoe started at dispatch interval ending at 09:45, pulling an unexpected 245MW from the grid, sending the price to $15,000/MWh.

Embedded Networks

What are embedded networks?

Embedded networks are private electricity networks connected through a parent connection to the National Electricity Market (NEM). The private network supplies end users (customers) that are “behind the meter”. They are connected to the private distribution or transmission system.

Embedded networks may be found in sites such as:

  • Industrial Estates
  • Shopping Centres
  • Retirement Villages
  • Gated Communities
  • Caravan Parks
  • Large buildings including, residential apartments or offices.

 

How do embedded networks work?

The network behind the meter needs to be designed and built to the appropriate Australian Standard.

Embedded networks operate in a highly regulated landscape and the developer or network owner must understand these requirements.

The owner, operator or controller of the private network will need the necessary permission to supply and sell electricity. These permissions may change depending on what state the network is in.

Embedded network operators operate as a Network Service Provider (NSP) and must obtain an exemption from the requirement to register as an NSP from the Australian Energy Regulator (AER).

An Embedded Network Manager (ENM) should be appointed:

  • if there are 30 or more customers in the embedded network.
  • if a customer within an embedded network goes on-market.

An ENM is accredited by the Australian Energy Market Operator (AEMO). Their role is to transfer customers on or off market via AEMO’s wholesale market systems (MSATS).

The embedded network can be connected to the NEM via a primary connection that will be registered as a parent / child relationship.

The embedded network operator will be billed via their retailer of choice at the connection point.

How do customers in an embedded network buy their energy?

Embedded Network Operators can be appointed to manage procurement and invoicing services for an embedded network.

They buy from the market (through a market retailer) and sell directly to the embedded network customers. These embedded network customers are “off-market”.

Customers in an embedded network have the Power of Choice. This means they may choose to purchase their energy from a retailer other than the embedded network operator and therefore go “on-market”.

A customer may be required to be in MSATS if it is on-market. As the embedded network operator provides embedded network customers with network services, an on-market embedded network customer will still receive an invoice from the embedded network operator for network costs.

Why do we have embedded networks / what are the benefits?

Embedded networks allow a site of customers to receive energy through one “gate” meter, which allows them to purchase energy from the market in bulk.

Bulk large customer electricity deals should attract significantly lower rates than a stand-alone small customer deal.

Property developers and embedded network operators benefit from embedded networks by sharing in the savings achieved through the bulk energy deals at the gate.

Why have embedded networks received a bad name / what are the disadvantages?

Customers in embedded networks find themselves paying more than what they could otherwise achieve. Either through another (market) retailer, or another embedded network operator.  Whilst Power of Choice technically allows these customers to go to a market retailer to purchase their energy, doing so can be challenging. Many retailers find it difficult to provide a (small) embedded network customer an energy only deal. The customer also faces the problem of then receiving two invoices for their electricity.

Energy Broker vs Energy Consultant

We found an article on a retailer’s website titled “Do you use an energy broker? Read this first”. Edge2020 & Edge Utilities Managing Director, Stacey Vacher, thought she would share her view on this topic. Stacey has over 15 years’ experience as a senior energy professional. She has worked with some of the markets largest and most sophisticated energy users.

In the context of consumer procurement, in your view what is the difference between energy brokers and energy consultants?

Energy brokers negotiate deals between buyers and sellers. An energy broker will go to market, often by way of tender, for a consumer’s energy requirements at any given time. They review and present options to the consumer for their selection. A broker lives and breathes tenders and transactions day in day out.

A reputable energy broker knows energy markets, energy products, and which energy provider can provide the best outcome for a given customer, product, and / or portfolio. They can perform market analysis, manage the entire procurement process, and negotiate superior commercial and contractual outcomes.

A broker of this nature lives and breathes energy markets, energy products, market participants, and energy deals, day in day out.

Energy consultants can offer an array of specialist energy services. These may include:

  • brokerage
  • trading
  • strategy development and implementation
  • regulatory advice
  • energy efficiency and sustainability advice
  • price forecasting

Should a consumer use a broker or a consultant?

It depends on what a consumer is trying to achieve. If the objective is to achieve the best deal at the time, a brokerage service can be the most efficient and effective service. If it’s understanding options and what may be the most optimal approach and outcome relative to the objectives of the consumer, a consultant may provide a superior outcome (or in the very least, a reputable energy broker).

Using an expert to navigate the market and provide specialist advice is likely to result in saving a consumer time, headaches, and money.

My advice:

Engage a reputable broker or consultant with an experienced and established team behind them. At Edge Utilities we focus on you, your knowledge, your objectives and your value.

A good broker or consultant utilises:

  • their knowledge
  • their expertise
  • industry partnerships to deliver optimal outcomes to you, the consumer.

Why do most Retailers work with brokers and consultants?

  • as a channel to market.
  • consumers prefer to provide the service of sleeving fees to consultants
  • to protect themselves by ensuring a consumer makes independent and informed decision
  • protect a retailer from the intensity of consumer education and enquiries.

Under the Australian Financial Services Licence retailers won’t provide financial advice to consumers.

Do retailers prefer to deal with consumers directly or through brokers or consultants?

I have asked many of our retailer counterparties this question over the years. It’s fair to say retailers ultimately prefer to deal with a consumer directly. They have more control over what customers do and what the retailer can achieve. This includes price / fees, products, risk, and contractual flexibility.

Many retailers will work with brokers and consultants. They acknowledge:

  • the benefits a third party brings to their relationship with a consumer
  • the role of the broker or consultant working directly with them is to deliver their service to the consumer.

We are starting to see larger retailers be a lot more selective with respect to which brokers or consultants they will work with. Edge Utilities support this move for many reasons. It often means the retailer is more serious about ensuring the broker understands the retailer’s products and objectives, and ensures the broker is introducing consumers and opportunities that stand to benefit from them.

The blanket approach by some brokers of going to retailers to make up numbers in a tender is lazy and ineffective. Brokers should be looking to bring parties together that both stand to benefit from the transaction. This should be done using a superior competitive process, whereby all counterparts are genuinely well positioned to provide the product and / or service to the consumer.

Should brokerage / consultant fees be transparent?

  • All fees should be transparent
  • Don’t expect transparency across the market.

Edge Utilities brokerage clients are advised that we are engaged on the basis of getting paid via third-party fees.

If an existing client isn’t paying a fee for service, or seeks services out of scope, we ensure the client knows in writing that a deal tabled to them contains:

  • brokerage or commission fees.
  • the quantum of the fee.

Lack of transparency of brokerage fees is often criticized. As we read in a retailer’s “Do you use an energy broker? Read this first” article.

What’s interesting about this, is a retailer’s fees are unlikely to be transparent and are often rolled into the energy rate. Retailers secure fees on metering and there is absolutely no transparency that they are doing this. Brokers are expected to outline exactly what percentage, cents per kilowatt hour (c/kWh) or total quantum of fees are in a deal. This is a double standard that isn’t going away.

What is frightening is the lack of transparency around risk. At Edge Utilities, we are seeing more and more retail products in the market as retailers jostle for market share, around spot and renewable backed products. These can place an exorbitantly high risk on consumers and may result in volatile and high cost outcomes. Fees are not the fundamental issue for consumers, the risks are. Many of these risks can result in much higher cost outcomes.

If you don’t use a reputable broker or consultant, there’s a good chance you won’t receive the most competitive offer from your retailer. You will potentially expose yourself to higher costs and / or risk and / or inflexible contractual terms.

It’s the broker / consultant’s job to get the very best deal possible, considering commercials, risks, and required contractual flexibility.

Changes to the Generation Mix

The current fuel mix within the National Energy Market (NEM) is predominantly made up of fossil fuels. Black and Brown coal still dominate the mix followed by Natural Gas. Which makes perfect sense as we live in a country which is rich in natural resources. Power stations can be directly next to the fuel source and provide low cost energy to an energy hungry population.

The retirement of old coal fired generation is not only inevitable due to the age of the plant and technology but, a necessary step to tackling the climate crisis. The International Energy Association has determined that CO2 from coal combustion was directly responsible for over one third of the 1⁰C rise in global average temperatures (taken above the pre-industrial levels).

Renewables have the potential to fill this gap with a much smaller carbon footprint than their traditional fuel counterparts. However, the nature of renewable technology is inherently intermittent. It will be important to have a broad-brush approach across technologies.  This will ensure the balance between supply and demand can be met without increasing costs associated with fast response generation.

The Integrated System Plan (ISP) talks heavily about the need for Renewable Energy Zones (REZs) within Australia. There is no questioning that the sun will shine, and the winds will blow. But harnessing this on ageing and existing infrastructure will not work. Constraints are currently being placed on Northern Queensland due to the load centre being too far from the abundant Solar in the North. This is causing the transmission lines to be over utilised. As such, everything we are discussing in this paper is reliant upon upgrades to existing and new transmission lines ensuring that the capacity is there to service this technology which is not in the traditional load centre vicinity.

In exploring some of the possible Renewable Energy Sources currently available here in Australia, along with some which are not yet being used, we can see where we may expect the energy of the future to come from.

Renewable Generation Changes

Read more about the changes happening to renewable generation by clicking on the buttons below.

 

Written by: Kate Turner (Senior Manager, Markets & Advisory)

 

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