Solar-induced negative power prices offset by spikes
The increasing regularity with which wholesale power prices are sinking below $0 during sunny and windy days is being more than cancelled out by more frequent high prices, defying expectations of a softening in levels overall.
Prices across the National Electricity Market but in particular in South Australia and Queensland are increasingly hitting zero or below, the result of an abundance of solar and wind power generation combined with reduced demand from the grid due to rooftop solar and subdued power use overall.
But those periods are often sandwiched by prices of $100 a megawatt-hour or higher, reflecting wild swings in the supply-demand balance during the day caused by variable wind and solar power generation.
But March quarter prices in the renewables-dominated South Australia market have soared, reflecting grave worries about supply security, at $154 a megawatt-hour, only just lower than summer blackout-prone Victoria.
In Victoria, negative prices have also been on the rise, but so have periods of $100-plus per megawatt-hour prices, Energy Edge said, pointing out the state has seen nearly 50 per cent of prices above that level so far this year.
The volatility is concerning owners of older baseload coal power generators in Victoria, such as EnergyAustralia, which has told the Victorian government that its emissions and renewable energy targets will force the early closure of Yallourn, risking the sort of spike in power prices seen after the Hazelwood plant closure in 2017.
The result is that average wholesale prices remain “elevated”, according to JPMorgan analyst Mark Busuttil, while forward prices for baseload power are continuing to increase amid nervousness about a summer squeeze on supplies that could see households and businesses plunged into blackness.
Wholesale electricity prices across the four NEM states – Victoria, South Australia, NSW and Queensland – rose to $83/MWh in August, up 12 per cent from June despite slightly lower demand and 2 per cent higher than a year ago, JPMorgan said.
Forward prices are now 29 per cent higher than a year ago, averaging $94/MWh, defying forecasts that wholesale prices are set to soften.
Federal Energy and Emissions Reduction Minister Angus Taylor has set a target to reduce wholesale power prices to below $70/MWh by the end of 2021 but only Queensland currently has baseload prices for 2021 or 2022 lower than that level.
For the March quarter of 2020, when the Australian Energy Market Operator has warned of possible blackouts if the repairs of coal and gas power generators aren’t completed in time for summer heatwaves, prices in Victoria have surged to $158.50/MWh, more than 65 per cent above those in Queensland.
But it is in Queensland where the frequency of negative daytime prices has raised most eyebrows recently, causing Australian Energy Market Commission senior economist Oliver Nunn to note the possibility of “the first glimpses of a new market dynamic”.
Thirty-minute prices in Queensland fell into negative territory about noon every day for five straight days on August 18-22, with the rise in large-scale solar generation “the obvious cause”, Mr Nunn wrote on the AEMC’s economists corner blog.
Renewable power output has reached a record in Queensland, driving down the demand for power from “scheduled” generators in the state to the lowest since September 2002, before any wind and solar plants came online, he said.
“More small-scale solar PV and more large-scale renewables can only be expected to fuel this new trend.”
In a separate analysis, Global-ROAM’s Paul McArdle found increases in capacity bid into the NEM at negative electricity prices and in capacity bid in at over $300/MWh, reducing the incidence of more normal pricing.
Mr McArdle said that in simple terms the result was a greater chance of more volatile prices, because with a steeper stack of bid prices into the grid, it took only a small change, such as the wind to die down or a unit to trip, to “drive the price sky-high”.