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Spot power prices hit zero on spike in solar, wind generation

After years of skyrocketing prices, a highly unusual pricing event grabbed the market’s attention on Sunday. The spot price of wholesale electricity traded at zero in every eastern Australian state at the same time.

The rare sequence — recorded over a five-minute period in the early afternoon — resulted from a huge spike in solar and wind generation and a period of low demand in the market.

Renewable energy provided 44 per cent of generation in the power grid at lunchtime on Sunday, with the dramatic impact on prices immediately sparking an industry debate over its implications for everything from batteries, hydro storage, demand response and the ageing coal fleet.

The federal government-owned Snowy Hydro, shelling out $5.1 billion on Snowy 2.0 to boost its storage capacity, said low prices were becoming more common and required an industry response including more storage and transmission to capitalise on booming but intermittent renewable supplies. “These market events and low prices, which are becoming more frequent, show the critical need for dispatchable generation, large-scale storage and interconnection across the national electricity market is needed now,” Snowy Hydro chief executive Paul Broad told The Australian.

The trend also reflects a profound shift in the grid as cheaper solar and wind challenges the long-term role of coal and gas in the power mix. Australia’s big coal stations, responsible for 70 per cent of overall generation, have typically run around the clock. However, with solar now at times outbidding the fossil fuel on price during the day, coal plant owners like Origin Energy and AGL Energy are weighing shutting down units after meeting morning demand and firing them back up to meet evening peaks. “It is very unusual for the midday but represents a glimpse of the new normal coming our way in two years’ time once all the renewable energy projects under construction reach completion,” Green Energy Markets director Tristan Edis told The Australian. Some $25bn of large-scale renewable energy projects are under way or expected to start construction soon, according to Clean Energy Council data, further challenging the prospects of the country’s coal fleet.

The zero price snapshot will become more common for Australia’s grid, derailing the fortunes of coal, according to one industry executive responding to a LinkedIn post yesterday tagged #FreeElectricity. “It illustrates a few facts. New coal whether HELE or not cannot compete,” Craig Dugan from energy solutions provider Optimal wrote.
“As zero or negative network pricing becomes more common, such base load power stations will have to receive subsidies to run during such events.”

The trend may also spell trouble for energy users which have signed up to corporate power purchase agreements at a fixed price, according to CSR’s energy manager Andrew Cheah.

“If this is a sign of the future then there is going to be a lot of corporate PPAs that are going to be out of the money,” he said.

Other cautioned against reading too much into the rare pricing event, given the big generators would have already locked in much of their supply on contracts rather than relying on the spot market. “Probably more than 80 per cent of the power had a hedge in place and so the generators were still paid their hedge price,” Australian Institute of Energy secretary Glenne Drover wrote. “Remember, not much power is sold at the national electricity market spot price.”

Source: The Australian