Power Pain as wholesale energy prices double in a year

Wholesale electricity prices have more than doubled in the past year in Victoria and South Australia.

The below article in The Australian highlights:

"...average wholesale energy price in Victoria climbed to $139 this month, up from $62 in January last year. In South Australia, the wholesale average price for January climbed to almost $170, up from $84 a year ago, whereas prices fell in NSW and Queensland to about $75."

Data from the Australian Energy Market Operator (AEMO) shows the jump in both states:

The article quotes energy experts, including Grattan Institute Energy Director Tony Wood:

"... We’re transitioning away from centralised, cheap but dirty power stations, but we’re not ­replacing these stations with sources that are just as stable.”

The politics around the issue is hot, with the Federal Liberal government using the opportunity to attack the Victorian and South Australian Labor governments, with Federal Energy Minister Josh Frydenberg commenting:

South Australia has the highest prices and the least stable energy system in the country and, despite the bravado in the lead-up to summer, their energy problems remain. Just a couple of weeks ago, South Australia’s prices reached $14,200 a megawatt-hour, while at the same time they were $89 a MWh in NSW and $85 MWh in Queensland.

“The wind turbines, which can produce 100 percent of energy on one day and zero on another, were not blowing when needed most, providing less than 5 percent of power and Jay Weatherill’s big battery less than 1 percent.”

SA Energy Minister Tom Koutsantonis fired back:

“Since August, wholesale power prices in South Australia have been consistently cheaper than Victoria, and in September and October, SA had the cheapest wholesale prices of mainland states in the National Electricity Market,”

Our take on this?

If you ignore the annual averages and just cherry-pick the moments that suit, he's partly right.

The following chart shows the average annual wholesale price for each state according to AEMO.

SA has the highest price. For the past 8 years, SA prices have averaged 27% higher than Victoria.

Only since the closure of Hazelwood power station, which removed of 1600MW of baseload brown coal-fired power in March 2017, has Victorian pricing escalated to a level similar to SA's.

Importantly, wind power is often out of sync with demand, generating surplus power and lower prices outside actual periods of significant demand.

Part of the criticism in the below article is levelled at the Victorian government's pursuit of its own 40% renewable energy target by 2025, noting:

"...the energy supply could get patchier and the state could emerge as a net importer of electricity as the government replaced coal-fired power stations with solar and wind and other intermittent power sources, which did not fire 24 hours a day."

The state with the least amount of wind capacity is Queensland. It also has the lowest wholesale prices.

Victoria's Premier, Daniel Andrews, has blamed privatisation of the states energy generators back in the 1990's for the high prices. This may have some merit considering Queensland still has publicly owned generation assets.

It's not hard to fathom that state-owned assets focus on reliability and affordability while private assets focus on profit and benefit from the tight or intermittent supply that can result from underinvestment and poor planning.

We believe the solution lies in a balanced combination of coal, gas, wind and solar. Existing coal plants should be utilised until the end of their asset life and new high efficiency, low emission (HELE) plants should replace them to provide reliable, affordable baseload.

A key element of this is understanding that while the likes of India and China have committed to reducing emissions intensity, their total emissions will continue to grow for decades. Sure, they will deploy a significant amount of wind and solar, but they will also keep building coal power stations, mostly of the HELE variety. Take India for example; CO2 emissions are targeted to triple by 2030 to 3.66 billion tonnes a year. Australia's emissions at present are ~550 million tonnes per year. If we shut down our economy and emitted zero CO2, India's growth would negate our cuts in less than 6 years.

This doesn't mean we do nothing. It does mean we should be measured and sensible, focusing on reliability, affordability and emissions intensity, in that order.

A Coldry-enabled HELE power station in Victoria would be 42% to 63% less CO2 intensive than older style brown coal power stations, helping keep the lights on and costs down.

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