Will the future arrive in time to head off the emerging energy crisis?
Will the future arrive in time?
The markets are telling us 'no', at least in South Australia as the fallout from one of the great living experiments that no one saw coming is beginning to drive electricity prices through the roof. And as the lengthening line of proponents of renewable energy attests, the outcome of this live experiment may end up pointing the way for the rest of the country.
Thanks to some of the best 'wind' resources in Australia, South Australia has found itself at the cutting edge of the electricity industry world globally.
Unlike other countries in northern Europe which also boast a high level of renewable energy, South Australia doesn't have a surfeit of back-up via links to generators of other regions in the eastern States to help offset any shortfall in local generation at times of surging demand.
And its 'experiment' becomes all the more pointed at the end of March with the planned shutdown of another large tranche of coal-fired baseload power stations, this time the last of the state's coal-fired power stations. Baseload is just that: electricity generators which typically produce power 24/7 so that your electricity is supplied anytime of the day or night – irrespective of whether the wind is blowing or the sun shining.
Rising amounts of electricity generated from renewable energy has driven down the wholesale price which makes it increasingly difficult for the operators of baseload power stations to make money especially since the cost of renewable energy is next to nothing once it is built and plugged in.
Rising amounts of electricity generated from renewable energy has driven down the wholesale price.
In response, coal-fired power stations in South Australia are being shut down, with the end-March closure of Alinta's Northern and Playford B power stations, leaving AGL as the main supplier via its gas-fired power station, Torrens Island, while Origin Energy, EnergyAustralia and others which mostly operate so-called peaker power stations which are switched on for short periods, are able to take advantage of price surges in the wholesale market.
The trigger for the surge in prices in South Australia was the decision by Alinta to bring forward by twelve months the closure of the Northern and Playford B power stations. Not only will it cut local generation, but it has slashed trading volumes in electricity futures, propelling prices higher.
Some relief to supply concerns may come mid-year with a network upgrade which will boost the amount of electricity that can flow from Victoria, but that will still fall well short of filling the gap from any demand surge and the closure of older power stations.
"The upgrade to the interconnector will increase the energy flow but it doesn't solve the lack of supply of hedges. The problem is not the physical energy market," says David Rylah, the trading and pricing manager at Energy Action.
It operates a reverse auction site for electricity users to get some competitive tension among rival electricity retailers but has found prices for electricity supplied between 7am and 10pm surging as much as 50 per cent to $140-170 a megawatt hour from $90-110 over just the past few months in South Australia – a rise in prices that will trickle down eventually to all energy users, including households.
The lack of an effective hedging market in South Australia means electricity retailers are pricing their offers to take into account expected volatility in wholesales prices, which is part and parcel of the electricity market.
And that surge in prices being experienced ahead of the shutdown of Alinta's coal-fired capacity has warnings of a shortage in electricity supply in South Australia within the next 12 months – basically, as soon as demand recovers from the slowdown next Christmas, according to forward estimates by the Australian Energy Markets Operator.
For large, energy-intensive users, sustaining operations in South Australia is becoming increasingly difficult since there is little impetus to lower electricity prices without embracing new technology such as battery storage. This technology, which allows the large-scale storage of energy is not yet competitive, but if high prices prove to be sustained, this may increasingly be the option pursued by many large energy consumers.
So rather than battery storage prices declining sufficiently to generate their take-up, which is expected in parts of Victoria and NSW, electricity prices in South Australia may rise to levels making the switch to this new technology look increasingly attractive.
