NEM Wholesale Prices Under a Range of Renewable Energy Scenarios

Transcription

1 NEM Wholesale Prices Under a Range of Renewable Energy Scenarios AIE SYMPOSIUM, 10 October 2016 in Sydney on the Large-scale Renewable Energy Target 2020 and Beyond Presentation by Hugh Bannister, CEO, IES

2 Scope of Presentation Review factors likely affect wholesale prices going forward Brief review of recent market episodes Some broad scenarios of wholesale prices Policy issues and options 11/10/2016 2

3 Load Growth in The NEM: Low or Declining Growth is the New Reality Source: AEMO ESOO 2016 Load began declining around 2008 Initially seen as temporary But trend has persisted and is now seen as long term by AEMO Reasons Energy efficiency policy (standards) De-industrialisation Growth in rooftop PV Steeply climbing retail prices! Low Load Growth Presents a Challenge to Fit in Renewable Technologies 11/10/2016 3

4 Trends in Distribution Costs in Australia Growth in Distributor Regulated Asset Base Source: ResponseAbility The Regulated Asset Base (RAB) directly determines distribution costs to consumers Increase since 2000 is typically 2-3 times Increases not related to general load growth although greenfield sites need to be serviced Greatest for government owned entities Network price regulation has been weak. Hypothesis to prepare for sale at a high price Network charges now dominate small retail customer tariff costs. Typically around 60% of the retail tariff. A Major Failure of Electricity Sector Reform in Australia? 11/10/2016 4

5 How Much Renewable Energy Capacity is Already Installed in Australia? Over the Whole NEM, the Impact of renewables is still relatively small 11/10/2016 5

6 11/10/2016 6

7 Total Regional Reserve And Wholesale Prices in South Australia during July 2016 The Calculation Of Total Regional Reserve Is Non-trivial! 11/10/2016 7

8 Drilling Down - Premium Curve Analysis of NEM Prices July /10/2016 8

9 Some Components Affecting Low Regional Reserves (and Prices) in SA in June Three times unlucky over 7-9 and unlucky looks inconvenient.. 11/10/2016 9

10 And Wind Variability Topped It Off.. It looks like 4 times unlucky but may not all driven by luck 11/10/

11 Did Wind Power Shut Down Northern Power Station? Leigh Creek Mining Strategy 1: 1990s Direction of Coal Seam Dip Leigh Creek Mining Strategy 2: 1990s Direction of Coal Seam Dip Direction of Mining Direction of Mining Direction of Mining Strategy 2 was Chosen So Step Change in Mining Cost at Next Stage 11/10/

12 Is The NEM and South Australia in a New Paradigm? Or Has it Happened Before? So far, rolling average prices have stayed within bounds but what of the future? 11/10/

13 Recent System Failure in South Australia 28 September 2016 Is wind power the villain? 11/10/

14 Emerging System Security Issues in The NEM - Have We Just Witnessed This? The Market Operator (AEMO) and Rule Maker (AEMC) are jointly reviewing system security issues arising from high renewable penetration in some regions (e.g. in South Australia). There are two main issues. Decreasing system inertia as asynchronous plant replaces synchronous plant Not yet a problem nationally (if all interconnectors operating) Already a potential problem in some regions (e.g. SA) in the event of regional isolation. Decreasing system strength in some parts of the network where there may be insufficient synchronous generation to withstand faults. There are technical solutions to these challenges and a range of potential implementation options. e.g. regulated or market oriented. AEMC will ultimately determine arrangements, perhaps guided by government directive 11/10/

15 South Australian Gas Fired Generation Profiles 11/10/

16 Medium Term Price Scenarios (Say 10 Years) Case 1: RET policies expanded aggressively to around 50% of energy: Much greater price volatility to be expected Wind blowing hard renewable spillage and depressed prices Wind not blowing high GT-driven prices Intermediate wind coal plant marginal moderate prices Average prices enough to keep some coal base load plant in the market, but less than now Retail prices incur RET add-on net outcome for customers? Case 2: Moderate RET policies say Current 23% or up to 30% ongoing Moderate prices generally with peak period spikes occasional low and negative prices, especially in some regions Depressing effect of renewables and price increasing impact of peaking gas could tend to cancel out. Average prices enough to keep coal base load in the market Net outcome to customers, even with RET add-on? 11/10/

17 Price Scenarios (2) Case 3: Battery storage cheap and widely deployed Some scenarios suggest this scenario could leave a nice flat load for base load plant and moderate prices However, this outcome seems to lag a long way behind renewable energy penetration. Case 4: Much more interconnection E.g. Tas-Vic or Tas-SA, or NSW-SA, NSW-Qld Would encourage more uniform and less volatile pricing, all else being equal. While also a potential security advantage, note that some gas-fired base load plant could be under pressure to exit the market in some regions (e.g. SA) Case 5: Market power exercised There is sufficient vertical and horizontal integration for market power to be exercised by some participants, especially within some regions Pay penalty rather than meet the RET? Threaten to, or actually, close down plant to influence prices and policy. Influence prices directly through bidding Exercise of market power could confound all other factors Exercise of market power is not illegal, but the ability to do so can be influenced by competition policy. 11/10/

18 Price Scenarios (3) Case 6: Approaching 100% renewables The prevailing logic for electricity markets, in Australia and elsewhere, is to schedule plant according to bids and offers presumed to approximate marginal cost except when reserves are low. What happens when non-dispatchable plant comes to dominate the market? How is the price set? If an auction is retained, how stable will it be? How could investment occur in this environment? Batteries and other storage options can help delay this conundrum, but not up to 100% renewables. This is a challenge for a somewhat distant future! Case 7: The counterfactual case - no or minimal renewables order of magnitude only. This case is often set up as an idealised alternative to the current direction of policy Gas prices expected to double relative to past; use $8/GJ future gas price as a benchmark or up to $4/GJ increase (but likely less) If CGGT and GTs become marginal as old coal plant retires Add $4*7 = $28/MWh for CCGT marginal Add $4*10 = $40/MWh for when GT marginal May be comparable in the medium term to 30% RET case for customers, if security problems can be solved 11/10/

19 POLICY OPTIONS AND ISSUES Interconnectors Take advantage of existing storages in Snowy and Tasmania Regulatory Test to emphasise security more? Cost??? Impact on SA gas fired plant??? Harmonisation of LRET Understand state motivation low cost jobs Balance better between states and possibly restrain Emission pricing Better balance between RET and emission pricing policy options would reduce distortions Extending safeguards mechanism as a proxy for emission pricing may not give effective signal Accelerated Market Development 5 minute settlement rule change Inertia and fast load response market Decentralising load management opportunities Market arrangements to maintain system strength Others? Batteries and Distribution Network Pricing Centralised v decentralised options Economies of scale? How to capture all value streams? Loosely managed LRMC network pricing favours DNSP disposition toward building its own assets. AER should be more prescriptive on Distribution Tariffs to avoid undue discrimination against behind- the-meter storage 11/10/

20 THANK YOU!! 11/10/