Thread: Future of the Australian Electricity Market

Originally Posted by Bushmiller

The coal fired stations back off to their minimum practical loads and pay to stay online.

I don't really understand why this is the case. I realise that during the day there is an abundance of energy, but the concept of having to pay to stay online seems like an artificial construct - how is it that the solar power is still being sold when other forms have to pay? Or are all the energy providers, including renewables, paying to supply power at these times?

What is the cost of running all new grid lines to the solar and wind farms vs. building nukes at existing power station sites with the grid already in place?

Paul, if I may, can I rephrase what you have said and then pose a couple of questions?

First the cost accounting:

• Nothing competes with solar during the day, and
• Only solar competes with wind when the wind is blowing.
• Both renewables have variable output - overcast days and high/low wind periods.

Thus when the renewable gods are aligned we have very cheap power, interspersed with periods of zero power.

Originally Posted by Bushmiller

In a practical context we have to ask ourselves if nuclear can compete with renewables during the day on the one hand and through the night on the other. Right now, nothing competes with renewables during the day.

I think the alternative question is whether nuclear can be ramped up quickly to fill those intermittent supply breaks.

This implies that the concept of base load supply is now superceded. Renewables will supply cheap power but there will be regular and irregular periods when it does not supply. The role of "manufactured electricity" will be to fill those voids.

At present, only hydro and gas fired plants can fill this need. But one cannot be expanded much because we are running out of suitable rivers and the other has pollution issues. Batteries are still a pipe dream.

In the future, will we have a world where peak renewables generate 200% of power needs and the excess is used to pump hydro or make hydrogen to power the gaps?

Originally Posted by Warb

I don't really understand why this is the case. I realise that during the day there is an abundance of energy, but the concept of having to pay to stay online seems like an artificial construct - how is it that the solar power is still being sold when other forms have to pay? Or are all the energy providers, including renewables, paying to supply power at these times?

I'll let Paul supply a detailed answer but my take is as follows
Solar can nominally be switched off immediately so they're only paying in the sense that they are not getting paid but they are not shelling out $$.
Thermal coal can do this so there's serious amount of ongoing operating cost and energy balancing needed in short medium and even longer term so they are always shelling our $$
I know there's a bit more to it that this but I'll let Paul do that..

Originally Posted by Lappa

What is the cost of running all new grid lines to the solar and wind farms vs. building nukes at existing power station sites with the grid already in place?

a) People who live where current coal power stations are currently located are unlikely to stand for nuclear plants being located there so will need to be located remotely so there's just as much cost involved in running lines to remote locations. Old power sites make good places for storage to be located
b) the existing power line infrastructure is so badly degraded it needs replacing/upgrading anyway so why not do it to where there is power generated
c) Energy distribution futures should seriously consider interconnected solar/storgae micro/mini grids - especially for regional situations. This improves reliability and reduces the cost of interconnection. This is increasingly happening in WA. In remote and regional in WA it's proving cheaper in the long run to install a bank of solar collectors and storage than upgrade and maintain expensive interconnects.

Thanks Graeme and Bob.

You are both on the money (sorry. poor phraseology ) with your comments, but as we know, life is just not simple or easy.

Perhaps I can expand a little further and try to answer Warb's questions. Let's take a hypothetical thermal fired power station of, say, 500MW. It will have a ramp rate of something between 3MW/min and 5MW/min under normal circumstances. Hypothetically let's suppose we are generating at maximum load at 0600hrs and then the sun rises and solar power leaps into action. The price goes from $150/MWhr down to $50/MWhr and then within the next hour it goes to $20 and within another hour it is at -$-20 (negative money). The unit starts to deload at the $50 price point because the operators and their traders can see what is about to happen. At 5MW/min it would take 100 minutes and at 3MW/min it would take close to three hours to reach zero. It is only viable to generate when the spot market price is above the cost of the fuel. The cost of fuel varies hugely dependent on the geographical location. There was a time when power stations were located in the middle of cities such as Pyrmont and Bunnerong in Sydney and Tennyson in Brisbane, but that soon changed to placing them as close to the coal source as possible and moving them away from densly populated areas. I would hazzard a guess (and this is a really wide one) that coal could be in the range of $50/tonne to $90/tonne

Efficiencies vary, but assume that it takes 500Kg of coal to generate 1MW/hr. For power plants their minimum price will now range between $25 and $45. This is not the point at which they make money, but the point at which they lose less. It minimises the losses of your fixed costs which are still present even if you sit there not generating. Whilever the money coming in is more than the cost of fuel, you minimise the losses until such time as you make a profit.

This scenario assumes that zero is a minimum load. It is not, unless you are planning to come off line. A unit of this size may be relatively unstable at those lower loads or there may be other constraints that limit how low it is "reasonably" possible to go. On the way down this unit incurred several costs. We had six mills in service with each one nominally capable of 100MW. However, they each have a minimum throughput and before that is reached they have to have oil support for stability. The oil guns (it is typically diesel similar to that used in road going vehicles) is costly. For the purposes of this exercise we are going to come down in load to 150MW. At that load we are only going to have two mills left in service. The other four mills came out of service as load was reduced and cost $5000 for each mill ($20,000 so far).

As we approach our target of 150MW, the price drops further to -$40. What do we do? If we come to zero we go offline. Now, it is possible to disconnect from the grid and keep the boiler ticking over by using the Bypass, but not all units have a Bypass. The Bypass takes the steam generated by the boiler and dumps it straight back into the condenser via the HP and LP bypasses. The steam is just going round in a circle generating nothing but costing quite a bit. Additionally, it may still take a couple of hours to come back on line when the price looks as though it is going in the right direction.

In our scenario, we also have some contracts to fulfill so we probably do need to keep the unit at some load as the spot market is only part of the mix. Suppose we have 200MW of contracts. We may be able to come to 150MW and buy 50MW from the market at -$40 and supply under our contract price which was $70! That turns things around a little.

A small phenomenon occurs at -$40. The solar shuts down! Why did it not shut down immediately $zero ticked over? After all, they only have to flick a switch. The answer is there is a guaranteed price: But only for the moment. Without knowing exactly what it is, it seems that $40 or just under is likely as -$40 is when solar switches off.

Back to the scenario and around 1800hrs, the market price starts to pick up as the sun disappears and people arrive home, start their evening meal and, increasingly, charge up their EV. As we come back up in load we have to put the mills back into service. This operation is not quite as expensive as taking them out (we don't have to grind out the mills to clear them), but still costs as again we burn oil to support the combustion.

I hasten to add that I know of no unit like the one I have described above and it is a mix of places I have been (Millmerran is my fourth station). I could describe the constraints of the Millmerran units but that would definitely be divulging confidential information, which is why I have done a Geoffrey Robertson Hypothetical. Also, the above de-load and load assumes everything went smoothly. It certainly does not always happen that way. It would be great if we could just take the foot off the accelerator, but it is not like that. If it was we would run the stations from an app on our phone and I would not have a job.

So Warb, the above is the long answer. The short answer is that the cost of coming offline, coming back online and the lack of security is more than the cost of paying to stay online. Remember that the spot market is only part of the market. I don't know what proportion is under contract. It could be as much as three quarters. I just don't know. You may recall that when prices went ballistic, opportunistic players in the retail section got caught out badly as they had no contracts in place and were having to buy wholesale at more than they were charging retail.

Having said all that, there will come a point when the cost of staying online is too much to bear and the fossil stations will become fossils themselves. This is the crux of the discussion regarding proposed station closures, which frequently coincide with the reasonable life expectancy of those same stations. Most of the NSW and Victorian units are between forty and fifty years old compared to the six QLD units that are a mere twenty to twenty five years old, although there are older units too.

I hope this may put things into perspective, but looking back on what I have written, I can see that I may have created more questions than answers.

Please feel free to ask and perhaps others can weigh in too where they have industry knowledge. I am not precious about this.

Regards
Paul

An interesting discussion on the fossil fuel industry and PR:

How to spot five of the fossil fuel industry’s biggest disinformation tactics (msn.com)

Regards
Paul

Centre for Independent Studies - Wikipedia

"Independent". Hmmm...

Originally Posted by Bushmiller

The price goes from $150/MWhr down to $50/MWhr and then within the next hour it goes to $20 and within another hour it is at -$-20 (negative money).

But why does the price go negative? Oversupply reduces the price, but in no other market that I can think of does the price go negative. The answer, I suspect, is twofold. Firstly, unlike any other market, the producers cannot stockpile their excess power - they must, as you say, shut down the system and stop producing power. This opens them up to a "blackmail" pricing system, wherein the buyers know full well that they have no choice but to pay. The second part of the problem is explained in the following statement:

Originally Posted by Bushmiller

A small phenomenon occurs at -$40. The solar shuts down! Why did it not shut down immediately $zero ticked over? After all, they only have to flick a switch. The answer is there is a guaranteed price: But only for the moment. Without knowing exactly what it is, it seems that $40 or just under is likely as -$40 is when solar switches off.

A guaranteed price for renewables, put in place in order to make them a better investment, means that they get preferential treatment when it comes to selling their power. What is more interesting is that the guarantee must go deeper than simply the price, it must also guarantee the sale. If the price alone was guaranteed, the buyer would simply buy from other suppliers when the market price dropped too low. The fact that they don't would indicate that they are mandated to buy whatever the renewables can produce in preference to buying from fossil fuel sources. This is what I meant when I said the negative pricing was the result of an artificial construct.

It's an interesting situation. Having a system driven by profit alone means that renewables have to be artificially made into a profitable system. It's not that they're not inherently profitable, it's just that to increase their rate of construction "we" have had to make then even more profitable (and, let's be honest, if "they" can extort a few more $ from the government to get paid more to do what they were going to do anyway, then why wouldn't they?). The result, of course, is that coal fired generators get hit with the artificial negative pricing during the day. But that is, of course, not all bad news. Coal fired generators know full well that their race is run, but at this stage they are still needed overnight and in times of unfavourable conditions. They can leverage the negative pricing to force yet more "tax dollars" to be spent on subsidies for their plants, to keep them going for a few more years until the renewables are able to take over full time. Perhaps they can also factor in some losses in order to declare bankruptcy before they have to pay to dismantle their old fossil fuel plants? I'm sure they have it all planned out!

Originally Posted by FenceFurniture

Centre for Independent Studies - Wikipedia

"Independent". Hmmm...

There is no such thing as an independent anything anymore (if there ever was!). All reporting, all research, and everything else is driven by some person or group with an axe to grind. It takes a very brave (and financially suicidal) person to come to a conclusion that is at odds with that of their major sponsor!

Originally Posted by Warb

There is no such thing as an independent anything anymore (if there ever was!). All reporting, all research, and everything else is driven by some person or group with an axe to grind. It takes a very brave (and financially suicidal) person to come to a conclusion that is at odds with that of their major sponsor!

Cynical, but on the balance of probabilities more than likely true.

Originally Posted by Warb

There is no such thing as an independent anything anymore (if there ever was!). All reporting, all research, and everything else is driven by some person or group with an axe to grind. It takes a very brave (and financially suicidal) person to come to a conclusion that is at odds with that of their major sponsor!

I seriously doubt there ever was. I'm reading a book about the strange philosopher Nietzsche. He proposed somewhere in 1880 that just about every conversation/dialog/reporting/book etc has unknowingly or otherwise at its basis "power", or more specifically trying to gain power over other people. He would undoubtedly include stuff on the internet (ie this post as well)

Originally Posted by Warb

The price goes from $150/MWhr down to $50/MWhr and then within the next hour it goes to $20 and within another hour it is at -$-20 (negative money).

But why does the price go negative? Oversupply reduces the price, but in no other market that I can think of does the price go negative. The answer, I suspect, is twofold. Firstly, unlike any other market, the producers cannot stockpile their excess power - they must, as you say, shut down the system and stop producing power. This opens them up to a "blackmail" pricing system, wherein the buyers know full well that they have no choice but to pay. The second part of the problem is explained in the following statement:


A small phenomenon occurs at -$40. The solar shuts down! Why did it not shut down immediately $zero ticked over? After all, they only have to flick a switch. The answer is there is a guaranteed price: But only for the moment. Without knowing exactly what it is, it seems that $40 or just under is likely as -$40 is when solar switches off.

A guaranteed price for renewables, put in place in order to make them a better investment, means that they get preferential treatment when it comes to selling their power. What is more interesting is that the guarantee must go deeper than simply the price, it must also guarantee the sale. If the price alone was guaranteed, the buyer would simply buy from other suppliers when the market price dropped too low. The fact that they don't would indicate that they are mandated to buy whatever the renewables can produce in preference to buying from fossil fuel sources. This is what I meant when I said the negative pricing was the result of an artificial construct.

It's an interesting situation. Having a system driven by profit alone means that renewables have to be artificially made into a profitable system. It's not that they're not inherently profitable, it's just that to increase their rate of construction "we" have had to make then even more profitable (and, let's be honest, if "they" can extort a few more $ from the government to get paid more to do what they were going to do anyway, then why wouldn't they?). The result, of course, is that coal fired generators get hit with the artificial negative pricing during the day. But that is, of course, not all bad news. Coal fired generators know full well that their race is run, but at this stage they are still needed overnight and in times of unfavourable conditions. They can leverage the negative pricing to force yet more "tax dollars" to be spent on subsidies for their plants, to keep them going for a few more years until the renewables are able to take over full time. Perhaps they can also factor in some losses in order to declare bankruptcy before they have to pay to dismantle their old fossil fuel plants? I'm sure they have it all planned out!

Warb

Your precis pretty much nails the situation.

The only additional comments I would make is that human nature being what it is, a company is going to make the best of any opportunity it sees even if that was not the original intention of the framework. Look at the job keeper travesties during Covid for companies that profited outside of the intended scope.

The negative pricing, actually it starts a long way before the money goes negative for most generators, is the first line in frequency control. To explain that we have to remember, as you have pointed out, that in the main electricity is not stored. An oversupply, if allowed to continue, would increase the frequency beyond 50Hz. The philosophy is "we are not paying you so you might as well de-load." Of course there are other methods of reducing load too, of which the main one is PFC (primary frequency control) whereby a generators output can be decreased or increased by up to 18MW almost instantaneously. Today, this is pre-requisite for a thermal station to be in the market. I may have mentioned before that the renewables generally do not have this feature, but in the future they will have to have that.

The result of this is that solar and wind generate as much as they can, subject to sun and wind conditions, until the spot price dips negatively below their guaranteed price. Then they pull the plug. It is a luxury not enjoyed by the thermal stations.

The guaranteed price for renewables was necessary to kick the process away. I don't know at what point those guarantees will be phased out. It is not a level playing field at the moment. I would assume that subsidies in the future will be more for storage than generation as that will be the only way batteries or indeed any other method of storage will develop sufficiently.

I can see a time in the future where thermal stations will seek assistence to remain operating as in earlier periods they would be shutting down, being at the end of their life span and too expensive to keep maintaining and repairing. For example, perhaps Eraring is close to that point as it approaches 45 years old for the first of the four units there.

Regards
Paul

Originally Posted by BobL

I seriously doubt there ever was. I'm reading a book about the strange philosopher Nietzsche. He proposed somewhere in 1880 that just about every conversation/dialog/reporting/book etc has unknowingly or otherwise at its basis "power", or more specifically trying to gain power over other people. He would undoubtedly include stuff on the internet (ie this post as well)

Bob

It looks like we are stuck with bias as an integral part of communication as the alternative is never to talk or write about anything whatsoever!



I have in the past on this thread mentioned bias and agendas in the context of where a view comes from. It is time for me to reiterate my own prejudice (for newcomers to the thread) and that I work in a coal fired power station, although my bias is now arguably less than what it once was, seeing as how I job share with a colleague. I am literally semi-retired, working exactly half the hours.



Regards
Paul

Hi All

I haven't followed read though this thread much only the last though posts. As for coal fired power station well cannot say I involved much but design/ or more exactly redesigned some aspects of a coal fired power station back in the day when such things where built. And one of my close friends was pretty senior in snowy scheme, well senior for a local, as the place is built by Italians.

None of this experience makes me an expert in the grid by any means.

As for the future of the grid, I do some suspect that path is written. The bigger Chinese battery suppliers are starting/expecting to supply batteries to MF at manufactures at 0.3 RMB watt/hour. These would be lithium phosphate style. Assuming say 5000 cycle at 80% DOD and the support electronics are recycled the cost of these without margins (don't stress me with details of this, pointing only to underlying costs if delivery, by some miracle, was efficient) of these units is approx $5 megawatt hour. So given this there is plenty of room a couple of fat margins from greedy corporations, particularly if they get the chance to recharge for negative dollars.

Assuming batteries to reach the projected price level the increase in battery installations will possibly to an oversupply position with some interesting effects on competing technologies.

If you don't believe me that fine, but the dynamics that cause the RMB 0.3 watt/hour LFP batteries are the same dynamics that cause the lithium carbonate to dive in price, embryonic but developing market - unstable dynamics.

This will be slow moving adaption, there is alot of red tape in electrical market and the supply of solar power far too small to dominate all thermal power, as yet, but the drivers /possibilities are identifiable