A directive given to the owner of the Basslink power cable that part of the line’s capacity can only be used when wholesale power prices reach extreme levels has added to nervousness about security of supply and prices this summer.
Under the controversial instructions by Hydro Tasmania to Basslink, 33 megawatts of its 478 MW capacity can from November 1 only be used when the wholesale electricity price reaches the maximum $14,700 a megawatt hour.
The directive, which is driven by Hydro Tasmania’s concerns about the cable’s safe operating limits, comes as wholesale spot prices in Victoria surged to become the highest in the National Electricity Market in September, driven by low output of cheap brown coal power due to unit outages and growth in renewable energy.
The power grid is already under pressure due to outages at two generators in Victoria owned by AGL Energy and Origin Energy. Should repairs not be completed in December as targeted, up to 1.3 million households in Victoria are at risk of blackouts in a heatwave this summer if no extra generation is secured, the Australian Energy Market Operator advised in August.
While the Basslink capacity affected is relatively small and is available if absolutely needed, it marginally increases the chances that wholesale prices will hit their maximum level, sources say.
Still, an AEMO spokeswoman noted that the notional 478 MW capacity of Basslink into Victoria from Tasmania will still be available.
“While some of the volume may only be available at higher prices, the maximum capacity and technical characteristics from Basslink are no different from what was delivered for the past two summers,” she said.
Wholesale prices on any day are a function of several factors, including the supply-demand balance, weather and the responses of participants in the market, she noted.
Representing large energy consumers, Energy Users of Australia head Andrew Richards said he was less concerned about supply availability this summer than three months ago, pointing to growing confidence that the AGL and Origin plants would be repaired on schedule, and actions by AEMO to source emergency supplies.
“Everyone has seen a bit of an armageddon approaching and they have snapped into action,” Mr Richards said.
But he said high prices remain a major worry, as do ongoing delays in commitments to build new fast-start power plants that could smooth out renewable generation.
Electricity prices for the peak demand March quarter of 2020 have been rising in Victoria and are now at $158/MWh, more than 50 per cent higher than they were in January.
While Victoria had the lowest prices in the NEM before the closure of the Hazelwood plant in 2017, they are now above South Australia’s until at least the end of 2020, according to futures contracts.
Forward prices across the NEM are “elevated”, at an average of $91/MWh, and are more than 35 per cent up on a year ago, according to JPMorgan.
The bank noted that for the second month in a row, no new generating capacity was added in the NEM in September, with no new wind or solar farms coming online.
Victoria had to import “significant quantities” of electricity from adjoining states in September, as brown coal power continued the decline it has seen since before the Hazelwood closure.
JPMorgan analyst Mark Busuttil put brown coal’s decline down to “growth in renewables and as a result of increasingly intermittent net demand”.
Owners of Victoria’s brown coal generators such as EnergyAustralia have pointed out the increasing operational pressures on their plants as they are required to run more flexibly amid increased production from variable wind and solar.
Meanwhile, news that the federal and NSW governments will jointly underwrite $102 million of early works to upgrade an electricity interconnector between NSW and Queensland has raised concerns that NSW coal power generators may be forced out of the market early.
The announcement was broadly welcomed by the power networks industry and by energy users represented through Australian Industry Group.
But others pointed to analysis by TransGrid and Powerlink, the proponents of the upgrade, which found that a chunk of the estimated benefits from the project come from the expected displacement of higher cost coal and gas power generation in NSW by cheap renewables and coal power from Queensland.
The earlier-than-scheduled retirement of such plants could threaten reliability and push prices higher, they argue.
Source: Financial Review
A directive given to the owner of the Basslink power cable that part of the line's capacity can only be used when wholesale power prices reach extreme levels has added to nervousness about security of supply and prices this summer.