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South Australian power: pay most to buy, or most to supply. Why?

By Geoff Carmody - posted Tuesday, 20 February 2018


Without local coal-fired base-load generators, but with gas and diesel generator 'peakers', and solar plus wind power, and batteries to store all of this, how does SA hit the negative wholesale power price? I cannot see avoided shut-down costs for SA's current local power generation fleet being that large. Renewables are uncertainly intermittent, anyway. Batteries are quickly dispatchable (when charged). Gas and diesel 'peakers' are probably pretty flexible too, with source fuels 'on tap'. That's why they're 'peakers'.

What's going on? SA power prices seem to hit the wholesale price floor when the wind is blowing strongly. Is this coincidental?

If avoided shut-down costs of intermittent operation are small in SA relative to the minus $1,000 NEM floor price, SA generators wouldn't bid so low. But they do. So surely SA generators bidding to supply at the floor price must be getting a substantial renewable energy subsidy (see the quoted extract above) that makes it profitable to pay AEMO to supply? Is it because solar and wind power supply peaks don't coincide with power demand peaks, but the SA government doesn't want to turn off weather-dependent renewables generation despite such gaps? Is the SA government actually paying them to make sure they don't shut down? What is the reason?

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Are SA renewables generators driving supply bidding down to the NEM floor price in that State? If so, by 'squeezing' any generators that are fuelled by 'on tap' energy sources into even more intermittent supply, are they making the whole SA power supply system more expensive (including opaque subsidies), less reliable and more intermittent? These are the only conclusions that make sense to me.

I'd love to know the answers to five simple customer-important questions. (1) Why is it profitable, sometimes, for the current SA generator fleet to pay AEMO the NEM power supply floor price? (2) What renewables dollar-equivalent subsidy (and to whom) makes this worth-while? (3) Who gets the AEMO revenue from this? (4) Can answers to these questions be made public? (5) If not, why not?

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About the Author

Geoff Carmody is Director, Geoff Carmody & Associates, a former co-founder of Access Economics, and before that was a senior officer in the Commonwealth Treasury. He favours a national consumption-based climate policy, preferably using a carbon tax to put a price on carbon. He has prepared papers entitled Effective climate change policy: the seven Cs. Paper #1: Some design principles for evaluating greenhouse gas abatement policies. Paper #2: Implementing design principles for effective climate change policy. Paper #3: ETS or carbon tax?

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