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Is Snowy 2.0’s call to can coal an own-goal?

By Geoff Carmody - posted Wednesday, 30 May 2018

  • With current timing of peak power demand, and fossil-fuel base-load delivering supply during current off-peak periods (mainly at night), such arbitrage margins seem quite plausible, and enough to outweigh efficiency losses pumping water uphill (as they apparently are today).
  • If we assume current peak- and off-peak user demand timing is unchanged, but supply shifts from coal to gas, what then? Gas has been thought of as a 'peaker' generation back-up energy supply. If coal disappears, do we move to gas 'peakers' to 'firm up' renewables reliability, including pumping water uphill? At Snowy Hydro's $50/MWh, I don't think so. Neither does Snowy Hydro.
  • Suppose we forget fossil fuels and move to renewables to re-charge Snowy 2.0's 'big battery'. Suppose also that the current user demand cycles continue. When is 'off-peak', given renewables are re-charging batteries, including Snowy 2.0? For solar, it's no longer at night: that's when solar-charged batteries are being discharged. For wind, it could be any time, depending on the weather. With renewables, we don't control when power supply occurs: the solar cycle and the weather do.
  • Today, 'peak' and 'off-peak' still are mainly demand-side phenomena. Fossil fuel supply smooths out price effects of demand peaks and troughs (a bit).
  • In a renewables world, power market 'peak' and 'off-peak' periods depend both on demand and supply peaks and troughs. Will these coincide, or be 'out of sync'? The answer will help determine practical arbitrage margins on which the viability of Snowy 2.0 and its ilk will depend.

The solar cycle dictates the middle hours of the day as the best time to re-charge batteries from solar power. In a renewables world, this is a time of peak solar power demand. It's also the time when multiplied PV generation will be operating at full capacity, with most power (85% in the example above) going to re-charge multiplied power storage capacity (batteries). Solar energy is at a maximum, but a lot of expensive generation and storage 'kit' is needed to collect and store it. It's not clear that this 'off peak' period is cheap.

Outside the middle hours of the day, increasingly, solar-powered storage will be discharging. This is solar power's supply-side 'peak' period, when grid-scale battery owners hope for higher prices to cover their re-charge/storage costs. This supply-side 'peak' and 'off-peak' cycle must be overlaid on the existing demand cycle. For demand in a fossil fuel world, 'off peak' was in the wee small hours of the morning. For solar, this is a battery discharge time, not a traditional 'off-peak' time. The night is also a time when the increasing penetration of household and small-scale business storage batteries for PV systems will be discharging most. These will take the top off 'peak' demand for grid power from industrial-scale batteries like Snowy 2.0.


What's the net effect of these supply and demand cycles on highest and lowest power prices? Power prices in the middle of the day generally are significantly higher than in the small hours of the morning. Grid power prices in the small hours of the morning will no longer exploit cheap fossil fuel base-load prices. With renewables, this period becomes part of the 'peak' period, when batteries are being discharged.

It seems likely that arbitrage gaps between highest and lowest prices will narrow quite a lot, and probably around a higher cycle-average price.

Similar considerations apply for wind power, but wind weather cycles are not diurnal/nocturnal. Wind cycles can be longer or shorter than a day. Again, 'peak' and 'off-peak' price cycles will change and, especially for wind, their timing becomes less certain. What happens to the amplitude of wind peak/off-peak price cycles?

Without fossil fuel power, when will 'pumped hydro's' water be pumped uphill? That's its 'battery re-charging' phase. It won't be when the wind doesn't blow or the sun doesn't shine. Such periods will be when discharging hydro power (and other battery storage) is needed for reliability. Are these the new 'peak' periods? Snowy Hydro seems to be planning on that for its viability. In the recharging phase, the wind must be blowing and/or the sun must be shining. Are these the new 'off-peak' periods, albeit when all renewables' storage will be re-charging, in a 100% renewables world?

Is a 60-80% arbitrage margin likely in this new renewables world? If yes, can punters be told, in detail, how?

Ben Potter reports Snowy Hydro claims 'coal plants couldn't respond quickly to sudden changes in the energy market when wind and solar energy come and go in the grid'. I agree. Why has this happened?

  • The inherent intermittency of renewables like wind and solar, and the way renewable energy targets (RETs) are applied through the NEM bidding process, means the intermittency features of renewables are also imposed on fossil fuel energy sources – especially base-load. When renewables supply is 'on', fossil fuel supply power bids are 'off'. The intermittency of renewables is mirrored in fossil fuels. That increases their costs (and thus those faced by power users) a lot. They're less competitive.
  • Traditional fossil-fuel base-load power provided reliability through 'spinning reserve' and grid stabilisation services because it wasn't stop-start supply. Renewables and RET policies effectively have made fossil fuels intermittent as well, and made them increasingly uncompetitive. This is the 'other blade' of the RET 'scissors', killing coal. (See my opinion piece of 30.01.18, Power failure: some inconvenient renewable energy realities and the links there to my booklet with the same title).
  • Increasingly, Australia's total power supply is intermittent and either unreliable or more expensive, or both. We'll need much more (intermittent) generation capacity, and nearly as much power storage capacity, to do the job if we want the same reliability. That means we'll pay more for power, not less.

There are lots of questions about 'pumped hydro' and other renewables. For wind, solar and hydro, even if reliable, (i) unsubsidised economic viability and (ii) user affordability in a world dominated by renewables, are two big questions. I don't think politicians' answers to date are persuasive.

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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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