New wind and storage capacity will change the night-time baseload market, writes Brian Innes, as coal struggles to keep up.
There are many players in the Australian energy industry who are jostling to establish their place in the low-emissions grid of the future. Following on from my previous article where I compared the alliances and power struggles in the Games of Thrones saga with that which we’re seeing in the energy sector, here I continue my analogy.
The Battle for the Night is the competition between coal (the Night King) and wind (The Night’s Watch) energy suppliers to establish themselves as the reigning baseload power supplier, when our energy consumption levels drop. There is nothing fundamentally special about a baseload supplier in terms of reliability for our grid as in the wee hours of the morning there is excess capacity with lots of idle generators waiting for the day to come.
This desire to be a baseload provider that can ride through lower-demand cycles is common in all commodity markets. Energy markets have a predictable 24-hour demand cycle and the baseload provider aims to ride out the drop in demand at night to make super profits when demand peaks during the day. Baseload pricing is therefore generally absent of any capital return margin as the supplier receives high prices at periods of peak demand. The lowest cost of supply at night will be determined by the source that has the lowest short-run marginal costs. Some technologies, particularly those running steam turbines, even prefer to run at a slight marginal loss as the costs of turning on/off outweigh the losses of running.
The Night King (coal) has managed to harness its Army of the Dead (lobbyists and shock jocks) to maintain its dominant position though the propagation of uncertainty, misinformation and delaying tactics. Confusion among energy commentators on the difference between a baseload price and renewable project Power Purchase Agreement, which includes capital returns, is unfortunately far too common. What is conveniently forgotten in discussions with government is that once wind power stations (The Wall) have been built, they have little to no running costs, so they can bid below coal prices at night.
With wind now competing for baseload energy supply the dynamic of the night-time energy market is changing and suppliers are having to be more responsive to changes in the market. Added to this, traditional coal-powered generators do not like a flexible energy environment as they have high start-up/switch-off costs. So as wind investments continue, we can expect an increase in use of Dragons (dispatchable energy sources) and load shedding at night that can remotely turn on and off. The owners of these assets are looking forward to getting some of these night time sales.
The Army of the Dead has successfully argued that the regulatory environment should put obligations and costs on to wind (in the false name of reliability) to try to help them remain the dominant baseload supplier. However, there is a game changer coming in as Free Folk (homeowners and businesses) have started investing in their own PV and battery systems. The Free Folk are joining forces with the Dragons ensuring the Night King and his Army of the Dead are defeated. The new alliance will build virtual power plants of the day and night with dispatchable clean energy. These algorithm-based dynamic dispatchable systems will put a floor under the night time price and make building wind farms in our rural communities at the edge of our grid a great low-risk investment.
The shift to renewables is unstoppable. The CSIRO’s and ENA’s Network Transformation Roadmap demonstrated the lowest cost future will be one where 45% of our energy comes from distributed solar and 45% from wind. While coal-fired power stations currently dominate the night market, the building of wind-powered generation will continue to reduce this share as their prices drop and outputs (capacity factors) increase. In the next few years, we’ll see a surge of homeowners and businesses take up PV and battery solutions, providing distributed energy storage systems to provide firm clean power around the clock and paving the path to a sustainable future.