Solar is making a marked effect on spot prices in Queensland, writes Lumi Adisa. Has PV backed itself into a corner?

To understand the potential for solar in the NEM, one should look no further than Queensland, the sunshine state. In just under four years the installed capacity for grid-scale solar in the state has grown from close to nothing to just under 2GW. By comparison, installed capacity for wind in the state is only about a third of solar, at about 650MW.

As shown in the chart below, average grid-scale solar output (yellow line) has increased by about 452MW between 8.30am and 3.30pm in one year.

Further to this, the growth of rooftop solar in the state is also having a sizeable impact on operational demand with middle-of-the-day demand (green line) from FY19 to FY20 dropping by up to 300MW.

For context, this is equivalent to having between 710MW and 770MW of new generation on at the same time (9.30am-1.30pm) every day. The key question becomes: what impact is this having on prices and the merchant outlook in the state?

This amount of coincident rooftop/grid generation has led to solar having a much greater impact on the merchant market in
Queensland than in NSW.

In FY20, solar delivered the entire 90th percentile of its volumes (10.30am-12.30pm) in the 10th percentile of prices through the day. In FY19 and FY18, spot prices during these periods were on average about $41/MWh and $39/MWh higher respectively. It’s a striking outcome.

While we expected this record drop in mid-day prices in Queensland, the extent to which they have dropped has been remarkable.

The price widens

Last year, the first update of our Benchmark Power Curve (BPC) price forecast (the dark dotted line) predicted an average drop of about $25/MWh for FY20 between 10.30am–12.30pm. Notably, the BPC also rightly captured the intraday volatility with an average within-day range (max minus min) of about $92/MWh against a market outcome of about $87/MWh. That’s an especially important variable for estimating potential income from the energy market for new storage investments.

With the NEM’s energy-only design, it is left to be seen if these price trends alone are enough to incentivise new investment in energy-shifting (storage) technologies.

So far, storage projects have placed more emphasis on proceeds in the ancillary services markets over energy arbitrage. Wind, however, has been a beneficiary of these price trends and shapes.

Astonishingly, despite having just about a third of solar’s installed capacity in the state, wind’s current share (about 12%) of the merchant market (excluding coal) is about the same as that of solar (about 15%). In the second quarter of 2019, solar’s share of this revenue was about 18% whilst wind was only about 7%.

Queensland, for now, remains a challenging region for solar in more ways than one. Multiple solar farms have been (and are currently facing being) constrained off due to system strength issues recently identified in the region. Fortunately, we expect solar to perform much better in other regions.

Lumi Adisa is lead consultant market analysis and business development at Cornwall Insight.