A pocket of stillness has highlighted how wind may have concentrated price power in Victoria as coal is retired.
When it blows, it blows. But when it doesn’t, the price of electricity in Victoria goes up. That’s the observation Cornwall Insight Australia analyst Sandy Starkey made after comparing the effects of a few days of calm in the air above the garden state with the regular tumult.
Between July 6 and 13 wind conditions in Victoria shifted from relative stillness, with almost no generation from wind plants on the 8th, 9th and 10th, to a 24-hour gale of output where birds had to make very little effort to stay aloft.
Subsequently, Starkey says, wind farms managed an average capacity factor between the 6th and 10th of about 7%. For the four days of market activity up to and including the 9th prices averaged $240/MWh, including periods when the cap was reached.
As the wind returned, however, prices were sent lower. With the average coming in at $65/MWh for the three days up to and including the 13th, Starkey says the result is an indication of wind’s increasing importance in influencing price in Victoria.
“When the wind and variable renewable energy (VRE) is high, market prices tend to be comparatively low,” she wrote in a report. “However, during periods of low VRE, we see market prices increase rapidly.”
The wind that spins turbines in the west and east of Victoria comes from the Great Australian Bight, so there is not a lot of variation of the resource. “Sites in the west are highly correlated with sites on the east coast,” Starkey tells EcoGeneration. Even the 2GW Star of the South project, proposed for the shallow waters off the Gippsland coast, would still be subject to the same front.
It’s a simple conclusion that highlights the significant role of wind in the state, where it accounts for 3.1GW of capacity among 13.3GW of generating assets in total (dominated by coal, at 4.69GW, and gas, with 2.4GW).
With the right transmission, Australia is vast enough to host variable renewable generation assets distributed in such a way that some researchers are confident a 100% clean grid can be achieved, so long as adequate storage is also built.
The negative correlation between wind output and prices that Starkey points to is a worry, then. Victoria may be a great state for wind resources, but it is a relatively small state. Most wind farms there are concentrated west of Melbourne.
Without access to a wider portfolio of supply, it looks like prices in Victoria will sustain blasts of volatility. Access to extra hydro in Tasmania, solar in NSW and energy stored in the Snowy 2.0 pumped hydro facility will rely on the far-away completion of expensive and politicised infrastructure projects. “Snowy would help a lot,” she says.
Better interconnectedness with South Australia and NSW is (slowly) on the way, but wind output will need to be effectively hedged within the overall NEM as brown coal assets are retired in Victoria over the coming decades.
In the meantime let’s all thank hydro, which stepped in to make up between 9 and 14% of supply during wind’s lull in early July.
Hydro may look reliable but it is still subject to weather conditions, Starkey says. “We get droughts as well,” she says. “Hydro was able to step in, but over a 10-year period you’ll get cyclical patterns where hydro reservoirs can’t step in that much.”
In the very long term, it’s hard to say exactly how Victoria will manage without dispatchable generation. “We really struggle, once all the coal’s out, to get to net zero without gas,” she says. “We’re noticing the effects already.”
Wind may play a small part in generation, but it swings a lot of weight when it comes to setting the price.