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A tale of two cities: batteries vs pumped hydro & solar vs wind

On 1 April 2020 the Australian Energy Market Operator (AEMO) released the final Marginal Loss Factors (MLFs) for 2020-21. In this chart of the week we look at how the MLFs have changed and which assets benefited the most.

If we look closely at the MLF results over the past decade there is a clear divergence in the impact that marginal losses have on particular generation technologies and this is not just limited to new entrants. While, wind has seen a fall in MLFs since 2015 (~2 percentage points (pp)) – which was around about average across all technologies during this period, excluding solar – solar on the other hand saw a fall three times that; more than 6pp. Solar is not alone in this step decline with hydro run of river also hit with significantly declining MLFs over this period.

What may surprise is that the story for pumped hydro and batteries are divergent. While batteries have seen decreasing MLFs (making energy used to charge them cheaper), pumped hydro loads have seen rising MLFs making their energy more expensive. In fact Jindabyne pump at Guthega accounted for the largest MLF increase for 2020-21 with an increase of ~10pp. Dalrymple conversely saw the biggest drop in MLF, down by 7.4pp. Gunnawarra also saw a decrease of ~3.6pp.

Interestingly network limitations in both south west NSW and north Queensland (due to system strength issues) have restricted generation and accordingly resulted in slightly increased MLFs. Solar fared better than initially forecast in the Draft MLFs, with both Limondale and Broken Hill jumpsing more than 8pp, Griffith solar farm increased 3.8pp and both Karadoc and Wemen solar farms were 3.8-4pp higher than expected (final MLFs were still -0.5pp and -1.5pp respectively). The only real reduction from the draft was for Challicum Hills Wind Farm, which dropped 3.7pp.

COVID-19 is already changing demand patterns across the NEM and is likely to lead to decreased demand across 2020 until lockdown and movement restrictions are released, which is unlikely to occur for months. The newly released MLFs do not account for the potential change in demand and accordingly are likely to underestimate losses. This could be more pronounced in regional areas where renewables are located and given local business and industrial plants may need to close.

This year’s MLFs show a clear picture by regions in Figure 1 (west and north west VIC struggling). Solar for the first time in a while was not the worst hit, OCGTs and pumped hydro fairing the worst on a capacity weighted MLF basis. Though the biggest changes for MLFs will have to wait for the outcome of AEMO’s consultation later this year.