Previously, in Issue 45, we examined how wind and solar technologies are performing against (and impacting) the time-of-day price shape in New South Wales (NSW). In this Chart of the Week, we move further north to examine the situation in Queensland and the profound impact solar is beginning to have on the merchant market in the state. We also provide some commentary on our Benchmark Power Curve price forecast and its anticipation of these changes last year.
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 ~650MW.
As shown in Figure 1, in a year (FY19 to FY20), on average, grid-scale solar output (yellow line) has increased by ~452MW between 8.30AM- 3.30PM. 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 ~710MW – 770MW of new generation on at the same time (9:30AM – 1:30PM), every day. The key question then 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 ~$41/MWh and $39/MWh higher respectively; a striking outcome. Whilst we expected this record drop in mid-day prices in Queensland, the extent to which they have dropped has been remarkable. Last year, the first update of our Benchmark Power Curve (BPC) price forecast (dark dotted line) predicted an average drop of ~$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 ~$92/MWh against a market outcome of ~$87/MWh; 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 (~12%) of the merchant market (excluding coal) is about the same as that of solar (~15%). In Q2 19, solar’s share of this revenue was ~18% whilst wind was only ~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. If you want to know more about our price forecasts or how we can assist you, contact us at firstname.lastname@example.org