In this week’s edition we take a closer look at the Australian Energy Market Operator’s (AEMO’s) 2019 Electricity Statement of Opportunities (ESOO).
The 10-year view in ESOO highlights the fragility of the operational margin across the NEM. Victoria, in particular, was identified as under threat of load shedding and an increased possibility of unserved energy (USE) this summer.
Current unplanned outages at a major brown coal station, Loy Yang A2 (500MW), and at a peaking OCGT, Mortlake unit 12 (259MW), could exacerbate this issue in Victoria for the upcoming summer period. Given the uncertainty over their return to operation, we have analysed the impact of the two stations and their possible absence over summer.
In the absence of the two stations, AEMO said it would require an additional 460MW of capacity. Without this, it could result in voluntary load shedding of 260,000 to 1.3mn households in Victoria during extremely hot days.
Based on our analysis, in the best-case scenario with both assets returning before summer, it would only be absolute peak periods, where demand reaches 8GW, which could see operational margin dropping below 500MW and Victoria potentially being reliant on imports through interconnectors or demand management (e.g. the Reliability and Emergency Reserve Trader) to avoid load shedding and USE.
However, the story could change significantly if one or both units do not return to action on schedule. During December-February last summer the operational margin fell below 500MW for 1% of all periods. In the worst-case scenario, whereby both units do not return over the same period of summer 2019-20, this could increase fourfold to 4%
(equivalent to 800 hours). Under this scenario, its not just peak demand periods that could see <500MW of operational reserve, it could also be during relatively benign demand periods of 5-6GW too.
This is explored in Figure 1, which shows the operational margin in Victoria as a duration curve using summer 2018-19 demand and generation data. It assesses the operational margin over the period had Mortlake and Loy Yang A2 not been operating as a proxy for possible impacts this summer.
The uncertainty of operational margins for peak summer appears to be filtering through to the wholesale market. As of today, the forward baseload power contract for Q1 20 delivery sits at $156/MWh, of which approximately a third relates to caps (for price volatility). By comparison, power for Q2 20 is just over half the price of Q1 20 (at $86/MWh).
The operational margin issues in Victoria may be relatively short term, but a question remains over whether wholesale energy markets by themselves provide sufficient certainty and signals for new build capacity. The alternatives could include capacity or reserve markets and other balancing services.
We have analysed the ESOO in more detail in our perspective piece in Energy Spectrum Australia (ESA) – our newly launched market intelligence service. ESA is a monthly subscription report providing insight and analysis on the major market and stakeholder impacts across the full energy supply chain in the NEM. Contact us for more information.