Summer is well and truly here with mercury readings this week showing warm temperatures across the NEM. South Australia in particular has seen maximum temperatures hovering around 40°C for the week. In this Chart of the Week, we take a look at NEM outcomes this week where moderately high demand, forecast Lack of Reserve (LOR) conditions and certain unit outages likely left many sweating (and not just from the heat). It has also got us all thinking about what summer in January and February may have in store – not that we weren’t already thinking about that.
Loy Yang A2 remained out of the market this week, leaving 500MW of otherwise flat baseload generation out of the supply mix. Pre-dispatch price forecasts for Wednesday suggested that prices would reach as high as the market price cap however as time drew closer those high prices did not materialise – settlement prices over the day did not break $300/MWh in either region.
A potential explanation for the lack of extreme volatility on Wednesday was the reliability of supply. Brown coal was relatively flat over the day providing around 4.1GW. As wind output dropped through the day, gas and hydro were able to meet the increased supply requirements, particularly in the evening peak when solar was out of the supply stack.
With the warm weather expected to continue, a tight supply/demand balance is still a key risk to market price outcomes. This includes generator trips but also large ramps due to changes in variable renewable energy output. These shifts typically require higher priced generators to be dispatched which assuming no rebidding means higher settled prices.
This occurred on Thursday where South Australia prices hit $14,700/MWh for an hour over the evening peak. A combination of increasing operational demand, high gas output, low wind output and interconnector constraints left a gap in the supply mix that needed to be filled by diesel generators and batteries.
Market expectations for Q1 24-25 January 2019. On these days, a significant portion of brown coal generation was unavailable and high coincident demand in both Victoria and South Australia led to a lack of 2020 are for high average prices and price volatility similar to summer last year; however, futures on the ASX for this period have been trending down slightly in the lead up to summer. It is important to remember that the majority of Q1 2019 price volatility occurred on the reserves, RERT activation and extreme high prices exceeding the cumulative price threshold.
Outcomes in South Australia demonstrate the susceptibility of commercial market outcomes to weather-driven events. Many believe this to be quite unusual for Q4 with Q1 historically being the most bullish quarter for prices. This paints a dire picture for the rest of summer with more extreme heat events expected in the coming month(s). Whilst the SA VoLL event was driven by low levels of non-solar coincident wind generation and interconnector constraints, the reliability of coal plants in other states is one to watch as more is being asked of them (and for longer).