The Federal Government released their Technology Investment Roadmap Discussion Paper (‘Roadmap’) earlier in May. The Roadmap is a solidification of the Federal Government’s position that they will support investment in low carbon technologies to reduce emissions rather than support a tax or carbon price scheme to assist the transition to a low carbon economy.
One of the main sectors that the Roadmap seeks to address is the electricity sector and rightly so. The electricity industry is currently extremely carbon intensive and there are a number of quick and deep carbon reductions that can be made in the short term given the technologies already commercially available.
The Roadmap highlights the focus on storage to facilitate the “orderly management of increased variable supply” over the next 2 to 10 years.
Storage along with other technologies that are to be supported should have the potential to generate revenues without support once the barriers to entering the market have been brought down. The ability to earn revenues, however, is contingent on energy prices which have on average decreased significantly in Q1 2020 compared to 2019 – averaging a decrease of ~46% across the NEM. While drops in the energy price is good for consumers it requires investors to be more nuanced when evaluating potential technologies and the future value of projects.
In Q1 2020 NSW was the only region where prices were greater (on average) than Q1 2019 (only Victoria had higher prices between 2.30pm to 3.30pm – excluding two price periods where prices in SA were greater than $4,000/MWh which pushed averages for a single 30min period up higher than 2019 for 2020).
However, averages don’t tell the full story. If we look at the time-of-day average change since Q1 2018 we see that while prices are down 25%-50% across most of the day, there is still significant value (50%-350% increase on 2018 prices) in the evening peaks between 6pm – 8pm depending on the state. NSW has the largest peak price increase and with significant capacity set to retire in NSW in the next few years this price trend may persist in the short to medium term.
Those technologies and strategies that can be mobilised to provide services during these peak pricing periods will become the most successful and sustainable investments. Storage in NSW and VIC seem to be the most attractive but NSW is the only state where there have been increases in peak prices over both of the past two years.
If we use prices as a barometer for system needs then flexible peaking assets like storage will be needed in the short to medium term to meet system needs. Even more so as more renewable energy is connected to the grid.
We have already assisted market participants to evaluate the integration of battery storage projects in the NEM and understand investor needs. Storage projects are commercially viable and those who move first will have a significant advantage in the market.