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Close watch needed on fresh SA power price surge as interconnector outages loom

"Upgrade work on SA's vital Heywood electricity interconnector has triggered a new price surge event that will ultimately hit energy users," Ai Group SA Head Stephen Myatt said today.

"A heavy constraint on the Heywood interconnector was one of the biggest factors behind the July price surge that added more than $100 million to SA’s wholesale electricity costs.

"Similarly, an October 2015 constraint hit energy users through the obscure 'Frequency Control Ancillary Service' market, or FCAS. FCAS pays generators to help stabilise the grid by slightly varying their output. When the outage led the market operator to buy FCAS within SA, rather than from the market as a whole, costs hit $26 million during a period when they would ordinarily have cost less than $100,000. These electricity price events are a serious risk to jobs and reinvestment in SA industry.

"Further outages through August and September are planned while the interconnector is upgraded. A new price surge has already started, with FCAS prices leaping shortly after the first outage began on 10 August. Eleven more outages are planned through 15 September. In the worst case, if FCAS prices spike every time the interconnector is down, the total cost will be around $20 million over the coming month.

"For the next month all eyes should be on the SA electricity market.  Whether FCAS prices spike will depend almost entirely on the bidding decisions of the small number of registered providers.

"For the longer term, SA urgently needs more FCAS suppliers, and the market operator AEMO should make it a priority to recruit them. Wind, solar, storage and peaking gas plants are capable of providing FCAS services to some degree and over different timescales. The quantity of FCAS required and the terms and processes for acquiring it also need urgent re-examination to ensure that SA energy users are not exposed to excessive costs. And the SA Government should work with the Commonwealth and the rest of COAG to achieve the reforms to demand management, gas supply, interconnection and energy storage that can reduce volatility even as the grid takes on more renewable energy.

"Energy users have little ability to avoid the costs of any events this month; nearly all users will see those costs spread across their bills regardless of their own consumption during the event itself. For those few who are directly exposed, limiting the impact of extreme price events by cancelling shifts and delaying work has serious costs too – and consequences that ripple through supply chains

"The situation again highlights the bed of nails that the energy market has become – but it is industry and workers, not governments, that have to lie on it ,” Mr Myatt said.

Media Inquiries – Tony Melville 0419 190 347

Scheduled interconnector constraints and potential maximum FCAS costs for SA

Date

10-12 Aug

20-Aug

21-Aug

27-Aug

28-Aug

31-Aug

1-Sep

2-Sep

6-Sep

13-Sep

14-Sep

15-Sep

SUM

Requirement (MW)

70

70

70

70

70

70

70

70

70

70

70

70

 

Length of episode (hours)

58

11.5

11.5

11.5

11.5

10

10

10

82

10

10

10

 

Max period at VOLL (hours)

7

7

0

7

0

0

0

0

7

7

0

0

 

Max period at $300 cap (hours)

51

4.5

11.5

4.5

11.5

10

10

10

75

3

10

10

 

Maximum total cost ($m)

7.4

6.5

0.2

6.5

0.2

0.2

0.2

0.2

7.9

6.4

0.2

0.2

20.9

Calculations assume 35MW FCAS raise and 35MW FCAS lower are procured and that prices for each max out whenever the interconnector is constrained during the announced periods.