Transcript VPELA - Future of Renewables in Victoria

Future of Renewables in Victoria
Dr Jeff Washusen
Marsden Jacob Associates
30 April 2012
VPELA
MARSDEN JACOB ASSOCIATES
Points for discussion
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2
Comment on the past and future electricity price trajectories and
some of the things that are, and will, impact this.
Very brief and high level comparison of the long run costs of
current and prospective fossil fuel technologies.
Personal views on past and future directions for “demand side”
participation in energy markets and energy production and use.
Most material comes from an Expert Witness statement
prepared for the EPA in the Dual Gas VCAT appeal.
MARSDEN JACOB ASSOCIATES
Electricity price trajectories
Energy production & consumption
Key Observations:
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AEMO continued to
forecast increased
production (until 2012) –
even though consumer
load has been flat or
falling since late 2007.
Change in rate of load
growth is unprecedented
in my life time.
Energy - VIC Region (GWh)
60,000
SECV
AEMO
50,000
40,000
Customer Load
Energy Sent Out
30,000
20,000
AEMO Forecasts (Energy Sent Out)
High
Medium
Low
10,000
3
MARSDEN JACOB ASSOCIATES
Electricity price trajectories
Maximum summer demand
Key Observations:
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4
AEMO continues to
forecast increase in
maximum summer
demand.
MSD is increasing in
volatility due to
combination of
increasing penetration
of AC and variability in
extreme summer
temperature ON
WORKING WEEK DAYS.
The volatility in demand
will also be impacted by
proliferating Solar PV –
although Solar PV seems
unlikely to reduce
extreme MSD (which
typically occurs in late
afternoon).
Maximum Summer Demand - VIC Region (MW)
14,000
SECV
AEMO
12,000
10,000
8,000
Actual
6,000
4,000
AEMO Forecasts
High
Medium
Low
2,000
MARSDEN JACOB ASSOCIATES
Electricity price trajectories
NEM VIC Region demand and energy
Key Observations:
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5
Rate of increase in
energy production and
consumption peaked in
late 2007.
Both production and
consumption have been
falling since 2008.
Even maximum demand
growth appears to be
stalling – although
“spread” is still
increasing.
These changes most
probably reflect the
impact of increasingly
demanding mandatory
energy efficient
measures reinforced by
rapidly rising retail
electricity price.
12,000
ROLLING ANNUAL ENERGY (GWh)
MAX WEEKLY DEMAND (MW)
70,000
Maximum Weekly Demand (MW) VIC
Rolling Annual Energy Sent Out (GWh)
65,000
Annual Consumer Load (GWh)
10,000
60,000
55,000
8,000
50,000
6,000
45,000
40,000
4,000
NEM Start
13 Dec 98
2,000
QNI
commissioned
late 2001
TAS Region
Start
29 May 05
BASSLINK
Start
28 Apr 06
35,000
30,000
MARSDEN JACOB ASSOCIATES
Electricity price trajectories
NEM VIC Region demand and energy
Key Observations:
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6
“True” base load has
remained flat for the
last decade.
This has a major impact
on the type of new
generation capacity that
will be needed in the
NEM.
What these plots DO
NOT show is that supply
capacity has become
increasingly flexible.
Even brown coal plant
now gains commercial
benefit from flexible
operation.
New capacity will
capture value by being
both reliable and
flexible.
10,000
CONSUMER LOAD ($GWh/y)
SYSTEM DEMAND (MW)
70,000
9,000
65,000
8,000
60,000
7,000
55,000
6,000
50,000
5,000
45,000
4,000
40,000
3,000
35,000
2,000
30,000
Maximum Weekly Demand (MW) VIC
Minimum Weekly Demand (MW) VIC
Rolling Annual Consumer Load (GWh) VIC
MARSDEN JACOB ASSOCIATES
Electricity price trajectories
NEM VIC Region spot price
Key Observations:
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Spot price is extremely
volatile, with annual
average changes in
excess of 100% - both
up and down.
Since the mid-1990s,
annual average spot
price has only been
close to (estimated)
long-run marginal cost
for new base load
thermal plant in 2 years.
No irrational investors
exist in the market.
The extreme volatility
and (low) range in
annual average spot
price is a challenge for
any new entrant investor
– “old fuel” or
renewable.
$100
12MMAv SPOT PRICE ($/MWh)
RAAv RRP ($/MWh) VIC
SKM-LRMC Coal VIC
SKM-LRMC CCGT VIC
$80
New entrant
LRMC range
base load
thermal plant
$60
$40
$20
NEM Start
13 Dec 98
QNI
commissioned
late 2001
TAS Region
Start
29 May 05
BASSLINK
Start
28 Apr 06
$0
MARSDEN JACOB ASSOCIATES
Electricity price trajectories
NEM VIC Region futures contract price
Key Observations:
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8
Futures contract prices
are (almost) as volatile
as annual average spot
price.
Futures prices are
impacted by forecast
conditions – such as
shortage of water
during the prolonged
drought.
$100
RAAv RRP ($/MWh) VIC
$90
CAL12 - Base VIC
CAL13 - Base VIC
$80
CAL14 - Base VIC
Range
CAL 08
Range
CAL 09
$70
$/MWh
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$60
Futures prices also
appear to be impacted
by spot market
“sentiment”.
$50
Impact of carbon price
was impossible to gauge
in late 2011 – and is
likely to remain so until
after next Federal
election.
$30
Range
CAL 10
Range
CAL 11
Range
CAL 07
$40
$20
MARSDEN JACOB ASSOCIATES
Comparison of fossil fuel costs
Key Assumptions:
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Gas $5.00/GJ
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Coal $4.20/t
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Carbon price $23/t
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Public domain unit capex
costs for OCGT, CCGT and
IGCC.
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Indicative Dual Gas unit
capex for IDGCC.
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$150M Government subsidy
for IGCC & IDGCC.
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30 year analysis.
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10% Discount rate
Key Observation:
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It is easy to see why
rational investors will
build OCGT – and then
think about CCGT.
$125
Estimated Levelised Cost of Electricity ($/MWh Sent Out)
$100
$75
$50
$25
$0
ACIL 2010
ACIL 2010
ACIL 2010
E Class OCGT
E Class CCGT
IGCC-Brown Coal
CAPEX
9
Fixed Cost
Fuel cost
Variable Other
DG Proposal
EPA Approval
IDGCC
Carbon Cost
MARSDEN JACOB ASSOCIATES
Electricity price trajectories
Residential retail price
Key Observations:
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Largest increase is retail 30
variable energy, up
50% since 2006 – even
though both spot prices 25
and Futures prices
remained weak.
Recently ~$110/MWh,
compared to ~30/MWh
spot price and $4015
$50/MWh Futures price.
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Unclear if this is due to
risk presented by
increasingly volatile
load profiles of
increasingly prolific &
Solar – or the impact of
another retail oligarchy.
10
Average Cost (¢/kWh) GST
Average Cost (¢/kWh) Variable Retail
Average Cost (¢/kWh) Fixed Retail
Average Cost (¢/kWh) Variable Network
Average Cost (¢/kWh) Fixed Network
20
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AVERAGE COST (¢/kWh)
Fixed network cost
increase due to
Government mandated
“Smart Meter Rollout”.
10
5
0
TIME (Quarter Ending)
MARSDEN JACOB ASSOCIATES
Summary points
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The electricity market is an extremely volatile and highly risky place to invest in long life capital assets.
The risk is compounded by uncertainty about both existing and proposed renewable policy – and the
“alarmingly” frequent refinement of renewable policy settings.
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Potential investors in both fossil fuelled and (large scale) renewable generation are behaving in a
logical and rational way. They will not invest unless they can mitigate investment risk through oligarchic
relationships or other long-term hedge arrangements.
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The investment challenges presented by volatility and uncertainty will be compounded by rapidly
falling Solar PV costs and poor policy choices of Government.
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Continued proliferation of Solar PV, which appears inevitable, will also present real challenges for
current retail and network pricing policies in the very near future.
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Even without subsidies, Solar PV users will reduce their annual electricity costs under current tariff policies.
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But current network technology cannot cope with rapidly changing 2-way flow of energy in the low voltage networks.
Substantial investment in networks will be required to monitor (and possibly control) varying load; and to allow network
operation to accommodate highly variable 2-way energy flow.
But who then pays for supply volatility risk and network services?
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AC using households have benefited from archaic (network and retail) tariff policies for decades.
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Solar PV using households are benefitting from the same archaic tariff policies.
MARSDEN JACOB ASSOCIATES