Variable renewable generation – wind and solar – has recently been running at an annualized rate of more than 50 terawatt hours (TWh), or more than 24% of demand on Australia’s main grid.
And it’s still at a time of year when all three components – wind, rooftop PV, and utility-scale solar – have passed their seasonal nadir, and solar is still not near its zenith.
This first graph shows the gross production growth of the three components of VRE over the last five and a half years. The total more than tripled during this period.
This second graph (below) shows the “annualized” production of wind and solar (small and large) over the past three years. There is growth every month, even with the seasonal variation.
Operational demand, which is demand on the grid after rooftop solar, has fallen 10% from its annual peak due to climate change.
And that led to a sharp drop in futures prices.
Yet, the spot level remains extraordinarily high, even though the spot level is actually down sharply from its recent all-time high.
Coal prices still remain high, as does European gas
For the sake of interest and simplification – omitting imports, as well as demand – we can compare what was happening a year ago in the July 15 to August 8 window:
In last year’s window (above), prices were under $50 when solar was running, and no gas or electricity was needed. Coal sets the price (as the last unit supply, regardless of imports), and that price is determined both by the cost of fuel but also by the degree of competition between coal producers.
When solar power disappeared, there was enough coal and gas, and it was hydroelectricity’s turn to set the price. The way I’m drawing the graph, it’s hydropower that determines the actual price, because historically hydropower supply was limited and so it was priced based on scarcity.
Regarding this year (graph below), and we spent the worst of i. You can see, if you squint, that the hydro runs about every half hour and the gas runs more often and that’s despite the higher VRE production.
A summary of the two periods is:
Basically, as much as the higher cost of coal, it’s the extra 280MW of gas and power supply that drives most of the price increase, in my opinion.
The additional firming was needed due to lower coal imports, likely lower net imports and some additional demand and despite the increase in ERVs of almost 200 MW on average (thanks to more solar utility).
David Leitch is a regular contributor to Renew Economy and co-host of the weekly Energy Insiders podcast. He is a principal at ITK, specializing in power, gas and decarbonization analysis, with 33 years of experience in stock market research and analysis for UBS, JPMorgan and predecessor companies.