The NEM is rarely in the headlines for benign reasons these days, and leading up to a long-deferred COAG Energy Council meeting on Friday, a raft of articles have (re)appeared concerning risks to supply reliability as we approach the official start of summer.
We’ve covered this topic in a series of articles here on WattClarity, going back to June when we first looked at the impacts of major outages at Loy Yang A and Mortlake power stations and what these might mean for summer reliability. We then went into some depth covering AEMO’s outlook for reliability more generally, as published in the August Electricity Statement of Opportunities (ESOO).
Given the renewed media interest and the early arrival in most NEM states of weather more associated with peak summer conditions, it seems like a good idea to look at what if anything has changed since those earlier assessments.
The ESOO identified Victoria as facing a higher probability of supply shortfalls this summer than other states, and the only region where the NEM’s formal reliability standard, based on “expected Unserved Energy (USE)”, was not forecast to be met. This was the direct result of the major Loy Yang A and Mortlake outages, and AEMO provided the following table summarising its risk assessment for Victoria under the four different scenarios where each of these units is either back in service or still being repaired over the peak summer period (formally January – March, although high temperatures and tight supply could of course appear at any time from now):
I’m not going to fully decode this table here, having previously commented on what the terms really mean (and how they could have been better communicated). But the key points are that, back in August:
- Although owners AGL and Origin Energy had indicated that the two units being repaired were scheduled to be back online in December, AEMO judged based on past experience that the risks of significant delays were material (30% for Loy Yang A2 and 60% for Mortlake).
- Under each combination of outcomes for on time versus significantly delayed return for the two units, different levels of reliability risk would result, summarised in the four quadrants. It’s worth re-emphasising that the “numbers of households without power” are NOT definitive predictions of blackouts but just AEMO’s way of trying to convey the relative size of shortfalls that might occur under an adverse combination of high demands and additional generation outages.
- The relative probabilities of each scenario, given AEMO’s assessment of delay risks, were indicated by the red percentages in each box.
- AEMO’s overall (dare I say “headline”) assessment of Victorian reliability concluding that the reliability standard was not satisfied, was based on a weighted average of data from the four quadrants, using these probabilities.
AEMO also a provided a very useful qualitative description of conditions under which Victorian supply shortages might emerge, based on insights from the literally hundreds of Monte-Carlo modelling runs that underlay its summary assessments. It’s worth reading if only to understand the many moving pieces in the reliability puzzle:
What, if anything, has changed?
We’re now three months on from the ESOO, so is there any new information on the key drivers for AEMO’s ESOO assessment – especially news on the all-important repair jobs being undertaken by AGL and Origin?
Loy Yang A2 (530 MW)
AGL produced a quite detailed outline of progress on this repair as part of its recent Investor Day presentation:
All seems to be on schedule which is good news, but it has to be emphasised that large and complex thermal generating units returning from major long term outages don’t necessarily perform to full capability the moment they come back online. It would not be surprising if there was a period of some weeks where testing and shaking out any bugs took place.
Mortlake Unit 2 (283 MW)
Origin followed AGL’s lead in its own investor day presentation this Wednesday, indicating that repairs are on schedule for a late December return:
Similar caveats about generators returning from long term outages obviously apply here too.
Forming part of the background assumptions in the ESOO were the commissioning of AGL’s new Barker Inlet Power Station (210 MW) on South Australia. Based on AGL’s updates and on the physical generation data we can now see in AEMO’s market systems, for example the following ez2view trend chart, commissioning is underway with at least four of the twelve units having supplied power to the grid in recent weeks:
On the less positive side, problems have emerged with voltage stability in the north-western Victorian network where a number of large scale solar projects have connected recently. As a result AEMO has restricted maximum output from five solar farms while it seeks a solution:
The restriction on output amounts to about 160 MW at peak, although the effective contribution of solar generation to supply reliability is a complex topic since it is very dependent on the timing of demand peaks and other supply constraints. It isn’t yet clear when these restrictions will be lifted.
More broadly, we can look at the trajectory of new renewable supply in Victoria over the last two years and how this has tracked over recent months:
The top panel shows nominal installed capacity of large scale wind and solar in Victoria, which has increased by about 500 MW over 2019, although there has been a clear slowdown since July this year. The lower panel shows average output, which is obviously much lower than capacity, given the generation profile of solar and wind production, and dependent on seasonal and climatic conditions. Recent months show that on average, wind and solar (not including rooftop PV, which shows up as reductions in demand seen by AEMO) have added around 100 MW of supply relative to last year although on any given day and time their contribution could be much larger.
AEMO’s MTPASA outlook
The real headline news above is that there are now grounds for a lot more confidence than in the middle of the year – although still not 100% – that the two damaged large generation units will be back in service for the peak summer quarter, which would place the Victorian reliability outlook in lower right quadrant of AEMO’s ESOO table, if nothing else has changed. We note though that this quadrant still assessed potential USE at 0.0013% which satisfies the reliability standard threshold of 0.002% (see my “ConfUSEd by the ESOO?” post for a refresher on what these numbers mean) but is non-zero.
AEMO is probably not going to release an updated ESOO, but its weekly operational MTPASA process produces data on the outlook for supply reliability which we can use to compare the current forecasts for available generation, potential maximum demands, and supply reliability under extreme conditions, to the same outlook at the time of the ESOO’s publication. Here are the two sets of forecasts side-by-side:
I’ve previously posted on how to interpret similar ez2view trend charts of the MTPASA data and won’t go into depth here, but the bottom line is that it’s hard to pick much change at all in the two charts. This might seem surprising in view of the much higher confidence that Loy Yang A2 and Mortlake 2 will be back in service, but unlike the ESOO where AEMO considered discrete scenarios for their return dates, the MTPASA rules require AEMO to use the unit owners’ scheduled dates, which have always been for December returns to service, seen in the step ups in the dark generation capacity line.
The absence of any other significant changes in the generation capacity line, demand forecasts, and supply reliability risks, indicates that any other moving pieces in the reliability puzzle, such as the outlook for renewables contribution or demand levels, have not changed significantly from the time of the ESOO. So, repair gods allowing, we are probably in the ESOO table’s lower-right quadrant world.
What are market prices telling us?
Like many markets, the traded market in electricity contracts acts as a kind of clearing house for information and risk assessment, as well as for financial transactions. Looking at how market prices have changed recently provides some insight into how the market views the coming summer
The key lines on this chart are contract prices for Vic 2020 Q1 Base Load (bright green) and $300 Caps (orange) which reflect the market’s view on the overall level and potential volatility (above $300/MWh) of Victorian spot prices for January to March next year. These steadily increased through mid-2019, peaking in the month after the ESOO release, but have softened slightly in recent weeks, from about the date of AGL’s update on Loy Yang A2 repairs. We can also see a step down over recent weeks in average spot price levels. Current spot prices don’t imply anything specific about the reliability outlooks for Q1 next year, but are possibly part of the picture feeding into the market’s overall assessments for future price levels.
So why the headlines?
It’s always right to be cautious about the outlook for the NEM, which never ceases finding new ways to surprise us, but most of the objective data I’ve summarised above indicates a better outlook for summer reliability in Victoria than that at the time of the ESOO, particularly the increased confidence on Loy Yang A2 and Mortlake 2. But “better” is only a relative term and the supply-demand balance in Victoria will remain very tight under hot or extreme summer conditions until more dispatchable capacity (including firm demand side response) enters the market.
I do wonder if the effect of some of those headlines – or rather the politics behind them – is actually scaring away potential providers of that capacity, who may see nothing but increased risk of further unexpected and often unhelpful political interventions.
About our Guest Author
|Allan O’Neil has worked in Australia’s wholesale energy markets since their creation in the mid-1990’s, in trading, risk management, forecasting and analytical roles with major NEM electricity and gas retail and generation companies.
He is now an independent energy markets consultant, working with clients on projects across a spectrum of wholesale, retail, electricity and gas issues.
You can view Allan’s LinkedIn profile here.
Allan will be sporadically reviewing market events here on WattClarity
Allan has also begun providing an on-site educational service covering how spot prices are set in the NEM, and other important aspects of the physical electricity market – further details here.