The Australia Market Breaks Down
On June 15 of this year, the Australian grid operator (AEMO) suspended trading on the Australian National Electricity Market (NEM). This is a long story with many particulars, and as usual, Sonal Patel of Power Magazine has a fine article. The problems on the Australian grid have led some consultants to ask if renewables just need their very own grid, separate from the dispatchable grid.
But from my point of view, it is just a typical RTO story of auctions with intermittent resources “applying downward pressure on prices.” And therefore, more-reliable merchant generators go offline when the prices are too low.
The Australian breakdown was followed by the usual parade of market tweaks. Thirty-minute auctions went to five-minute auctions. Existing price caps gave way to a new kind of administered price cap (APC) etc. I could write a book on this stuff!
Well, I already have written a book on this stuff, though not about this exact scenario. The grand auction scheme is giving way to an administered scheme in which the APC compensation process is “aimed to ensure generators continue to bid into the market and they do not face losses during this period.” (Quote from the Australian Energy Market Commission, AEMC.) To some extent, this is a replay of tne New England winter woes, when gas prices become too expensive for the electricity generators, and some generators just drop out of the market. (See New England Was Barely Ready for Winter.)
The Australian Regulator Considers
To update the situation, it looks like Australia has eliminated the earlier price cap AND the Administered Price Cap. On June 23, Sonal Patel once again has a strong article.
Meanwhile, the Australian Energy Regulator (AER) is concerned that registered market participants must comply with their obligations. “Should the AER detect material breaches of obligations by registered participants, enforcement action will be considered.” ( AER quote from Patel’s June 23 article.) Nothing automatic will happen, but the regulator will consider action.
Australia will be interesting to watch.
Tweaking in Australia
A while back, a friend of mine asked me about the probable fate of the RTOs. These Regional Transmission Organizations manage the grid with real-time energy auctions. As you probably know, I think the RTOs are a failed experiment. (My book, Shorting the Grid, describes the problems at length.) They don’t keep the lights on, and they don’t keep retail prices down. I told my friend that I thought the RTOs would revert to something like a vertically integrated utility, but not all at once. You can’t just fire all the people that make up the RTO structure. After all, they plan the markets! (Oops. “Plan the markets” is an oxymoron. An oxymoron, but unfortunately not a joke.)
The RTOs will change, and they will revert to a guaranteed Rate of Return. But they will revert one Reliability Must Run contract at a time. As Australia seems to be doing.
A Big Tweak: Two Energy Markets
These are all small tweaks, so far. Well, suspending the market wasn’t all THAT small a tweak. Still, price caps go on and price caps go off and regulators imagine new kinds of ways to get merchant generators to live up to their obligations. Just another day at another RTO.
Meanwhile, an international consulting firm, FTI, was inspired by the problems in Australia. It has suggested a really big tweak. Are two energy markets better than one?
Here’s the basic idea. There will be two classifications of generators. One is “Available” (variable renewables, which are available only when they are available, end of story) and the other is “Dispatchable.” The Dispatchable generators can be called on as needed. The idea is that the renewables will have their very own grid.
This idea is based on a research paper from a think tank at Oxford University: The Decarbonized Electricity System of the Future.
The two types of generators will be on different payment schedules, but somehow, they will all be made whole financially. (Redundancy, anybody?) Ratepayers can save money by not buying Dispatchable or only buying limited amounts of Dispatchable. Ratepayers will therefore choose how much reliability they are willing to pay for.
Success! Victory! Give the market a chance, and it will succeed! (end sarcasm)
It is unclear how this will be paid for. Dispatchable plants will still be last in the dispatch queue because renewables are supposedly cheaper. Will renewables still be cheaper? Will they still get subsidies? Plus, the dispatchable plants will not be chosen by thrifty ratepayers. How much will the dispatchable plants have to be paid to be made whole?
More importantly, let’s look at the people in the dispatch center. How do they deal with reliability? Do they dispatch the dispatchables to keep reliability, even for the consumers who didn’t pay for reliability? Or will they never dispatch the dispatchables, because some consumers don’t pay for them? Or is there some scheme where the dispatch center turns off selected individual consumers (the ones who didn’t pay for reliability), and then they figure out how much dispatchable to dispatch?
And then the consumers. Let’s say that Joe decided not to pay for the dispatchables, thinking that “I don’t need no stinking air conditioning.” Is he going to change his mind when there’s a one-week wind lull in very hot weather? Can he change his mind and get electricity if he is on a cut-this-guy-off-power list at a control center?
Based on a Simple Mistake
It was a simple mistake. The think tank at Oxford didn’t seem to understand the difference between the policy grid and the physical grid. Electrons do not have labels attached. You can’t let Joe’s house have intermittent electricity (no matter what Joe paid for) while keeping the rest of the grid reliable.
In fairness to the thinkers at Oxford, they do suggest two grids as a possibility, though they don’t explain their suggestion. A quote from the Oxford paper: “that ‘as available’ customers would have separate metering for this sort of supply (which, depending on the functionality of existing meters, might require new meters to be installed or new software to be programmed).”
The Oxford program does not explicitly acknowledge that if a household has two meters to two separate types of power, the grid will need more than new meters and new software. Two lines to every house. Two distribution and two transmission systems. No wonder they don’t want to go beyond “separate meters” in their description!
The people who wrote the consultant article and the Oxford paper are probably invited to more genteel parties than I am invited to. But we can change that! I would like to meet with some of my friends one afternoon and have some sherry in elegant (consultant) or shabby-chic (Oxford-type) surroundings. I hope I can arrange that.
Meanwhile, I will just be envious of all that sherry.
A related story. A friend of mine had a philandering husband. She divorced him. Around the time she was filing for divorce, she told me, “Why should I get to wash the dirty socks while she gets the roses?”
When I read such a confused plan from such esteemed groups, I do wonder how the socks and the roses are apportioned in the energy world.
The schematic that heads this post comes from the Oxford paper. https://www.oxfordenergy.org/wpcms/wp-content/uploads/2017/06/The-Decarbonised-Electricity-Sysytem-of-the-Future-The-Two-Market-Approach-OIES-Energy-Insight.pdf