Thursday, September 14, 2017

Power problem. Trust neither the generators nor the Prime Minister

In the lead-up to the 2010 election Tony Abbott managed to produce a climate change policy that was almost, but not entirely, unrelated to climate change.

It was to investigate moving high voltage power cables underground.

It was attractive (to people who don't like cables) and it may well have garnered votes, but it had almost nothing to do with climate change.

Now Malcolm Turnbull's doing it. Faced with a report from the energy market operator pointing to the need for more "dispatchable capacity" after the big Liddell power station closes, he has talked instead about the need for "baseload power", sometimes using the terms as if they are interchangeable.

They're not.

Dispatchable power can be quickly turned on and then off when the demand for electricity surges or at those times when the wind's not blowing. It's best provided by hydro-electricity, or gas.

Baseload power (usually provided by coal) isn't particularly dispatchable. It's always on, whatever the need. It's one of the reasons off-peak power is cheap overnight. Baseload generators needed to get rid of the stuff. As the energy market operator put it in the letter to minister Josh Frydenberg that Turnbull claimed to be acting on, baseload power is in general "not well suited to respond to rapidly varying energy system needs".

Turnbull said the closure of the Liddell plant in 2022 would create a huge gap in baseload power, something he would not allow to occur. The market operator's head, Audrey Zibelman, speaking to an industry audience only a few hours before Turnbull on Tuesday, said her job was to provide reliable power whether or not Liddell closed.

Nearly half a century old, Liddell is a special case. It's not even dispatchable in the narrow sense of the word. During this year's February heatwave as the temperature soared above 40 degrees, much of it broke down. It suffered "unforeseeable boiler tube leaks". Were it not for solar and wind, NSW would have suffered even bigger blackouts. In fact Liddell has been operating at about 50 per cent capacity all year, much the same as wind. Whether it fires up when needed is partly a matter of luck.

But, like burying cables underground, extending the life of an aging plant that's anything but agile is easy to understand. Most people get the concept of baseload. What they don't get is that new sources of intermittent power have made it less relevant. What's desperately needed is something that can fill the gaps when the wind's not blowing and the sun's not shining, something that invariant coal-fired power is bad at doing.

AGL, Liddell's owner, recognises this. It's planning to replace Liddell with wind, solar, gas, pumped-hydro and battery plants, the last three of which are eminently dispatchable. Some will be on the same site, which makes sense because that's where the cables lead. If the prime minister manages to bully AGL into keeping Liddell open, it won't happen as quickly.

And it will sweep under the carpet serious problems with the market that keep power prices high. Sun Metals refines zinc. When the wind drops or demand surges it is perfectly able to turn off its smelters for five minutes in order to help out. It'd like to be paid for doing that, in the same way as dispatchable generators are paid for helping out. That way we wouldn't need as much dispatchable generation. But it couldn't turn off its smelters for 30 minutes; its zinc would turn solid. Battery farms would like to do the same thing, but while they could run full-bore for five minutes, many couldn't do it for 30.

At the moment power is priced only every 30 minutes. Generators bid to supply power and are offered contracts every five minutes, but the price they are paid is only set every 30 minutes. It's an average of each five-minute block.

The energy market commission has agreed to scrap the 30-minute rule, but in deference to the squeals of suppliers, it won't do it until 2021.

The suppliers have good reason to like things as they are. It makes sense for them to withhold power, demanding extraordinary high prices, for the first five minutes of each half-hour block and then supply much more at genuinely competitive lower prices for the rest. That way they can get an unreasonably high average price for the entire half hour as well as big volumes. Sometimes they manipulate the price of the last five-minute block.

Until now, evidence that this happens has been largely circumstantial.

But for the past two years economists Mardi Dungey and Ali Ghahremanlou at the University of Tasmania have been examining five years worth of incredibly opaque bidding data and have determined that it happens, big-time. They're about to publish their findings.

"It's like in the US bond markets after the Salomon Brothers scandals in the 1990s," Professor Dungey says. "Traders were forced to provide data, but it took a long time for researchers to match it and work out what was really going on."

The industry has been claiming it's competitive. So far Dungey has only looked at the behaviour of individual generators. She is about to examine the behaviour of the corporations that own more than one - whether bid strategically with one generator in order to influence the price received by another. She says while such behaviour isn't illegal, it might be widespread.

In The Age and Sydney Morning Herald