Nothing like a couple of hours without electricity during a heatwave to remind you of our reliance on it. In Melbourne yesterday, the major interconnector between NSW and Victoria went down because of bushfires. This took out 2000MW of potential power imported from NSW just as demand soared above 9000MW in Victoria. Here is the graph from NEMMCO.
The green line is demand. You can see that as the outage occurred at just after 3pm yesterday, automatic load shedding began taking out much of the South of Melbourne. Immediately, those 2000MW were wiped off demand but no more. At the same time prices reached their peak of $10000 per MW (they are normally between $30 and $40) resulting in a clear bonanza for electricity generators. The motherload so to speak. And that lasted for hours; usually these spikes are good news if they last for only a few minutes. And as the only disruption was to imports from NSW, the Victorian generators did not even have to reduce output to benefit from the price spike. That is, at least $68m in potential spot market revenue.
Actually, I have no problem with that. It only signals that electricity generation might be a good business to be in and so will allow future investment to be tailored accordingly. That is how the system is supposed to work. The problem I have is on the demand side.
Like most households, I pay a regulated electricity price. If I am lucky I can get a few percent off for a year but it takes work. But many larger businesses have signed interruptible electricity contracts. That means they get a much lower price for electricity but, if there is an issue, someone rings them up and tells them to reduce their consumption.
So yesterday, what should have happened? The outage would have triggered some automatic shutoffs; and it did. Right there around 3pm. Then the ring arounds would have begun and the shutoffs would have switched away from households and to interruptible businesses. However, that did not happen. Instead, the households stayed off until 6:30pm or beyond and then came back on. By the time, other businesses had shut down for the normal day and so the system could cope. Also, other harder to start generators would have been switched on and existing ones pushed harder. The end result is that by 8pm the system could cope with 8000MW without additional restrictions. The question is: how interruptible is the interruptible supply? Did that actually happened? After all, they get a discount and we don’t.
I’ll add to this another concern. The Victorian government last night was considering putting in restrictions on household use of airconditioners. Again, a supply interruption. Now the interconnector is back up and so that won’t happen and as I write this, demand is already above 7000MW even before work starts. But if that restoration didn’t occur, why is it that households would be interrupted? Surely, as the heatwave continues, the businesses with interruptible contracts should go first. That is the gamble they have taken. Now that might be what was going to occur too but the aggregate figures do not seem to back that up as a possibility.
But spare another thought for those households who are paying a premium to get so-called Green Energy. The idea here is that they pay more so that electricity is supplied from green sources such as gas-fired generation. Well, we know that you can’t actually dictate which electrons go to which households but those folks supported local gas-fire generators (supposedly) would have been interrupted the same way as everyone else and faced the same restrictions. This is even though the sources of energy they (supposedly) supported were still working fine. One really has to wonder what Green Energy customers are really paying for.
Core Economics 
Nice piece – you should write it up for The Age.
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I agree. Good stuff. Green Energy customers, it must be said, are obviously paying for good karma and good resource management, not good energy in any sense (though I wonder how many recognise that electrons are all the same colour.)
Amazing that no-one in the Age mentioned interruptible business users. I’ve never heard of them until now. I wonder why a phone call is needed; couldn’t an automatic shut-off be installed based on supply-demand triggers? And can I get this deal?
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Great economics but you have no understanding of how electricity networks operate.
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Green energy buyers are obviously buying green energy because it creates demand.
It matters not one whit that the actual energy we get can come from anywhere – what matters is that you are buying an amount of green energy, so that amount is generated, purchased and put into the grid. The more people who purchase it, the more of it is generated etc. Supply, demand – pretty basic economic concept I would have thought.
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With green energy you buy no such thing. Retailers make contracts with all manner of generators including gas-fired ones (i.e., green ones). They did so before and so when you buy a green contract they will supposedly buy more contracts. However, does this mean that the will reduce the amount they were planning to buy anyway? Does this mean they will do something different with plant they own? And does this mean the green generators will really earn more so more investment takes place? It is not at all clear that is the case.
The simpler explanation is that it is a way for retailers to get around price caps.
Regardless there has been no verification that demand has been created but for good feelings.
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“So-called Green Energy” for which Australians pay a premium for electricity supply is Greenpower (www.greenpower.gov.au), which is accredited renewable energy. Thus, greenpower customers do not support local fossil natural gas fired generation. Greenpower customers do not contract to receive non-interruptible supply any more than so-called “black energy customers”. And despite Core Economics weak attempt at undergraduate humour, it would be surprising if many greenpower customers believed they were buying green hued electrons direct from the generator to their power meter. What we are paying for is for our electricity supplier to purchase sufficient electricity from renewable sources to cover the amount of electricity for which we are billed to minimise greenhouse gas emissions associated with our electricity use.
But perhaps we greenpower customers should rebel and demand special traffic lights and boom gates which will just let us through in the next electricity supply crisis.
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Wow some people get really upset at an offhand remark about Green power; although I have commented on this before and in other forums. I’ll try and give a more complete account in the next few days. Suffice it to say, I want green power to work, it is just that when you look at the details it isn’t quite what it is pretending to be.
But one thing: if you supported green power and got reliability too wouldn’t that increase demand for it further and be a good thing?
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Bro is spot on; unfortunately, Joshua, you have little idea how the green power market works.
Just to reiterate: gas-fired electricity is NOT included in green power schemes – at least not in Government-certified GreenPower schemes, which are the ones for which consumers like me (although I suspect not you) are paying a premium.
GreenPower is controlled through retailers surrendering a number of Renewable Energy Certificates (RECs) equal in value to the quantity of electricity purchased by customers of their GreenPower schemes. Certificates are generated through new renewable energy projects (1REC = 1MWh); the greater demand for GreenPower, the greater demand for RECs.
The system operates within the Mandatory Renewable Energy Target (MRET) framework, which set a renewable energy target of 2% by 2010. Such a low target has already been reached, and thus it is only the steady increase in GreenPower customers which is creating demand for new renewable customers.
While some may argue that the supply of renewable energy projects is close to outstripping demand, this hardly creates an argument for giving up on GreenPower schemes – on the contrary it should encourage more people to get on board (as well as an increase in MRET) in order to drive up demand and ensure that incentives for additional renewable energy projects exist.
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Actually, that point about electrons was a typo (which also translated into Crikey) so I finally understand what Bro was saying. It is now corrected. I really need to proof-read better but many have told me that. Anyhow, look at my clarifying post on the issue. More comments are welcome.
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Really Joshua, you want Greenpower to work?
And you do this by the time honoured method of questioning the integrity of a premium “so-called” product whose market success is intimately linked to maintenance of its integrity.
Perhaps in your further clarifications you may indicate why and how you want it to work.
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For a review of the detail of what happened on the day, see here:
http://www.nem-watch.info/summer/review/2007-01-16.htm
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