Good for some

As I write this, it is 6:30am and the temperature outside is 32.3 degrees Celsius. And we are only at the start of a heatwave here in Melbourne with the next three days continuing 40 degree plus temperatures.

The graph below (from NEMMCO) shows the last 24 hours of demand and market prices in wholesale electricity in Victoria. In the late afternoon demand hit historic highs and prices spiked towards their cap. A price that is usually around $43 per MWh went past $9000. Think of what that means. Yesterday electricity generators in Victoria look like they earned for 30 minutes more revenue than they would earn in a good week at other times of the year.

 Actually, they could have but I am guessing that they had long sign contracts that hedged that pricing risk with retailer or otherwise owned retailers. That means those extra revenues, while appearing in the spot market, will not appear on their balance sheets. Unless of course someone made a big mistake.

Also, interesting where the demand spikes around 11pm and 1am. My guess is either that some companies that were told to shut down during the day were allowed to start up again at those times or we have had some outages in the distribution network that were reconnected then. Also, looks like lots of people were up early.

6 thoughts on “Good for some”

  1. That’s an illuminating graph. Can you tell us where you got it, or if you plotted it yourself, where you got the data?

    Your post raises the question of the value of peak power generation vs. base generation. Based on the prices you quote, it appears that the value ratio of peak/base is high.

    This is relevant to Net Metering. This article shows the basic idea: Browning said the tariff price should value solar at a higher cost than what utilities pay for wholesale power from traditional sources — 20 cents per kilowatt hour — because it’s renewable and produces power at peak times when utilities need the extra load most.

    Compare the above Californian story to this one about feed-in tariffs in Victoria, Australia, the source of your graph on peak load prices.

    BTW, Does this comment edit window allow HTML tags?

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  3. Browning said the tariff price should value solar at a higher cost than what utilities pay for wholesale power from traditional sources — 20 cents per kilowatt hour — because it’s renewable and produces power at peak times when utilities need the extra load most.

    That follows logic if the feed-in tariff is to only pay for electricity fed into the grid, and you are trying to find a “fair” price for that. But in Australia, as elsewhere, the feed-in tariffs are designed to provide a subsidy in addition to the value of the electricity.

    This subsidy is to reflect the cost of installing the solar PV unit, so it the long run return that is important, not ensuring that feed-in tariff is above the wholesale price for every five minute breakdown.

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  4. “Actually, they could have but I am guessing that they had long sign contracts that hedged that pricing risk with retailer or otherwise owned retailers. That means those extra revenues, while appearing in the spot market, will not appear on their balance sheets. Unless of course someone made a big mistake.”

    Or you’re a small retailer, or new to the market, and don’t own you generators like the big boys do. Then no-one will give you a hedge and you are exposed to the spot price.

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  5. Joshua – I’m curious – what level of hedging do you believe the victorian generators would have chosen?One that reflects a competitive market, or one that allows, shall we say, some flexibility?

    cheers,
    Christopher

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  6. Retailers in the summer need to hedge 100 percent or maybe even more of their expected load. To do otherwise is to risk bankrupcy; especially for smaller retailers. The problem is that generators this week are not really going to want to enter those contracts. So the premiums will be sky high too.

    I don’t think the competitiveness or otherwise of the market comes into it. At these times, all the power is with the power generators!

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