Power in numbers … what energy market research tells us about the outlook for renewables and the flexibility of coal and gas

In a connected energy system where dispatchable sources are being replaced by flighty renewables, incumbents and backers of new technology are poring over a new source of market intelligence – because data is knowledge.

Attendees at energy conferences real or virtual all know that PowerPoint slides only seem to ever include forecasts. As presenters one after another outline their view of the energy transition, all the audience ever sees are projections of the future – all of which will turn out to be wrong.

Sector participants in the here and now, however, want real data. It’s a connected system, after all, so the clearer the picture of business conditions among competitors the better the chance of astute allocation of funds or delivery of services.

As investment grows and the pipeline of new projects fills, developers and energy suppliers crave transparency in the market. Their calls for qualified data are starting to be met.

The Generator Report Card 2018 and Generator Statistical Digest for 2019 and 2020 are the combined work of Global-Roam, a software company, and Greenview Strategic Consulting, who claim regulators, government departments, investment banks and generators big and small as their clients.

“They use the reports to understand how generators have actually been performing over time,” says Paul McArdle, the managing director of Global-Roam. It’s an improvement, he believes, on relying on internal reports from generators and misinterpreting the effects on a connected network.

“The big generators might use the GSD [Generator Statistical Digest] to understand what’s happening with their competition,” he says. “If they’re a new wind or solar plant, for instance, they might look at how often their competition is being subject to constraint, how they are performing from a dispatch target performance perspective and who is paying what in terms of FCAS [frequency control ancillary services] costs, because the way it is apportioned by AEMO is quite complex.”

The cost of generators’ “causer pays” obligations, or what they must pay to keep frequency stable at a four-second level, are shared among generators using a complex method, he says. To understand a generator’s efficiency, then, means unravelling the output of a set of calculations to get to an estimation of the input variables used by the Australian Energy Market Operator (AEMO). This is the nut that Global-Roam and Greenview say they have cracked. “We’ve coded it up in order to reverse engineer who paid what through calendar 2020,” McArdle says. “The AEMO’s responsibility is keeping the lights on and running the market; they don’t see their job as making things understandable, making data useful.”

The research is as useful to generators in the market as it is to developers eager to join it. “It starts to put real numbers around what have traditionally been guesses on a spreadsheet,” says Greenview Strategic Consulting managing director and former trader for AGL’s Loy Yang power station Jonathan Dyson, indicating it was common only a few years ago for developers to underestimate the cost of FCAS. “Now, it’s a key cost item that needs to be taken into account at the very start.”

Everything is in flux in the energy world as renewables upset the steady delivery from centralised plant. That doesn’t mean developers should hang their hopes too much on forecasts, McArdle says. “You need to have a clear view on what’s happened in history in order to sanity-check what your consultant might be telling you in terms of a revenue forecast,” he says.

Take the example of a developer of a new solar or wind project making assumptions about capacity factors. The team’s statistical digest shows in many cases capacity factors well below analysts’ forecasts used in development and approval stages. “It helps the penny drop for new developers to wonder, well, am I wearing rose-coloured glasses?”

Dyson says he has seen business proposals for wind projects with forecasts for capacity factors around 45-50%, whereas most plants are achieving 25-40%.

The cost of generators supplying part of the FCAS market is one thing but as Hornsdale Power Reserve proved there is considerable profit in trading all facets of it. It’s a situation that’s unlikely to last, however. “Hornsdale entering the market did a lot to drop price, while still earning them a decent return,” McArdle says. “Another competitor coming into the market might kill the price entirely.”

In the long term, the replacement of dispatchable generation with semi-scheduled renewables would only indicate the FCAS market is destined to get much deeper and more active.

If operators of coal-fired power stations come across as being stuck-in-the-mud, Dyson says a look at the output for 2020 shows some surprising nuances. “The coal fleet is changing,” he says, with the Queensland generators in particular shown to have lowered their minimum generation operating levels to accommodate renewables. “It might cost them a little bit more money in the very short term, but that’s a much cheaper cost than turning the plant off and having to restart it again,” he says. 

So, as wind and solar rise, thermal plants are changing their generation profiles. But there will come a point, Dyson says, where there won’t be any room to make changes to the output of the thermal fleet. 

An example is “two shifting”, he says, where thermal generators will keep boilers and turbines warm while producing zero megawatts, so the cost of restarting is minimised. “But we haven’t seen two-shifting broadly across the industry yet,” he says. “There is a long way to go before we reach what I consider the absolute minimum levels of generation, where it is uneconomic.”

The large coal and gas plants, then, are not as inflexible as we’ve all been held to believe – or as politicians have been briefed. “It depends where you read things,” McArdle says. “There are physical parameters and commercial parameters, and you need to be aware of which ones are being talked about.”

Technically, a plant may be capable of cycling within a wide range of output; commercially, it’s owners may have preferred not to do so – in the past – because it would have cost more.

Thermal generators can handle steep afternoon ramps “to an extent”, says Dyson, whose clients are generally wind and solar developers. Look at South Australia, he says. On Sunday October 11 last year, solar supplied 100% of demand in the state. Remarkable. What didn’t make the world news, however, was that by the time the sun set on the same day, gas was supplying 100% of electricity in the state.

“The gas had gone from incredibly low levels to incredibly high levels in four hours,” he says. “It’s a really interesting perspective when you sit back and look at how some of these things are happening, to keep that balanced view.”

It pays to be technology-agnostic when interpreting and presenting past data, in fact it is essential to be unbiased. But do McArdle and Dyson have any views on what would be the right way or the wrong way for large thermal generators to approach their inevitable retirement? “Technically you might be able to rebuild a plant so that it could live forever but commercially that’s impractical,” McArdle says. “The coal plant that are operating now will have a useful life, at the end of which they will retire. Beyond that, no sane person is going to be building a coal plant in the NEM into the future.”

No-one’s got their head in the sand, he says. The owners of coal plant are investing in making their assets more flexible. That means they’ll be able to ramp quicker and/or go to lower minimum loads and stay on. “They can do all of that and maintain reliability,” he says.

Dyson suspects Liddell, one of AGL’s coal stations in NSW, is setting an example by reducing the pressure in its boiler, to lower the risk of outages while sustaining output. “It means they can’t generate to 2,000MW but they can generate to 1,500MW,” he says. Does that mean the owners are slacking off? No. Over the past two years the plant had generated more energy on average than it had in the previous years. “It’s generated at higher capacity factors by modifying its operating profile.”

McArdle sums it up. “There are things you can do to manage your risk and things you can do to maximise your opportunity.” The same goes for wind and solar, of course, and he mentions a solar plant he’d been watching that morning that was being “tossed around by constraint activity”. A different approach to bidding may have helped its efforts, is his conclusion.

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