Regulator confirms the answer was not blowing in the wind

August 25th, 2016

When wholesale electricity prices soared to 100 times the usual price in South Australia in July, the activist community went into aggressive denial mode, refusing to acknowledge any failure by wind farms and trying to blame the gas industry.

It was a shrill, hollow denial, and now the Australian Energy Regulator has confirmed as much.

In its annual winter energy report the AER notes – and the graphic below shows – that energy prices were above average in June, but eased in July – except in SA.

“Prices continued to rise in South Australia, to 4.5 times the long term average.”

 AER Winter Energy 2016

And why was this so?  Failure of wind turbines to generate adequate power, and a lack of capacity on the State’s interconnector with Victoria.

“The key drivers were interconnector outage and a lack of wind generation at peak times,” the AER report says.

“South Australia’s reduced ability to source low price electricity from other regions coincided with low wind generation. While reasonably consistent with market forecasts, wind output in July was only 270 MW—57 per cent below the historical average.”

And don’t be fooled by activist groups trying to claim price spikes were only on isolated days.

According to the AER:

“South Australian prices diverged materially from other regions for around 60 per cent of the time in July 2016.”

And so it was that the taxpayer-subsidised SA push into wind power exposed its soft underbelly.

Since a dramatic shift to wind power, and the consequent withdrawal of coal and gas-fired generation capacity, SA electricity prices are about 150% of prices in neighbouring Victoria and NSW.  And the discrepancy is forecast to continue this financial year and into the future.

This ongoing cost penalty and the business-debilitating effect of vicious wholesale price spikes has prompted the SA Treasurer, Tom Koutsantonis , to call for extra interconnection – and for Victoria to drop its moratorium on new natural gas projects.

The reason Mr Koutsantonis wants both to happen is because he realises that connection is one thing – but it matters little if there is insufficient generation capacity available in neighbouring States.

If Victoria (or NSW if a new interconnector were to be built) is unable to ‘turn on’ back-up power when SA needs it, the existence of an interconnector is irrelevant.

There is a big risk this could happen, particularly if Victoria follows SA and proceeds with its planned slashing of coal-fired electricity in favour of subsidised wind power.

Victoria could find itself in the same situation as SA, needing the urgent ‘on’ switch from gas-fired electricity to save the day when the wind is not blowing (or is blowing too hard for the turbines to operate).

Given that winter and summer weather patterns often travel across southern Australia, it is easy to foresee a situation where a heat wave or extreme chill hits both States making it difficult for Victoria to satisfy its own demand, let alone support SA.

All this forms background to the standpoint of Federal Energy and Environment Minister Josh Frydenberg. The Minister knows there is a lot at stake – hundreds of thousands of jobs according to unions and business, as we’ve previously reported.

That is why Minister Frydenberg has called on the Victorian State Government to drop its irrational ban on natural gas development and why the COAG Energy Council has commissioned a special report into how the gas market can provide greater energy security and help drive prices down.

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