Are negative energy prices the symptom of a sick patient?

By Matt Stubbs, Director, Profergy Pty Ltd

Negative price events in the National Energy Market (NEM). Depending on your point of view, you may see these as a sign of hope that renewables are driving down energy prices; a sign of foreboding that the market itself is not able to provide the stability that our energy system needs; or it may be something that you have thought little about.

For those of us that find energy markets a bit like learning the Dark Arts, looking at the symptoms (i.e., data!) can provide useful insights into what is happening in the system.

What are the symptoms?

Thanks to Alex Leemon from Flow Power who crunched the numbers to help provide us with some insights.

The chart below shows the total hours of negative prices across the state markets in the NEM. We can see that after a recovery from the SA bushfires, the duration of negative price events has increased since 2017.

Time of day provides further insights into the profile of what is happening. The chart below for Queensland shows a dramatic increase in total duration of negative prices. As you might expect, these events are occurring primarily in the middle of the day. This phenomenon emerged noticeably in 2019-2020 and now appears set to be an ongoing feature of the market.

Figure 1: Heat Map – Total Hours of Negative Prices by Time of Day (30 mins, QLD1)

Impact on investment in renewables

A consumer may look at this and say “ripper, cheap power!”. But naturally there is more to the story, in the multi-dimensional chess game of the NEM. Some of the factors at play are:

  • Increased capacity of large-scale, residential and commercial solar
  • The continuing presence of coal-fired generation which needs to continue generating at a minimum level to avoid costly and high-impact shutdowns
  • The need to maintain stability in the network
  • The market itself, where many different types of contracts can cause prices to fluctuate

To renewable energy investors, this phenomenon represents risk. Any major investment in renewables requires a business case based on what the industry calls “value streams”. These are different revenue sources an investor can expect to yield from selling electricity into the markets operating in the NEM.

In 2020 the pipeline of investment in new renewable energy generation continues, however the increasing risks of low and negative prices will inevitably slow the pace of investment as risks increase.

Where to from here?

Although the NEM is “behind the eight-ball” at the moment, the Energy Security Board (ESB) is co-ordinating consultation with industry on post-2025 market design, and AEMO recently released its 2020 Integrated System Plan which outlines major capital investments to be made over the next 20 years to ensure network capacity is in place to handle expected changing load patterns.

It’s clear that going forward the market will need to tolerate and manage increasing levels of uncertainty regardless of the energy generation mix. The ESB has outlined seven workstreams that will address the shape of future energy markets and provide a roadmap with short, medium and long-term measures to transition the energy market to handle the inevitable increase in complexity.

“In 2025, the system will be more complex, and variable and changing patterns of demand and supply create challenges in keeping the system balanced. This can lead to costs for consumers (for example through AEMO directions) that could be avoided by better market design.” – ESB Market Design Consultation Paper, 2020

Alongside this we are seeing dramatic technology advances that will reduce the cost of storage and improve the ability of consumers to participate in generation and demand reduction.

A further powerful resource that can drive growth in the sector are innovative and nimble new players in the market – such as WattWatchers, Amber Electric and evergen supported by incubators like EnergyLab.

Australia has a once in a generation opportunity to establish a world-leading new industry, which can drive economic recovery. This won’t be easy, so it’s urgent for us all to embrace the change and make our markets fit for the future.

Matt is speaking on day three of the Virtual Cleantech Conference & Exhibition happening November 24-26, 2020.