Monday, January 18, 2016

A pure market's pricing problem

This story from Australia in interesting as it presents the challenge of a renewables heavy jurisdiction attempting to run a pure market - which necessitates generators that run infrequently recovering costs through very high rates when they do.

SA government in energy market crisis talks with industry, suppliers
The South Australian government is considering intervening in the National Electricity Market after its commitment to renewable energy has generated sharp spikes in power prices that threaten its economic development strategy.
South Australian Treasurer Tom Koutsantonis called a crisis meeting of energy users and suppliers today to deal with sharp rises and falls in wholesale electricity prices that threaten the redevelopment of a Port Pirie lead and zinc smelter to make metals for solar panels and mobile phones, even with a $291 million government subsidy.
The volatility in wholesale prices – caused mostly by the state's reliance on wind power and the ability of coal and gas power stations to charge high prices when the wind drops – is creating havoc for industry in the state, which is one of the country's most economically depressed.
South Australia has endured several episodes of sharply rising electricity prices, and prices for ancillary or grid-stabilising services, since July, with prices soaring above $2000/MWh and at times hitting the $13,800/MWh market limit.
Read more: 

Most jurisdictions find ways to get industry preferential pricing. One that does, via it's EEG mechanism, is Germany. While Germany's Energiewende is often reported as a world leader in growing renewables, the reality could be it's leading in something entirely different:

Bloomberg reports:
...clean energy investment in Germany dropped to its lowest level in a decade with USD 10.6 bn invested.
German reduction in small-scale PV FiT has led to lower rooftop solar build out
“The slump was mainly driven by a drop in small-scale solar investment and utility-scale wind investment,” comments BNEF Associate, Luke Mills.
“Reduction in the small-scale solar feed-in tariff (FiT) has led to lower rooftop solar build out. This, along with decreasing equipment prices, has impacted the total amount invested.”
“For wind, the current wind FiT does not work well with the current space constraints in Germany as projects in less windy areas are not adequately supported. Repowering has become an important role in the German market, but it has not taken off quite the way everyone had hoped due to planning regulations and restrictions.”
That report might not be entirely correct on repowering. AGEB shows Germany's wind output up a spectacular 50% in 2015, the highest  annual increase since 2002. However, solar showed its slowest growth since AGEB starting reporting on it. Overall the Bloomberg tracking of Germany's annual investment is likely a good indicator that some economic analysis has continued following the German Council of Energy Experts flagging the excessive costs in their 2011 annual report.

In case I missed it, one report worth reading from recent months was J.P. Morgan's A Brave New World: Deep De-Carbonization of Electricity Grids.

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