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Renewable energy and the National Electricity Market: Issues & Challenges© CEEM, 23 November 2005
Integrating renewable energy in the NEM: Economic issues
2Integrating renewable energy in the NEM: Economic issues © CEEM 2005
OutlineGeneration mix conceptsCost estimates for electricity generation optionsWind energy cost & benefit issuesPV energy cost & benefit issuesCommercial viability of renewable energy in the NEM
3Integrating renewable energy in the NEM: Economic issues © CEEM 2005
EnergyAustralia - Summer 2000/01 Profiles - Peak and Average Days
0
1000
2000
3000
4000
5000
2:00 4:00 6:00 8:00 10:00 12:00 14:00 16:00 18:00 20:00 22:00
MW
23 Jan 2001
Avg Workday
Avg NonWorkday
Air conditioning usage
0
2000
4000
6000
8000
10000
12000
14000
Sunday Monday Tuesday Wednesday Thursday Friday Saturday
07 to 13 March 2004 27 to 02 August 2003NSW summer & winter peak demand
4Integrating renewable energy in the NEM: Economic issues © CEEM 2005
2003 Load duration curves for NEM states(NEMMCO SOO documents, 2004)
0
10
20
30
40
50
60
70
80
90
100
0 10 20 30 40 50 60 70 80 90Percentage of time
New South Wales Victoria Queensland South Australia Tasmania
5Integrating renewable energy in the NEM: Economic issues © CEEM 2005
‘Optimal’ resource mix (generation & demand)‘peak duty’ option
‘base duty’ option
‘intermediate duty’ option(voluntary)
demandreduction
envelope of cheapest available options
breakevenpoints
C1 C2 C3
$/kW/yr
Capacityfactor
10
6Integrating renewable energy in the NEM: Economic issues © CEEM 2005
Capacityfactor0 1
MW
Load duration curve & resource mix(ideal case: no uncertainty in demand or unit availability & no load growth)
base duty resources
C3C2
intermediate duty resources
C1
peak duty resourcesdemand reduction
load duration curve
7Integrating renewable energy in the NEM: Economic issues © CEEM 2005
Direct costs for some renewable energy & fossil fuel power stations
012345678
Bio Hydro SolarHW
Wind Fossil
RangeMin
C/kWh
(network location & controllability also matter)
Source: Australian Greenhouse Office 2001
8Integrating renewable energy in the NEM: Economic issues © CEEM 2005
PMSEIC cost estimatesPMSEIC Beyond Kyoto Report, 2002
(PMSEIC, 2002b)
0.00
20.00
40.00
60.00
80.00
100.00
120.00
140.00
160.00
Conventional Coal Gas combined cycle Zero emissions coal Renewables
$/M
Wh
(Source: Roam Consulting – unpublished data 2002)
0.00
20.00
40.00
60.00
80.00
100.00
120.00
140.00
160.00
Conventional Coal Gas combined cycle Zero emissions coal Renewables
$/M
Wh
0.00
20.00
40.00
60.00
80.00
100.00
120.00
140.00
160.00
Conventional Coal Gas combined cycle Zero emissions coal Renewables
$/M
Wh
(Source: Roam Consulting – unpublished data 2002)
Wind
Photovoltaics
Hot Dry Rocks
Biomass
Not available in large scalefor ~20 years &
may prove to be optimistic
9Integrating renewable energy in the NEM: Economic issues © CEEM 2005
Wind farm indicative connection costs to 330kV (Transgrid, 2002)
15028.32004
18017.71002
65012.9201
2,50012.751
Conn.cost$/kW
Conn. cost $MTotal wind MW
Wind farm number
Important to capture economies of scale of grid connection
10Integrating renewable energy in the NEM: Economic issues © CEEM 2005
Wind resource & network issues in South Australia
Map: ESIPC, 2002
Good wind resources along entire coastline including:
• Eyre Peninsula• Yorke Peninsula• Fleurieu Peninsula• Kangaroo Island• South-East
Sites available for up to 2000MW
11Integrating renewable energy in the NEM: Economic issues © CEEM 2005
Eyre Peninsula Backbone network upgrade to support 500MW wind
(Meritec, 2002)
Estimated cost of 275kV backbone upgrade: $140M or $280/MW assuming equally shared by 500MW of wind.
Wind may not have to pay full cost of backbone upgrade.
12Integrating renewable energy in the NEM: Economic issues © CEEM 2005
NEMMCO concerns about wind energy (NEMMCO, 2003)
Frequency control in normal operation:– Frequency regulating service costs ~5 $/MWH
Security control - largest single contingency– Will wind farms ride-through disturbances?– Are wind farm dynamic models adequate?
Interconnection flow fluctuations:– Exceeding flow limit may cause high spot price
Forecast errors due to wind resource uncertainty:– Five minute dispatch forecast (spot price)– Pre-dispatch & longer term (PASA & SOO) forecasts
13Integrating renewable energy in the NEM: Economic issues © CEEM 2005
Wind farms in the NEM spot marketWind farms will operate as “price takers”:– Generate whenever wind is blowing
NEM spot market prices are volatile with a “rectangular” price distribution:– Prices are usually low, sometimes high– Timing of high prices not easily predicted
Value of wind energy in the spot market:– Will depend on how regularly wind farms are producing
when spot prices are highWind farms may have to pay ancillary service costs
14Integrating renewable energy in the NEM: Economic issues © CEEM 2005
Western Power’s proposed wind penalty charge (c/kWh) (Western Power, 2002)
15Integrating renewable energy in the NEM: Economic issues © CEEM 2005
Indicative impact of wind on SA NEM spot price duration curve (www.esipc.sa.gov.au)
16Integrating renewable energy in the NEM: Economic issues © CEEM 2005
Price-demand plots for NEMregionsNSW (top) & SA (bottom)Jan-Mar 2004
($/MWH vs MW)(NECA, 04Q1 Stats, 2004)
17Integrating renewable energy in the NEM: Economic issues © CEEM 2005
Smoothed NEM Regional Ref Prices (RRPs) since market inception (AER, 05Q2 Stats, 2005)
18Integrating renewable energy in the NEM: Economic issues © CEEM 2005
Annual average RRP flat contract prices (AER, 05Q2 Stats, 2005)
19Integrating renewable energy in the NEM: Economic issues © CEEM 2005
Premium at50 $/MWH strike price (above) & installed peaking capacity(below)by NEM region(AER, 05Q2 Stats, 2005)
20Integrating renewable energy in the NEM: Economic issues © CEEM 2005
Wind farms marginal at $70/MWH(PWC, 2002)
21Integrating renewable energy in the NEM: Economic issues © CEEM 2005
Forward prices for wind energyWind farms may have to accept a lower price than “flat contract” due to uncertainty in production: – Daily– Seasonal, – Annual
(Giebel (2000) Riso National Lab, Denmark)
22Integrating renewable energy in the NEM: Economic issues © CEEM 2005
Prediction of REC Prices (A$/MWH) (ORER, 2003)
0
510
15
2025
30
3540
45
5055
60
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Year
RE
C p
rice
average price
23Integrating renewable energy in the NEM: Economic issues © CEEM 2005
REC requirement to 2020 is almost metThe Federal Govt. has rejected key review finding of a higher target to 2020BCSE estimates only approx. 700-800MW of new (post Jan04) projects required to meet existing target, and……project commitments > 500MW in 2004 leaves < 300MW new projects required
(BCSE, 2005)
24Integrating renewable energy in the NEM: Economic issues © CEEM 2005
PV solar energy
PV can be installed at point of end-useOffers potential to:– Displace investment in remote generation,
transmission & distribution– Provide local network voltage & reliability support
However, value will depend strongly on relationship between PV output & demand:– Storage may improve correlation but at additional cost
25Integrating renewable energy in the NEM: Economic issues © CEEM 2005
Relationship between PV output & commercial load in NSW (Watt et al, 2005)
26Integrating renewable energy in the NEM: Economic issues © CEEM 2005
PV output & NEMprices in NSW & SA(Watt et al, 2005)
27Integrating renewable energy in the NEM: Economic issues © CEEM 2005
ConclusionsStochastic renewable energy:– Brings new challenges for electricity industry
restructuring (technical, market design, regulation)Wind energy:– The first significant form of “intermittent generation”– Not yet cost-competitive on electricity price alone
PV solar energy:– Technically sound– May not correlate well enough with peak demand to
defer network investment– Not cost-effective at this time