Powerlink’s revised revenue proposal to the AER

In December 2016, Powerlink submitted a Revised Revenue Proposal to the Australian Energy Regulator (AER) for the 2018-2022 regulatory period. This was in response to the AER’s Draft Decision which was released in September 2016.

Powerlink’s Revised Revenue Proposal at a glance

  • The Revised Revenue Proposal is focused on responding to consumer concerns over electricity prices by driving increased efficiency and delivering cost reductions.
  • Powerlink continues to align with the AER’s guidelines and approach to meet the needs of customers while allowing for the continued delivery of reliable supply of electricity.
  • The AER’s Draft Decision accepted most of Powerlink’s January 2016 Revenue Proposal, including operating expenditure forecast and rate of return methodology.
  • The key element which was not accepted by the AER was forecast capital expenditure required for network investment. 
  • Powerlink has not accepted the AER’s Draft Decision and the Revised Revenue Proposal responds to matters raised by AER and includes a revised capital expenditure forecast.

Key Points of Powerlink’s Revised Revenue Proposal Include:

Electricity prices

  • 31% reduction in indicative transmission price in the first year of the regulatory period. This reflects a 3% increase from Powerlink’s January 2016 Revenue Proposal. (The cost of high voltage transmission represents approximately 9% of total delivered energy costs for a typical Queensland (QLD) residential electricity consumer)
  • Translates to between $25 and $41 savings (2.9%) for the average QLD residential household annual electricity bill. An increase from the $22 to $37 savings outlined in Powerlink’s 2016 Revenue Proposal.
  • Price Growth remains within CPI over the balance of the regulatory period

Maximum Allowed Revenue (MAR)

  • Original proposed MAR $4.02B (smoothed) – AERs Draft Decision proposed a reduction of 7.4%
  • Powelink’s Revised Revenue Proposal for MAR is $3.74B
  • 7% lower than Powerlink’s January 2016 Revenue Proposal for the 2018-2022 period
  • 0.6% higher than the AER’s Draft Decision due to revised capital expenditure forecast

Forecast Capital Expenditure

  • Original proposed forecast expenditure $957.1M – AERs Draft Decision proposed a reduction of 19.3%
  • Powerlink’s Revised Revenue Proposal for total capital expenditure forecast is $886M
  • 7% lower than Powerlink’s January 2016 Revenue Proposal for the 2018-2022 period
  • 15% higher than the AER’s Draft Decision

The costs/revenue and percentages have been referenced from both AER and Powerlink published documents.  There may be minor differences which could be the result of rounding and / or advising costs in smooth, nominal or real terms.

AER’s Final Determination is due to be released by 30 April 2017.

You can find more information regarding Powerlink’s proposal and the AER’s decision here.

We are experts in the National Energy Markets. Find out how we can save you money on your energy charges by contacting us here or on 07 3232 1115.

Heatwave conditions force load shedding in SA

A severe heatwave in South Australia yesterday culminated in increased usage that pushed demand beyond the capabilities of the generators. This led to outages in the network as the market operator commenced load shedding.

Demand was the highest it had been for three years with the maximum five-minute demand set at 3077.47MW at 6:15 p.m. market time. This is despite a continued uptake of residential solar photovoltaic (PV) systems.

There were some interesting announcements leading into the period. The Australian Energy Market Operator (AEMO) was aware this was an unusual event and published a market notice at 3:15 p.m. (market time) to be aware that temperatures would be high across SA, NSW and QLD.

There were concerns surrounding reserves for SA most of the day. AEMO operates with three Lack-of-Reserve (LOR) levels.

LOR1: If the largest unit fails there will be a LOR2 condition

LOR2: If the largest unit fails, there will be a loss of power

LOR3: There is an actual loss of power. There is no solution in which all demand can be met

There were several LOR1 conditions during the day but AEMO didn’t respond. More interestingly was a LOR2 warning at 5:13 p.m. (market time) stating that AEMO was aware of an actual LOR2 condition forecast until 7:00 p.m. (market time). Required contingency was 200 MW but there was only 114 MW available. AEMO decided not to intervene but wanted to seek a market response. As we now know, the LOR2 turned into an LOR3 as wind generation reduced.

Figure 1: SA Generation and Demand 08/02/2017

 

The orange area represents the available generation for the state with the grey and yellow being the maximum support from the interconnector. The blue line is SA (five-minute) demand. The heat didn’t dissipate as the day wore on. Electricity demand continued to rise with the addition of domestic air conditioners as residents were returning home. The drop in the orange availability represents the reduction in wind. As wind kept reducing in capacity, there was insufficient power in the state to meet demand and there were rolling brown-outs.

Figure 2: SA wind generation and spot prices 08/02/2017

 

The 30-minute wind generation data shows the drop in availability. Wind generation is affected during hot weather as there isn’t enough energy in warm wind.

There are wide reports that additional power stations were available but didn’t run. Torrens Island A and Pelican Point each had a unit which was not available. It is unlikely there was enough gas going to the power stations to start another unit.

It is very questionable what market response AEMO was expecting at 5:13 p.m. since all available generators were on (except one unit at Pelican Point and one at Torrens Island A). From the outside, it looks like they were hoping LOR2 would not become LOR3.

With temperatures forecast at similar levels today, more outages can be expected. With the political backlash, it is unlikely there would be an appetite to curtail residential customers again. This could mean that AEMO and the Government may prefer to take the risk with business and commercial customers instead.

If you’re looking for stability in your energy pricing, please contact our energy procurement experts here or on 07 3232 1115.

LGC prices slide

Yesterday we considered the possibility of large-scale generation certificate (LGCs) prices reducing due to the federal review. Prices have slid $4/certificate this week.

In recent news reports, ERM founder, Trevor St Baker said the government would need to adjust the renewable energy target (RET) to 20,000 gigawatt hours to fall in line with infrastructure expectations.

“There is no way we are going to make the 33,000 target. It’s impossible to get there.” Mr St Baker said.

We concur, and have for quite some time.  Fundamentally, in a politically stable environment, we can only see LGC prices trending to and sitting at the full tax adjusted penalty of around $93/LGC. There aren’t enough certificates in the market to fulfil obligations without a sharp increase in the number of new renewable generation projects coming online over the next two years. We still forecast an LGC deficit during 2018.

However, we do not live in a politically stable environment. Abbott and Turnbull went head to head last week over the future of the RET. This combined with 2016 liabilities being squared away, has seen $4/certificate shaved off spot LGC prices this week. This is a reduction of approximately 5 percent. The movement shows how quickly environmental markets can change when politicians weigh-in.

After almost guaranteed price increases following the bipartisan agreement in 2015, trade for 2017 just got interesting.

LGC prices since 2016

References: http://www.afr.com/news/politics/renewables-target-will-not-be-met-says-erm-founder-20170126-gtyyvo

If you need to buy or sell LGCs and need advice on timing to market, please contact us here or on 07 3232 1115.

Will the Federal Government Climate Change Review affect the price of Large-Scale Generation Certificates?

A commitment by the Federal Government to reduce emissions by 2030 will see a Climate Change Review conducted this year. The government is focused on meeting our international emissions reduction commitments while also maintaining energy security and affordability. The focus of this review is to look at a range of options to reduce emissions by 26 to 28 percent below 2005 levels.

The review will consider the integration of climate change and energy policy, the impact of state-based policies on the national approach, the role of the Emissions Reduction Fund and its safeguard mechanism, complementary polices, and potential goals beyond 2030.

While the review does not explicitly mention the Renewable Energy Target (RET), there could be consequences for the RET. There is currently a concern that there will not be enough new renewable generation built in time to meet the 2020 target. This has led government backbenchers and some business people to call for the RET to be abolished. In the past, reviews into the RET scheme have caused the prices of Large-Scale Generation Certificates (LGCs) to reduce. Despite assurances that the current RET scheme will not be affected, discussion surrounding climate change policy may still affect the price of LGCs as the market factors in uncertainties.

The Climate Change Review is expected to be concluded by the end of 2017.

If you’d like to discuss what this means for your energy portfolio, please contact us here or on 07 3232 1115

High Demand contributes to record prices in Northern States

Increased electricity demand in both Queensland and New South Wales during January 2017 has had a significant impact on electricity prices for this period.

Queensland maximum and average demand was 8 percent higher than January 2016, while New South Wales was 9 percent higher compared to the previous year.

Higher demand helped in setting record prices for both states. The Queensland spot price averaged $197.65/MWh for January 2017. The previous record for January was set in 2013 when the price was $155.90/MWh. New South Wales reached $82.69/MWh eclipsing the previous January record of $66.95/MWh set in 2001.

Higher spot prices are currently expected to continue for the foreseeable future with forward contracts for both regions currently trading above $80.00/MWh on the Australian Stock Exchange.

If you want to discuss your energy arrangements, get in touch with expert energy consultants by contacting us here or on 07 3232 1115.