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Issues

NEED UPDATE

4 hour batteries + renewables are not sufficient to meet all system peaks - particularly in the late 2030s and beyond. It is entirely possible for a sustained renewables drought to leave the fleet of 4 hour batteries entirely spent.

When there are simultaneous low solar and wind over a full day, the optimal operation of the system uses 4 hour battery in the morning and evening peaks. Middle of the day had generation from 12 hr PHES and USE, while simultaneously charging the 4 hour batteries for use in the evening.

From an engineering perspective this suggests some peaking gas is required, however the economics of OCGTs are very challenging. The increased LCOE will no doubt further reduce the economic viability of OCGTs as a solution to meet these uncovered peaks. AEMO got around this problem by including deeper storages (up to 12 hours) in their modelling.

If we meet USE requirements and no further new entrants are profitable then we should let the prices outcomes be what they are. But perhaps this will change when a model with long term TWPs over $100 per MWh.

new entrant

what is the reason for projects getting off the ground, even modelling doesn't show that they should be economic at least for 5+ years.

  • input costs are too high?

  • price forecasts are lower than others?

  • these projects have additional sources of revenue we don't capture?

Many projects getting off the ground are securing PPAs. This limits exposure to wholesale prices. Parties buying electricity via PPAs may not be motivated solely by price (e.g. helps government green and job credentials, helps corporates green credentials). Also investors do not always make smart decisions (dotcom bubble, subprime loans and the GFC, etc.). It is not clear that if they're willingly signing PPAs at a loss or if they found modelling to justify the PPA price as fair.