South Australia Power Price Spike Shows Flaws in Wind Forecasts

  • Price surge on July 13 blamed mainly on forecast model error
  • Electricity prices rose to cap of A$14,000 a megawatt hour

For a brief moment before dawn on July 13, the price that utilities in South Australia pay for spot electricity jumped more than 11,700 percent after regulators erred in estimating how much wind power would be available.

The state’s wholesale electricity price briefly surged from about A$120 ($91) a megawatt hour to hit the cap of A$14,000 a megawatt hour. The Australian Energy Regulator launched an investigation and on Tuesday said "wind forecast error" was the main factor contributing to high prices.

The AER said prices hit a peak at 6:30 a.m. on July 13. While wind generation had been forecast at 900 megawatts both four hours and 12 hours prior to that time and at 820 megawatts just 30 minutes prior at 6 a.m., the actual wind output was just 600 megawatts.

The surge, to a level equivalent to about a A$140,000-a-year bill for one person, underscores the difficulty that regulators are having trying to fold in ever-growing amounts of cheap but less-predictable renewable power into grids more accustomed to decades-old fossil fuel technology.

"The wind forecast error had the effect of shifting the supply curve to the left," the AER said in a report. "With all low priced generation either fully dispatched or restricted by plant limitations, the South Australian price reached A$14,000 a megawatt hour from 6.20 am to 6.30 am."

The regulator said other contributing factors included an upgrade to the Victorian state interconnector whose impact "was not clear until the previous days forecast" despite being flagged to the market in late 2015.

South Australia’s reliance on wind power and solar, which account for about 40 percent of its power generation, has raised questions over the reliability of the state’s electricity supply. Prime Minister Malcolm Turnbull seized on a state-wide blackout in September, saying its move towards renewables had strained the electricity grid.

State energy ministers subsequently agreed to an independent review to provide a blueprint for security across the national energy market, Federal Energy Minister Josh Frydenberg said on Oct. 7.

Independent energy research firm Bloomberg New Energy Finance said the federal government should be cautious linking South Australia’s energy mix with separate supply and pricing concerns.

"The immediate reaction of the government is cause for concern for the energy sector," said Kobad Bhavnagri, Head of Australia, Bloomberg New Energy Finance. "It is the first time the Prime Minister has ventured into energy policy since taking leadership, and the negative posture from a previous enthusiast for renewables could signal the re-politicisation and polarisation of energy policy."

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