The great energy debate

[Bushmiller]

Quite an interesting day in the generation business, but before I get into that I should congratulate you blokes on doing the research on the SA situation from the other day.

There was quite a deal of mis-information touted initially by politicians and subsequently beaten up by a more than eager media circus. As Kiwigeo and Big Shed have pointed out, the gas turbine station at the centre of the controversy was indeed Pelican Point. After running at half load for a year the owners decided to shut down one unit (mothball), which resulted in a couple of points. Firstly it was not in the availability mix and secondly it was not allowed, as a consequence, to bid into the market. The third issue is that a piece of equipment shut down for a year may or may not start if it was required in a hurry.

As Kiwigeo alluded to, it was not a simple business to crank it up despite the impression from the media that all they had to do was give the order and press the button. The order was given today, but I don't think the unit came into service today. I suspect it was desperately needed in SA, but it didn't run.

So that brings me to the interesting aspect of the day: Today was one of the most volatile in terms of demand and market price that I have seen. Any power generator capable of generating made money today. In recent weeks it has been QLD that was at the top of the money trail, but today NSW took the cake. I calculated that one station with four units had the potential to make $50 million in one and a half hours. This is a round figure and not actual because of a number of factors including contracts.

This occured when the market price hit $14,000/MWhr and remained at or near that level for one and a half hours. Compare this to the 25c/KWhr you pay at the retail level. The wholesale price in KWhrs was $1.40 (more than five times the retail price). The wholesale price has gone up in recent months, but it would still not exceed 10c/KWhr normally.

This is the penalty that is paid under a so-called competitive market: Fourteen times the normal price. Ok, today was exceptional. It will be interesting to see how the weekend develops as temperatures are expected to be considerably higher than today in QLD.

Regards
Paul

[swk]

It would be interesting to observe the desgners of the system giving evidence before a Royal Commission in effect saying "The system worked within its' design parameters - it's just that we got the parameters wrong.

I'll reply to this a bit late, I was overseas around Christmas. My comments here might lead on to another post about the current SA situation and will be relevant if I do.

Big shed. "The system worked within its' design parameters - it's just that we got the parameters wrong" is exactly the situation.

I assume you have been out of the workforce for a few years. There is one thing that has changed over the last decade + which gives me some cause for concern. Many decisions now are made by a group of people working together to come up with a consensus. Which on the face of it seems a good idea, and maybe is in most cases. Lots of people with diverse backgrounds must cover more experience than one individual. However, there are two problems with this. Increasing the number of people partaking in the decision means that the responsibility for the decision is also dispersed. And then the second problem is, do you know if all the people involved actually _do_ know enough about their area of expertise.

In real life, a couple of years ago, one of my colleagues, keen to be a mover and shaker, inserted himself into a number of these decision making processes (with the blessing of my then boss). Due to another similar project I was working on, I found out that the colleague in question had been on a review panel and completely missed a problem and gave the OK to a very dangerous situation. But it wasn't some esoteric problem, it was a simple high voltage clearance issue, clearly laid out in Australian standards. When I had "words" with the colleague, his excuse was "no one else picked it up either" which annoyed me no end, as his role in the group was as the "design expert". Needless to say, he didn't take part in any more of those design decisions.

So to get back to the design of the transmission system and last years SA event. Who are actually the "designers"?
The wind farms are designed by a group of people who are given a set of parameters to meet by the Network operator. Those parameters were put together by the network operator (most likely from an independent group with expertise that the network operator hired). The wind farms themselves are in the clear, they did what they were told. Now AEMO will stand up in court and say "we hired people who had the best credentials, we had processes in place, not our fault". And if the independent group fronts any inquiry, they can take a couple of paths, either "AEMO weren't clear enough in what they wanted" or " wow, this is a totally unprecedented event, no one could have foreseen the need for those particular parameters" (and as there are ultimately very few actual experts and they all work for the independent advisor, no one can/will disagree).

And this has come about, in part, due to the privatisation of the electrical industry. The old state organisations were "inefficient" because they carried people who spent their whole lives thinking about these sorts of out of the box problems. At privatisation all this type of non direct work was dumped with the thinking, "not our core business", if we need it "we will hire the expertise". But if no one is paid to think about the more esoteric stuff, then there will be no one who understands it and the outcomes of rare events become "unpredictable" and expensive.


SWK

[david.elliott]

And this has come about, in part, due to the privatisation of the electrical industry. The old state organisations were "inefficient" because they carried people who spent their whole lives thinking about these sorts of out of the box problems. At privatisation all this type of non direct work was dumped with the thinking, "not our core business", if we need it "we will hire the expertise". But if no one is paid to think about the more esoteric stuff, then there will be no one who understands it and the outcomes of rare events become "unpredictable" and expensive.

SPOT ON...

Once upon a time these core departments were focussed on supplying the service, water, power, telecoms, and so did all they could to support that. Most times they could return a modest amount to govt. Now they are money making enterprises the focus has moved from safety, reliability etc. to eeking out the last few cents... Look at poles and wired here in WA...

[AlexS]

SWK & DE, exactly the same thing is happening in the water industry.

[Mobyturns]

SWK & DE, exactly the same thing is happening in the water industry.

and the Telco industry as it has in the banking industry. Banks lend more capital than they actually have at times, the power generation industry supposedly is dimensioned to accommodate typical load demands. Supposedly! "The system worked within its' design parameters - it's just that we got the parameters wrong."

The Telco and water assets are in the same boat - not every body can get the capacity that they are paying for at the same point in time!!!! Bean counters are dimensioning assets to give the illusion that a certain capacity exists for consumers when in fact it doesn't.

Privatisation is not the golden egg.

[Big Shed]

Privatisation is not the golden egg.

No it isn't, but then privatisation was to a large extent the result of public utilities becoming inefficient and carrying lots of deadwood.

Just because an organisation is publicly owned doesn't necessarily mean it will do a better job.
I was living in SA when the State Bank collapsed and it wasn't pretty and that collapse took SA and the people of SA a long time to recover from.

The biggest problem with all these privatisations is that to a large extent Governments have abandoned their supervisory and regulatory roles and they are keeping their fingers crossed that private companies will do the right thing. Trouble is that "doing the right thing" means different things to different people. Maximising profit for shareholders is doing the right thing for a private company, delivering the right outcomes is doing the right thing for Governments and the people at large.

[Bushmiller]

I think I may have mentioned before that in the NSW system, where I spent some time before moving to QLD, the Electricty Commission of NSW was formed to provide continuity of supply. Once a competitive market was created the focus moved to money. This was exacerbated as more stations went private.

Talking of money, in my earlier post I said that $14,000equated to $1.40/KWhr. That was not quite correct: It actually equates to $14/KWhr!!!!!!!! How would you like to pay that instead of 25c?

Regards
Paul

[A Duke]

Hi swk,
The Camel is a Horse designed by comity.
:wink:

[Bohdan]

No it isn't, but then privatisation was to a large extent the result of public utilities becoming inefficient and carrying lots of deadwood.

Just because an organisation is publicly owned doesn't necessarily mean it will do a better job.
I was living in SA when the State Bank collapsed and it wasn't pretty and that collapse took SA and the people of SA a long time to recover from.

The biggest problem with all these privatisations is that to a large extent Governments have abandoned their supervisory and regulatory roles and they are keeping their fingers crossed that private companies will do the right thing. Trouble is that "doing the right thing" means different things to different people. Maximising profit for shareholders is doing the right thing for a private company, delivering the right outcomes is doing the right thing for Governments and the people at large.

Unfortunately we need to define "better" in terms of the community at large and apply that to our planning processes. They were inefficiently carrying a lot of dead wood but delivering the goods, now efficiently making a profit at the expense of the customer and delivering the goods is secondary.

A perfect example of our myopic governments planning abilities.

[ian]

and the Telco industry as it has in the banking industry. Banks lend more capital than they actually have at times, the power generation industry supposedly is dimensioned to accommodate typical load demands. Supposedly! "The system worked within its' design parameters - it's just that we got the parameters wrong."
I'm not sure that anyone will admit to getting the design parameters "wrong".

There is a world of difference between "typical load", "expected Maximum load", "anticipated extreme maximum load" and "an event outside the parameters".

for example there are 84,960 minutes in the months of January and February.
if you are prepared to accept that load shedding might be a necessary network response 1% of the time, then over those 2 months, you would anticipate that the "bunnies" who will have their load shedded, will be without power for around 14 hours.
If you increase the network "reliability" to 99.9%, in respect to the avoiding the need to load shed at the "expected maximum load", someone will be without power for 1-1/2 hours. (And 99.9% corresponds to 1 in 1000.)

[kiwigeo]

So to get back to the design of the transmission system and last years SA event. Who are actually the "designers"?


In the case of South Australia it's the Engineers who work for SA Power Networks.

The root issue IMO is the antiquated networks we are working with. These networks are highly centralized so that if one part of the network gets out of balance it brings the whole network down...we should be moving towards smart decentralized networks. The current networks are also heavily reliant on continuous base load power generators for stability...ie they handle non base load generators with great difficulty. Again the solution is a move towards networks that can handle a wider range of generators.

As an aside the Japanese electricity network doesn't operate on a single frequency like the Australian national grid does.....roughly half the Japanese grid operates on 50Hz while the other half is running at 60Hz.

[Big Shed]

The root issue IMO is the antiquated networks we are working with. These networks are highly centralized so that if one part of the network gets out of balance it brings the whole network down...we should be moving towards smart decentralized networks. The current networks are also heavily reliant on continuous base load power generators for stability...ie they handle non base load generators with great difficulty. Again the solution is a move towards networks that can handle a wider range of generators.



Which only confirms the lunacy of getting rid of most of your baseload power generators before you have implemented a network that can handle a wider range of generators, ie wind and solar.

It is not a good policy to rely on baseload power in other states as the imminent closure of Hazelwood will only reinforce.

[kiwigeo]

Which only confirms the lunacy of getting rid of most of your baseload power generators before you have implemented a network that can handle a wider range of generators, ie wind and solar.

It is not a good policy to rely on baseload power in other states as the imminent closure of Hazelwood will only reinforce.


Agreed......so when are the politicians going to stop waging their war against non thermal generated power and start pushing for upgrading of networks so they can handle same???

[Bohdan]

Agreed......so when are the politicians going to stop waging their war against non thermal generated power and start pushing for upgrading of networks so they can handle same???

To upgrade the networks costs money, no profit in that.

Electricity prices will go up, people will be unhappy and take it out on the pollies at election time so no possibility of the pollies pushing for anything.

[kiwigeo]

To upgrade the networks costs money, no profit in that.

Electricity prices will go up, people will be unhappy and take it out on the pollies at election time so no possibility of the pollies pushing for anything.

Long term there is profit in operating Smart decentralised networks. There is less maintenance and such networks don't collapse when one part of the network goes down......the suppliers spend less time paying out compensation to consumers who've lost their power for days. Long term there are huge savings for the network operators.

[swk]

In the case of South Australia it's the Engineers who work for SA Power Networks.

Nope.

SA Power Networks is the distribution provider. They got rid of their last engineer with transmission knowledge a couple of years ago (non core business, you know).

Electranet is the Transmission provider. However, they are one of those companies which largely outsource any design work. They do have people who can analyse the system behavior and they do provide advice to AEMO in that area (I believe) and can in a limited way act on behalf of AEMO.

SWK

[kiwigeo]

Nope.

SA Power Networks is the distribution provider. They got rid of their last engineer with transmission knowledge a couple of years ago (non core business, you know).

Electranet is the Transmission provider. However, they are one of those companies which largely outsource any design work. They do have people who can analyse the system behavior and they do provide advice to AEMO in that area (I believe) and can in a limited way act on behalf of AEMO.

SWK

I stand corrected....so many companies involved I get them mixed up. My late neighbour was an Engineer who worked at Electranet....over the years I had some very interesting conversations with him about electricity networks

[swk]

To upgrade the networks costs money, no profit in that.

Well, actually...

You maybe have heard the term "gold plating" in the papers (http://www.smh.com.au/business/goldplating-the-power-grid-20120705-21iv5.html) a couple of years ago. (How quickly we forget)

Both the transmission companies and the distribution companies in Australia get a payment, called TUOS (for transmission) or DUOS for distribution. The payment was negotiated originally with their individual state governments but subsequently taken over by AER (the Australian Energy Regulator). Part of that payment is based on the capital value of the network.

Consequently if a network provider increases the capital value of their network, they get paid more, so upgrading the network _can_ make a profit.

SWK

[Big Shed]

Sounds to me that all that the so-called "privatisation" has done is added a couple of extra layers of bureaucracy, adding to costs and infinitely adding to the number of possibilities for "passing the buck".

After WWII the whole electricity industry was nationalised because it was very fragmented and didn't deliver positive outcomes for the consumer.

It seems that it has taken us 75 years to come full circle.

[swk]

... privatisation was to a large extent the result of public utilities becoming inefficient and carrying lots of deadwood.

"Inefficiency" and "deadwood". Good terms to chuck around by pollies. Much as they are chucking around stuff about "supply security" now.

Was the old ETSA inefficient, did it have heaps of people sitting around doing nothing?
(the answer to this question is probably true for other state electricity bodies too)

Well, the old ETSA had about 6000 people (from memory, might have been a bit less). I cant recall if that was before or after the "right sizing" before the privatisation. But in any case prior to that privatisation the numbers in ETSA were reduced. In the years following the sale _all_ of the individual businesses that I was aware of in generation, transmission and distribution put people back on. The state government obviously cut hard and too far as part of the sales process. They could have done this any time, they didn't have to do it because of a sale.

But how do we compare today. You can find most of the data for employee numbers in the annual reports.
So SA Power network, about 2500 employees
Electranet about 300,
Torrens Island about 150
Northern Power Station (till it was shut down) about 120
Pelican Point about 40

I dont know figures for other businesses, but that's about 3000. So are we at half levels of what we were 15+ years ago?

Well, with the exception of SA Power Networks (and Electranet?), the power stations (and wind farms) all have some corporate governance wrapped up in Engie, AGL, etc. How do we count them and add their numbers in?
All of the electrical sales are done by providers (AGL, Lumo, Origin etc) who run multiple sales staffs, management, corporate functions etc
ETSA used to look after the licensing and electrical work in SA. That's done by the State government through OTR (technical) and Consumer affairs, for licenses, now.
Planning and regulation is now done by AEMO (500+ employees for the whole national grid) at a federal level and ESCOSA at a state level.
That's just some of the stuff needed by the electrical industry but not immediately obvious at first glance.

But that's not all (as they say on the telly)
Those employees shown in the annual reports, _dont count contractors_.
As I wrote in an earlier post Electranet dont have any designers. _All_ their design work (and construction) is done by contractors (Downer ABB etc). Significant amounts of extra electrical industry related work in South Australia is done by contractors.

Seriously, I have been involved in the electrical industry for 35+ years now, and I am not convinced that the actual "efficiency" is any better. "Dead wood" is a topic for another time.

SWK

[Bohdan]

"". Good terms to chuck around by pollies.
SWK

Terms that the pollies are familiar with as they see "Inefficiency" and "deadwood" every time they shave.

[Bushmiller]

In talking numbers I think it is important to realise that Power Stations and probably other energy entities within the system have a number of different budgets. As the budget for the staff was reduced and resulted in a corresponding reduction in workforce (obviously) and sometimes in preparation for sale, the contractor budget increased. There was still a need for similar numbers of workers to be involved in any given enterprise, but they were sourced now from outside the organisation. For example, during outages at our power station we might have a workforce of five times the normal size and working around the clock as well. All supplied by contractors.

The argument, from the owners perspective, is that this workforce is only there when it is needed: Probably true, but it does come at a cost and there is a reduced amount of flexibility. Try getting a crew together for an emergency breakdown over a holiday period such as Xmas. One of our competitor stations experienced this issue this year.

Regards
Paul

[swk]

... All supplied by contractors...

I did note in my previous post that the number of contractors used was not easily discoverable and so when talking about "efficiency" of the workforce, the base numbers of the organisations (and the overall industry) should be taken with a hefty grain of salt.

And to further highlight Pauls point about flexibility and not being able to get contractors during an emergency, an anecdote:

Northern Power Station in Port Augusta went down the "we get contractors for major works when we need them" path in the 1990s. As Paul will confirm each unit of the power station will get a major maintenance done to it every few years (2 in the case of NPS) and being power stations they like to do this when the weather is mild (low loads on the system). So thats spring and autumn usually in SA.
So NPS lined up their maintenance, did all the scheduling with all the other power stations who similarly wanted a slot for their maintenance and lined up a lot of extra critical work which was good to do when the unit was off. Locked everything in. Couple of weeks to go, went to the labour hire companies, "we'll take all those tradesman now". Answer; "Sorry, they're all off working for BHP (Whyalla) and Roxby Downs (Santos)". Who (amazingly) also scheduled their blast furnace and mine outages for the nice weather too!! What a fun month followed there :-)

There are some more details (I wont go into) which with hindsight, after the number reduction process that lead to this situation, make this an even more obvious shot in the foot outcome, so it's not as if it's a new problem. Sufficient to say, over a few years the NPS management learned of a few unintended consequences to some of the "good" ideas that get touted as efficiencies.

Regards
SWK