Future of the Australian Electricity Market

[ian]

On the cost of Power Station coal I don't know what is paid in general as that would be confidential information. As to the Millmerran station, I certainly can't divulge the cost other than to say it is dirt cheap, mainly because it is very close to dirt! In fact, if it didn't produce Carbon Dioxide I would suggest it is a stretch to call it coal. It is also cheap because it is our coal mine and we are the only ones that use it. I don't believe any percentages come into the equation.

If the Millerman mine has any sort of access to the road or rail network -- and there must be some sort of connection to deliver fuel and workers to the mine's machinery -- the "clever" traders employed by the company that owns the mine will have figured out a way to link the high export spot [thermal] coal price to the input price charged to the Millerman Power station's boilers. (Note I'm saying market will bear price for the coal, not the true cost of mining the coal.)

[woodPixel]

I'm not sure how many remember the ACT's late 2000s ledge to go 100% renewable with their electricity supply.

The ACT's early contracts for places like the Royalla Solar Farm were written at prices in excess of 180 cents/kWh, with later projects written at prices of around 150 to 160 cents/kWh.

Paul may have a better handle on current solar contract pricing, but solar electricity is capital intensive and the investors will be looking for something like a 15% return on their investment.

I'm a resident of this fine capital. Luckily winter here has been tshirt weather. Its unreal. Not cold at ALL.

My electron prices just went up today. Yay!

I use a spreadsheet for budgeting, so all the new numbers are put in and it regenerates the last 17 quarterly bills to see what the difference might be (Yes, Im a data nerd, can't help it!)

gas elec costs.png



-- Charge 1 to 4 are simply when I moved plans or changed address.
-- Gas shows the daily charge and the rate for the first-N (whatever the units are) of use.
-- Electricity is pretty straight forward.

Here is the cost increase (in dollars) for the same usage over the last 8 quarters.... Not too bad.

11.18
10.70
11.08
10.30
12.55
0.00
1.71
8.41

I can live with an additional $12.55 on my quarterly bill.

....

Chaps, I've said it before, but its worth considering..... rather than putting 30k into solar+batteries, consider investing it into shares in solar companies. Better returns, plus the capital will compound, not depreciate. I should do an analysis, but I'd wager that others here would be better at working those things out

[Bushmiller]

If the Millerman mine has any sort of access to the road or rail network -- and there must be some sort of connection to deliver fuel and workers to the mine's machinery -- the "clever" traders employed by the company that owns the mine will have figured out a way to link the high export spot [thermal] coal price to the input price charged to the Millerman Power station's boilers. (Note I'm saying market will bear price for the coal, not the true cost of mining the coal.)

Ian

I may not have been clear. Millmerran Power Station owns the mine. It is ours and right next door. The coal is delivered by conveyor belt from the mine to the power station and the mine's dump trucks remove the ash and stick it back in the voids. If I look out from the top of the boiler, all I can see in one direction is our mine. However, having said all that, we employ an outside contractor to manage the mine. It has been the same company since inception until about a year ago when that contractor decided to get out of coal mining and we now have a new mob.

Regards
Paul

[GraemeCook]

... I would suggest it is a stretch to call it coal. It is also cheap because it is our coal mine and we are the only ones that use it. I don't believe any percentages come into the equation. ...

But you can wager that your accountants/strategists will be benchmarking the costs of your company mining coal, adjusted for heat content, against the export price for thermal coal.

[GraemeCook]

. ... Tasmania, as we have observed in past posts, is something of an anomaly. They are the only state where the power is government owned and they are consistently less expensive than any of the other states. It looks as though that is at least partially passed on to the consumer judging by your costs. ...

I would rather say unique rather than an anomoly. Also over 99% of electricity is from renewable sources:

• 80% hydro,
• 17% wind farms,
• 2% solar,
• >1% natural gas (allegedly, Hydro keeps Tamar Valley Gas powered generator ticking over as the cheapest way of mothballing it.)

Wind farms are growing rapidly and will become much more important. The solar figures are understated as roof top solar that offsets rather than entering grid is not measured. One advantage of hydro is that it can respond extremely quickly to changes in supply from wind and solar. Coal fired has a big lag time.

The stated government objective is 200% from renewables. We'll see; they are very creative at stuffing up.

Hydro dependency is not without its problems. Droughts do happen and clerks do sell too much electricity to the national grid.

Tasmania has about 30 hydro schemes, but two of them - Great Lake and Gordon Schemes - supply about 70% of the generating capacity. Lake Gordon is larger, but Great Lake is higher at 3,000 feet and thus supplies more energy. Current storage levels are:

• Great Lake - 12.74 metres from full, and
• Lake Gordon - 26.70 metres from full.

Lake levels

For illustration, a 10 storey block of flats will be around 30 metres tall.

• Most of the small lakes are spilling or near full.

[GraemeCook]

... Thank you for all the charts and the comment. I think it is fair to say that the market is still extremely volatile and we see wide ranges on the spot market. ...

True enough. I think that this volatility will actually increase as the reliance on renewables - wind and solar - increases. Coal fired generators cannot ramp up fast enough to meet the demand fluctuations. This time lag will fuel price volatility.

But there is also that massive dicotomy between wholesale and retail prices.

Wholesale prices are volatile and average prices have decreased by about 60% in the past 10 months.

Retail prices are not volatile and have increased exorbitantly in the last few month.

[Bushmiller]

True enough. I think that this volatility will actually increase as the reliance on renewables - wind and solar - increases. Coal fired generators cannot ramp up fast enough to meet the demand fluctuations. This time lag will fuel price volatility.

But there is also that massive dicotomy between wholesale and retail prices.

Wholesale prices are volatile and average prices have decreased by about 60% in the past 10 months.

Retail prices are not volatile and have increased exorbitantly in the last few month.

Graeme

I have pointed out in the past that every single power source we can think of as reasonably viable has at least one fundamental flaw. Some have many flaws even though they may appear attractive at first glance. Your DC link in Tasmania across Bass Strait was an insurance against drought and was to safeguard the Tasmanian grid. The other downside of hydro is the impact downstream on the ecology. However, all that pales into insignificance versus the impact of carbon dioxide emissions.

When wholesale prices were so high in recent times the retailers without sufficient contract, who were probably opportunists, got caught out badly. Most of the large entities will have the bulk of their power via contracts and are consequently insulated against the spikes. It is difficult to assess the proportions of the power under contracts, but it is probably in the region of 75% to 80%. Contracts do have a way of evening out the graph as correction can only be made when they come up for renewal (of course).

Retail prices are not my area of expertise other than to comment there is a big difference between what is available in the country areas compared to the urban regions.

Regards
Paul

[Bushmiller]

But you can wager that your accountants/strategists will be benchmarking the costs of your company mining coal, adjusted for heat content, against the export price for thermal coal.

Graeme

As operators our group is in constant contact with our traders and I have to say I don't see anything that would support that statement. The accountants, who are a separate group, are often a source of exasperation, but not in that area. However, I would be breaching confidentiality to elaborate any further than that.

There may well be different arrangements with stations that buy their coal from mines on the open market, but I don't have any inside information on that either.

Regards
Paul

[Warb]

• Great Lake - 12.74 metres from full, and
• Lake Gordon - 26.70 metres from full.

That's a fascinating way they use to describe the fullness of a dam. I'm sure that on a tour of a hydro plant long ago we were told that they had built a tall dam, with the generators at the base to give a high pressure (head) for the turbines, but the lake behind the dam was wide and shallow, with just a relatively small artificial trench behind the dam to create the head. I believe other schemes pipe the water downhill to create the pressure. In either case it would seem that quoting "metres from full" is meaningless - if the lake is 15m deep but the drop to the turbines (either by a trench behind the dam or through pipes) is 150m, then "12.74metres from full" is akin to "nearly empty".

Typing that has made me look! According to this link Great Lake averages 12m in depth. Water doesn't tend to slope very much, so on that basis the lake is, on average, empty. Hmmmm.....

[GraemeCook]

Graeme

As operators our group is in constant contact with our traders and I have to say I don't see anything that would support that statement. The accountants, who are a separate group, are often a source of exasperation, but not in that area. ...

I am absolutely amazed that you would make a statement like that, Paul.

One of the first rules of business is to know and understand what your competitors are doing. Competitors include markets and sources of supply. Why mine coal if you can buy in at a cheaper price? Why buy in coal if you can mine it a a lower cost? Ignoance is not bliss. It is ignorance.

I hope someone is doing some benchmarking of which you are not aware.

[GraemeCook]

That's a fascinating way they use to describe the fullness of a dam. ...

"Great Lake averages 12m in depth." .....

They used to report lake levels in percent of full, but I could not find such a reference. Hydro and the state government is obsessed with "business in confidence" which may be reflected in a "useless statistic" rather than a useful one.

I have done a lot of fishing in Great Lake. When full, it is certainly a lot deeper than 12 metres - that may refer to the original lake before the hydro dams were built. There have been a series of dams built at Miena to raise the capacity of the lake considerably. A couple of dams become exposed when the lake is low.

Most of the power stations are not near the level of the lakes, but they pipe the water downhill to maximise the pressure. Often the penstocks are now underground - in a tunnel - and power stations also are often underground. Tarraleah is an old power station; the lake is at the top of the penstock and the power station is at the bottom.


Tarraleah Penstock

[Warb]

They used to report lake levels in percent of full, but I could not find such a reference. Hydro and the state government is obsessed with "business in confidence" which may be reflected in a "useless statistic" rather than a useful one.

They've done a great job of keeping it secret! I can find no reference to the depth of Great Lake. The best I can find is a fishing site that, at least in part, lists the history and gives a bunch of numbers totalling a dam height of about 20m. Another one references 20% of hydro capacity being 16.5m from full, which again suggest around 20m a full capacity. Obviously the area gets bigger as the dam fills, but if we ignore that then 80% = 16.5m, so 12.7m below full means it's currently at about 40% full.

If it's genuinely only 40% full after the last couple of wet years (was Tasmania as wet as everywhere else in Australia?) then perhaps keeping it a secret is wise..?

[Cgcc]

In my line of work I've frequently had to work in depth with mining project feasibility and financing studies.

The fact is the sale price is one consideration but it forms but one of many major inputs, including the extraction costs, transport costs, infrastructure requirements (how far as you from a port and what rail infrastructure is in place?).

Frankly, if a project is being financed then financing costs may very well be far more impactful than product prices. If you are going to have to bleed money for 5-10 years and then carry that debt, the interest rates on your financing is liable to be much more important than the sale price.

Because projects can take 5-10 years to get off the ground and start producing, which is when the price is felt, you can predict commodity prices to some extent but not with any precision. Also, a coal mining venture is going to be operating for many years and the relevant price will fluctuate over the period of operation.

Yes you can analyse and factor price into account but it's one of many economic factors. Frankly production costs and infrastructure availability and costs might dwarf in a particular project the volatility you might predict in terms of market price.

I am absolutely amazed that you would make a statement like that, Paul.

One of the first rules of business is to know and understand what your competitors are doing. Competitors include markets and sources of supply. Why mine coal if you can buy in at a cheaper price? Why buy in coal if you can mine it a a lower cost? Ignoance is not bliss. It is ignorance.

I hope someone is doing some benchmarking of which you are not aware.

[Bushmiller]

Competitors include markets and sources of supply. Why mine coal if you can buy in at a cheaper price? Why buy in coal if you can mine it a a lower cost? Ignoance is not bliss. It is ignorance.

I hope someone is doing some benchmarking of which you are not aware.

Graeme

I did say that there was some information I am not at liberty to divulge. What I can say is that we have always had the cheapest coal there is. That is knowledge at some level. Whether it is sufficient, I don't know. What I do know is that, in theory, Millmerran will be the last coal fired power station to be shut down based on efficiency of running, geographical location for grid stability and cost. Whether that happens in reality is quite another matter. As a prominent Forum member states: Theory and Practice are the same in Theory, but not in Practice!

Operations in any power station (I am on my fourth station at this early point in my career) have little to no direct contact with the accounting departments. Operations and the Traders in today's competitive market do have quite a bit of interaction: At times a little more than operations would wish. As a group we would prefer the old directive of make as much power as you can. It is what we have done for over twenty years now. Foot to the floorboards to make an automotive analogy. As far as the business plan is concerned, we have no involvement and certainly no influence unless it affects plant operation. That aspect revolves primarily around maintenance and plant modification. Finance etc. is not for us. I am guessing that you have not worked in a power station so are not privy to the way things are done (or not done ) there even if it is contrary to your experience.

Regards
Paul

[GraemeCook]

Graeme

I did say that there was some information I am not at liberty to divulge. What I can say is that we have always had the cheapest coal there is. That is knowledge at some level. Whether it is sufficient, I don't know. What I do know is that, in theory, Millmerran will be the last coal fired power station to be shut down based on efficiency of running, geographical location for grid stability and cost. Whether that happens in reality is quite another matter. ...

No arguments there Paul.

Have just had a look at Millmerran's ownership structure and history. That benchmarking that I was refering to is more like done in Brisbane, or overseas, rather than in the plant.

You may well have the cheapest coal, but you only know that by monitoring the price of alternative sourcing. That is benchmarking.