The consequences of the closure of the Northern Power Station in South Australia in 2016, and the 1600-megawatt Hazelwood Power Station in Victoria last year were starkly revealed during the heatwave that struck south-eastern Australia on January 27–29. In Victoria, where power blackouts are unprecedented, some 95,000 homes were without power for periods during Sunday January 28 and Monday January 29.
The areas in red and orange were blacked out.
Heatwaves are a normal event at this time of year, as hot air is pumped into the southern states from the deserts of central Australia, also causing increased risk of bushfires.
But a failure of the power system in Victoria is almost unprecedented. Failures of the South Australian power system last year caused two blackouts, one of which was state-wide.
The closure of the two base-load power stations from the integrated national electricity grid meant that the impact of soaring prices of electricity were felt across Victoria, South Australia and Tasmania.
To understand what is happening, we need to look at how Australia’s electricity is produced.
The Australian energy market is predicated on the fact that electricity demand fluctuates dramatically, on a daily and seasonal basis, and that supply needs to match this demand. The price of electricity is the key fact used to guarantee electricity generation.
Market distortions
Unfortunately, the operation of the market is radically distorted by the priority given to renewable energy, particularly wind and solar power, which are, of their nature, erratic. Their presence has made base-load power generation, particularly from coal, less economical, though coal is still the cheapest form of available electricity generation.
Under the operations of the national energy market, distributors, electricity retailers and large industrial users bid for power in five-minute blocks. The Australian Energy Market Operator (AEMO) sets prices for every half-hour, based on six consecutive five-minute blocks, and issues forecasts based on anticipated supply and demand.
These are used by large industrial users to cut usage at times of high prices and high demand. (Business consumption of electricity is about three times that of residential use.)
This is radically different from the way that electricity was traditionally generated. Before the electricity system was privatised, governments ensured that there was sufficient power from base-load coal-fired power stations to meet all foreseeable contingencies, backed up by a relatively small hydroelectric supply for peak-load power.
It provided inexpensive base-load power, but was criticised by free market advocates who wanted governments to get out of the power-generation business – even though it is a vital public service.
They also criticised it as “inefficient”, and found enthusiastic support from some politicians attracted to the idea that state governments could make billions of dollars from the sale of their electricity generation and distribution networks.
The practical working out of the market model was clearly seen on the weekend of January 27–28, when a heatwave hit Victoria, South Australia and Tasmania.
Although it was a weekend – which meant that most large industries were closed – power demand soared, and supply was limited.
The result was shown in prices downloaded from AEMO’s website at 4pm on Sunday, January 28, for each of the states on the east coast of Australia. (Western Australia is not part of the eastern states market.)
The figures show a surge in electricity prices across Australia, as power was drawn from New South Wales and Queensland to meet the demand in the southern states.
The price of electricity in Victoria, South Australia and Tasmania was nearly three times higher, around $270-$290 per MW/h, compared with the price in Queensland of $113.71 per MW/h, and $128.32 in New South Wales.
Of equal interest was the forecast demand and forecast spot price set by the AEMO. This is used by industry to switch off usage at times of high cost. It shows that the forecast spot price reached a staggering $9,046 per MW/h in Victoria, ahead of $8,745 in South Australia and $8,473 in Tasmania.
According to Melbourne radio station 3AW, more than 60,000 homes and businesses were without electricity during the night of Sunday January 28.
A map on the Powercor website showed that blackouts extended from the western suburbs of Melbourne down to Geelong and the Bellarine Peninsula.
The Victorian Government denied there was a power shortage, and blamed breakdowns in equipment owned by private power distribution companies. The power retailers, however, blamed excessive demand, that is, insufficient supply.
