Market Conditions in South Australia Moving Forward

by Energy Action | Jun 15, 2015
Alinta recently announced its intention to close the Playford B and Northern power stations located in Port Augusta. Learn more about how this is expected to impact future market conditions in South Australia.
Both stations are fuelled by coal trained in from the Leigh Creek mine which will also be closing. Playford B has not run since 2012, so the announcement of its closure doesn’t really change anything substantially. The 520MW Northern station has been running at around 50% capacity for the last several years and its closure does represent a change in market conditions. Running flat out Northern would contribute around 15 - 20% of the maximum system demand on the hottest summer days, so its withdrawal could be expected to make quite a difference to electricity prices. However, the closure won’t take effect until possibly as late as 2018 although it will probably be sooner than that. In the meantime there is one other event in the pipeline that we expect will also help to support the price in the longer term and two other events that will act to suppress it.

Firstly, Northern isn’t the only recently announced plant closure. In December of last year AGL announced that it would be reducing the capacity of its Torrens Island power station by 480MW with closure of the nominated units to take place in 2017. Whilst this announcement does represent a reduction in the supply side of the market it is somewhat similar to Alinta’s announcement on the closure of Playford B. With the Torrens Island station rarely running to full capacity the closure of surplus units is unlikely to have much effect on price, but in combination with the withdrawn Northern units the price impact  could be material.

Secondly, the Victoria to South Australia interconnector is currently being upgraded with a target date for completion of mid-2016. This will add a further 190MW of import capacity, or just over one third of the generation capacity being closed at Northern.
 
Thirdly, with the resolution of the renewables debate between the government and the opposition, we might now expect progress on wind farm projects to speed up. For 2013/14 (the last year that we have figures for) the installed wind capacity in South Australia was a little over 1,280MW1
 
In combination, the impact of the interconnector upgrade and any new wind farm developments could be expected to eat substantially into the 520MW of demand reduction that the Northern announcement represents.
 
It is difficult to say how these opposing factors may play out and particularly so when the exact timing of the Northern closure is unknown. However, given the offsetting factors it appears that the closure may have a marginal impact on prices but may not alter them fundamentally. Advice to retail customers remains to seek pricing out to the end of 2016 or 2017 and compare the offers that they receive for these different terms.
 
On Sunday (7th June) Northern experienced an explosion and fire in one of its coal bunkers which has temporarily put the plant out of service. Since then the average spot price in SA has increased with their being 5 half hours in the following days when prices peak briefly at above $2,000/MWh compared to an average price of $43/MWh over the previous week. Short term supply interruptions such as the one currently being experienced have the most potential to increase prices due to their unexpected nature. The closure of Northern when it does occur would not be expected to produce anything like the price response that we are seeing right now.
 
1 AEMO - South Australian historical Market Information Report July 2015
 

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  1. Paul McArdle | Jun 23, 2015

    Readers might also be interested in these additional thoughts here:

    http://www.wattclarity.com.au/2015/06/northern-power-station-becomes-the-next-domino-to-fall/

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