Australia’s energy market faces several challenges but one issue that has defined the energy policy debate for years now is the integration of renewables into our existing energy grid. On cloudy days with no breeze, renewables raise concerns about energy supply security and price stability. Even when the sun is shining and the wind is blowing, solar power and other intermittent renewables can be problematic for energy grids.
Intense energy production from solar PV cells on rooftops throughout the day followed by next to zero production when the sun sets does little to meet energy demand which ramps up sharply in the afternoon. This phenomenon is captured by the “duck curve”. The duck curve – named due to its shape – helps us understand the challenge of renewables integration through a useful graphical depiction of how network energy demand (i.e. demand from the electricity grid itself, excluding rooftop solar PV) typically varies over a day.
Over the past five years in Queensland, overall energy demand from the National Energy Market (NEM) has increased – as evidenced by higher demand peaks in the evening – while the incremental introduction of intermittent renewables off-grid (i.e. rooftop solar PV) has caused energy demanded from the NEM to decrease during the day (See Figure 1).
Both rooftop solar PV and grid-connected renewables are problematic for fossil fuel generators as they push down prices on average (while also leading to more volatile prices), but only rooftop solar PV is causing the characteristic duck curve by decreasing the amount of energy households and businesses need from the NEM during the day. Duck curves are becoming apparent in energy grids around the world as small, intermittent renewable energy sources offset network demand during peak renewable production periods.
The main implication of the duck curve is the pressure that energy demand variability places on traditional power generators using fossil fuels. These generators typically need to keep their operations running around the clock, and they can end up losing money when demand from the grid is low due to renewable energy supply. As we wrote in a previous article, at times, generators have had to pay negative spot prices to unload excess energy at times of low demand and high renewable energy production.
As sunlight weakens in the afternoon, the energy grid requires a fast injection of energy to meet the sharp increase in demand as people return home to cook, watch Netflix, and relax. The energy injection comes at a cost (see Figure 2) – usually a price set by gas-powered generators which are the only actors capable of ramping up operations quickly enough to fill the gap between demand and supply.
Due to the inconsistency of renewables and the immaturity and current high cost of battery technology, fossil fuel energy generators are still crucial for energy supply security and price stability. But as more renewables enter the energy grid, the duck curve will sag more during the day, presenting large commercial and operational challenges for energy generators. For some of Australia’s largest coal-fired power stations, this challenge has been judged by executives and owners as insurmountable.
For instance, Yallourn coal-fired power station’s owners recently brought the station’s closure date forward by four years to 2028 despite reaffirming a 2032 closure date just one year ago. The Yallourn station makes up 20% of Victoria’s electricity – almost 10% of the NEM’s – and its exit has triggered a race against the clock to replace supply.
The closure has raised concerns about the commercial viability of other ageing, expensive coal-fired power stations as cheap renewables flood the market and drive power prices down. Yallourn’s exit could be followed by NSW-based stations Vales Point, Mount Piper, and even Australia’s largest coal-fired generator Eraring, which are predicted by the Institute for Energy Economics and Financial Economics to be unprofitable by 2025.
Alex Wonhas, Chief System Designer at the Commonwealth’s Australian Energy Market Operator, said that state and federal governments need to focus on cooperation and coordination moving forward:
As the energy transition continues to gain pace, it is increasingly important that the Energy Security Board market reforms are progressed to ensure the exit of thermal plants is coordinated with the timely entry into the market of new dispatchable capacity to keep consumer prices low and energy reliable.
Adept Economics agrees with this assessment and will cover what these market reforms and potential solutions could look like in a future post.
In conclusion, the duck curve can help us to understand why fossil fuel energy sources, such as coal-fired power plants, are struggling to remain financially viable as renewables drive down prices and out-compete other energy sources during the day. Electricity price trends underline the importance of coordinated decommissioning efforts to avoid price spikes and energy supply issues in times when renewables are unable to produce electricity. Ultimately, it looks like the renewables integration debate will continue well into this decade.