Firming merchant renewable generators in Australia’s National Electricity Market

Jonty H. Flottmann, Alexandr Akimov and Paul Simshauser ()

Economic Analysis and Policy, 2022, vol. 74, issue C, 262-276

Abstract: Global decarbonisation is driving investments in intermittent renewable generation, with most plant entering the market by way of a Power Purchase Agreement. In Australia’s National Electricity Market, a surprising number of renewable generators have entered on a merchant basis. To maintain tractable revenues some minimum level of hedging is required, but in an energy-only electricity market with a very high market price cap, merchant intermittent generators require some level of associated firming capacity to ensure spot price exposures can be adequately managed. This article uses unit commitment, battery arbitrage and stochastic discounted cashflow valuation models to compare an Open Cycle Gas Turbine and a battery as firming options for a hypothetical wind farm in the South Australian region of the NEM. Using historic market data from 2010–2020, we find OCGT firming capacity helps the wind farm to generate consistent net cash flows, allowing it to withstand the highs and lows of spot market prices whilst covering required contract-for-difference payments associated with hedging. When battery firming is deployed, the wind farm/ battery portfolio generated higher cash flows at specific times, reflecting participation in price arbitrage under low spot price scenarios. However, battery performance was constrained by costly storage capacity.

Keywords: Energy; Firming; Electricity market (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecanpo:v:74:y:2022:i:c:p:262-276

DOI: 10.1016/j.eap.2022.02.005

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