Rapid growth in wind and solar power in South Australia is raising the specter of blackouts and soaring prices for businesses like global miner BHP Billiton as cheaper renewables have pushed traditional thermal power plants to close.
South Australia uses wind farms and rooftop solar panels for 40 percent of its power, more than any part of the country. However, businesses that depend on the steady power provided by coal- and natural gas-fired generators are concerned about disruptions as the state relies more on intermittent renewable energy.
South Australia’s two coal-fired power stations have shut since they could not compete with cheaper wind power and 15 percent of its gas-fired power capacity is now mothballed. Those kinds of stations deliver the power that heavy industry and miners need to call on at short-notice.
South Australia relies on nearly as much wind-power generation as Denmark, the world’s largest wind user, but, unlike Denmark, it cannot readily draw on power from outside the state.
“This kind of dial-up of renewables in South Australia we call an accidental experiment. No one really planned for this,” said Matthew Warren, chief executive of the Australian Energy Council, which represents generators.
When soaring summer temperatures rise to above 40 degrees C and air-conditioning usage surges, the risk of price spikes and blackouts rises, especially if the power interconnector with neighboring Victoria goes down or that state has no extra power to export.
BHP Billiton, the South Australia’s largest power consumer using 10 percent of overall supply, faces an acute threat as its Olympic Dam copper and uranium mine is located where the last coal-fired power station shut down in May.
“Security and reliability of power is a significant concern for Olympic Dam,” a BHP spokesperson said. “Price increases such as we are seeing in the forward market are concerning.”
Active wind generation can drop power prices to less than $70 per megawatt hour (MWh) but without it, prices surge to $130 per MWh, and that is closer to what industrial customers are paying for forward contracts, Energy Users Association of Australia CEO Brian Morris said.
Lead smelter Nyrstar, steel maker Arrium, and copper producer OZ Minerals, which owns the Prominent Hill mine and plans to dig a new mine in the outback near Olympic Dam, face the same issues.
OZ Minerals is considering setting up extra generation, efficiency measures and using renewables to cope.
“Power disruptions are a risk to them being able to meet their production forecasts,” said David Coates, an analyst at Bell Potter, referring to BHP and OZ Minerals.
ElectraNet, the transmission company that serves Olympic Dam, said that without a local coal-fired power plant to provide voltage control on the grid it may need to “temporarily disconnect” the lines feeding the mine “to ensure stability to the rest of the network.” Cutting the mine off is an interim measure until a long-term solution is found, the company said.
Last November, a brief outage of the Victoria interconnector caused price spikes and outages, though Olympic Dam was unaffected.
“Risk is the issue here, rather than the likelihood of blackouts. It’s a riskier market,” said the Australian Energy Council’s Warren.
South Australia last week committed funding for a study on a new A$500 million ($366 million) electricity link to the eastern states which could alleviate the risks.
(Reporting by Sonali Paul; Editing by Christian Schmollinger)
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