Power shares

[Jantar]

Does a similar argument not apply to the generators without any retail customers? Sole generators have to:

A/ sell their power at rock bottom price on the futures market, because, if they don't, they have no control over their wholesale power margin and can't guarantee to the banks that they will be able to pay their interest bill, and no control over dividend levels to shareholders either. OR

B/ The alternative: sell power at spot prices. But that relinquishes all control on the wholesale price received. In a worst case you would have to shut down your power station or risk overloading the grid as power supply exceeded demand (I imagine Transpower would take a dim view of that).

Life is not easy being a 'sole generator'?

SNOOPY

There are quite a few other alternatives. NWF, for example have a variable volume, fixed price contract. There are CFD products being traded daily among all market participants.

The risk of being entirely on the spot market is not as bad as you make it sound. All offers to the market are cleared and dispatched by transpower, and all generation so dispatched receives the market price. No generator in excess of 10 MW can generate without an instruction from Transpower to do so, so there is no chance of overloading the grid.

[turnip]

There is a 50MW generation limit for distributors. Top Energy are allowed to exceed that at the moment only because they have a time bound exemption. In future they'll need to seek another exemption, seek legislative change, or they'll be forced to structurally separate Ngawha. Distributors are already allowed to be retailers but there is a volume limit on how big they can be. Infratil can theoretically already buy distribution assets but this would probably be subject to any control issues owing 50%+ of Trustpower. Trustpower cannot and will not be able to buy large distribution assets even if the retail arm is sold.

Thanks Zeitgeist, that helped clear up my misunderstanding of the generator/distributor seperation rules.

[Norwest]

Here is a question to ponder. If you owned an electric car on Tuesday, then you sold it and leased it back, would you be 'less green' on Wednesday?

SNOOPY

It's a fantastic question Snoopy, but I am not one for virtue signalling. If I owned a car rental business I would buy ICE vehicle's as I'm not the one paying for the gas and I would get a better return on my investment. I would much rather own a great generation asset than be in the retail electricity market as I see far more value in the former.

Here is a question for you

Are you better to own your best lemon tree's to supply your lemonade stand, or;

Sell an 80% stake of the best lemon tree's and then purchase the best lemons for your lemonade stand? All the while keeping ownership of your diseased and end of life lemon trees?

[Joshuatree]

Hey Jantar and others heres a vid from RethinkX its USA centric.

One opinion below

"The balance sheets of existing electrical generation companies in New Zealand will take a serious hit when PV solar power production & grid scale battery storage drives down wholesale power prices.

Existing power retail companies will also be hit as a significant amount of power is generated at a local level by business and private home owners, and that power is then distributed directly to customers via systems such as Tesla's Virtual Power Plant."


https://www.youtube.com/watch?v=6zgwiQ6BoLA

[Snoopy]

Hey Jantar and others heres a vid from RethinkX its USA centric.

One opinion below

"The balance sheets of existing electrical generation companies in New Zealand will take a serious hit when PV solar power production & grid scale battery storage drives down wholesale power prices."

Mercury already has 'grid scale battery storage'. It is called Lake Taupo. Per MWh of storage it is quite a bit cheaper than a Tesla suburban scale battery solution. The balance sheet at Mercury hasn't been affected.

Giant photovoltaic arrays will be difficult to make economic in NZ. This is because peak power generation does not correspond with peak power demand. Where such technology does make sense is on a smaller scale. IIRC Genesis does have a project putting solar arrays on the roofs of schools. That does make sense because the schools are using that power as it is generated.

The economics are completely different in Australia and large swathes of the USA. It those countries where the household air conditioning bill generally exceeds the heating bill, peak solar generation can align with peak demand.

"Existing power retail companies will also be hit as a significant amount of power is generated at a local level by business and private home owners, and that power is then distributed directly to customers via systems such as Tesla's Virtual Power Plant."

Where someone can completely uncouple from the grid, then they can say goodbye to crippling line charges. The problem is in a suburban setting they are unlikely to do this. Most self generating electricity customers are still connected to the grid because it is uneconomic for them to generate enough power for their high use periods, unless they overinvest in generating capacity. And as some super solar array owners found out, the lines company will increase their fixed charge to you if you try to sell power back to the grid when no-one wants it. One way or another you will be charged for the cost of bringing and maintaining a power line into your home.

SNOOPY

[Jantar]

Hey Jantar and others heres a vid from RethinkX its USA centric.

One opinion below

"The balance sheets of existing electrical generation companies in New Zealand will take a serious hit when PV solar power production & grid scale battery storage drives down wholesale power prices.

Existing power retail companies will also be hit as a significant amount of power is generated at a local level by business and private home owners, and that power is then distributed directly to customers via systems such as Tesla's Virtual Power Plant."


https://www.youtube.com/watch?v=6zgwiQ6BoLA

I haven't had time to watch your video yet. May do so this evening when I am at home. But I would take issue with the claim that "The balance sheets of existing electrical generation companies in New Zealand will take a serious hit when PV solar power production & grid scale battery storage drives down wholesale power prices."

The writer of that sentence doesn't fully understand how the NZEM works, nor the geograpy of NZ and how it affects power supply and demand. Grid scale batteries will have to buy their energy from the market, and that means bidding for it just like other purchasers. This extra demand will mean that grid scale batteries have to pay to get the energy to store. It also means that there will be a minimum price at which they will release that energy back to the market. This in turn means that low prices will be higher, but high spikes will be fewer and lower. The overall result is steadier wholesale prices, rather than the volatile ones we see at present.

[Snoopy]

Here is a question for you

Are you better to own your best lemon tree's to supply your lemonade stand, or;

Sell an 80% stake of the best lemon tree's and then purchase the best lemons for your lemonade stand? All the while keeping ownership of your diseased and end of life lemon trees?

Your question is better than mine, so I will answer it with one extra twist. That is, once you serve up your lemonade the customers cannot distinguish which lemonade has come from your old end of life lemon trees and which comes from your new lemon tree orchard, in which you have sold off 80% of your interest. The issue of 'best lemons' is largely an ease of production question and becomes meaningless to lemon juice drinkers once the lemons hit the lemon squeezer.

The answer depends on the fine print that governs how you buy your lemons from your 80% equity partner. Let's say you don't know much about growing lemon trees. Your old orchard you bought from a grizzled neighbour who planted them way back before you took on the business. The local council are looking at rezoning that land in a way that means you may not be allowed to replant the old lemon tree grove in the foreseeable future. Your partner in the new Orchard knows a lot about cultivating a new lemon tree grove. But they know little about selling lemonade. So what we have a situation of mutual benefit. Someone else largely looks after your trees. You have the customer relationships so you can keep selling lemonade at the gate.

The problem that might arise down the track is when your 80% equity partner in the new lemon trees figures out that they too have a driveway. Why don't they set up their own lemonade stand? After all it is the same lemon juice, and the new 80% partner gets to clip the retail end of the profit ticket as well. An 80% equity holder can outvote the 20% partner who is not at all happy with their plans. But since the 80% equity owner is far better off diverting product to their their own lemonade stand, the original 20% partner is left with a much smaller stand supplying lemonade from a decaying bunch of trees that may soon be legislated out of existence. The 20% partner is in effect screwed. Is that how you see things Norwest?

SNOOPY

[Snoopy]

I took issue with your earlier point that a futures price would be at "rock bottom prices". That's definitely not the case, and the futures market is generally a contango market.

With respect to wind, hourly outputs may vary wildly. However over the course of a year things tend to average out. PPA deals will typically reference this annual output, with a tidy up for under/overs.

From google

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Why is it called contango?

Contango is a situation where the futures price (or forward price) of a commodity is higher than the expected spot price of the contract at maturity. ... This is favourable for investors who have long positions since they want the futures price to rise to the level of the current spot price".

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I guess with purchasing a windfarm output, the arrangements to sort out the 'unders and overs' are critical, and not to be swept under the mat?

As a retailer the question I would be asking is this.

"Why should I buy energy from a wind farm in the future at higher than the expected spot price in the future, when I have no idea if that wind farm will even be able to supply that energy at the time I want it?"

I get the idea of wind energy on contract evening out. IOW although the windy days may occur at times I do not want them, chances are that the wind will blow on other days.

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As an aside: I have heard of sunshine hours and millimetres of rain being recorded over a year. But I have never heard of wind hours being reported for an area. Are such statistics even collected? Or is it just assumed that 'wind hours' even out?

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The problem would be how the wind energy availability coincided with how full the dams were at the time the wind was blowing. If the dams were full when the wind was blowing it would have far less value than if the dams were empty. Thus even if the wind evened out over a season, the value of that wind might not even out. How is that question addresses in these PPA arrangements?

SNOOPY

[Zeitgeist]

There's quite a bit to respond to here Snoopy but fear we're straying from the point. I had only hoped to demonstrate that Trustpower would be perfectly justified to take the strategic view retail was not necessary to its business. All the issues you've mentioned do have perfectly adequate options or risk management tools available for an independent generator.

Regarding some of your points:

1) Under/overs. This is actually straightforward. The Genesis-Tilt PPA for example references 450-460 GWh per annum. The PPA contract will specify what happens in an under/over delivery scenario. This is really about contract risk. The complicating factor is Genesis have also signed an offer and dispatch agreement with Tilt but we don't need to go there. There will also be an under/over wash up for price to account for the value of the energy transacted. If you're not familiar with how this works I'd suggest looking into how a PPA/contract for difference is financially settled.

2) "Why should I buy energy from a wind farm in the future at higher than the expected spot price in the future, when I have no idea if that wind farm will even be able to supply that energy at the time I want it?" Because if that's the contract you both agree on you'll have transferred the risk to the wind farm to supply you that power. Regardless of where it comes from you'll receive it. The wind farm will have arrangements with others to provide it (or buy it through the spot market at their risk and 'transfer' it to you or be forced to pay you for the under-delivery).

3) Wind hours being reported for an area. Yes, this is certainly done and its done in real time 24 hours a day 7 days a week.

4) Problem of balancing wind energy. This is an issue from a physical system perspective but is not yet a major problem for individual companies. Transpower/System Operator operate many ancillary markets to always ensure system demand = system supply. More wind in the system is typically great news for companies which can offer flexible power stations into the reserves market for instance. But as with (3) there are some incredibly detailed state of the art wind forecasting tools available to all parties. Meridian

This ultimately comes down to a retailer’s or generator’s outlook for prices. Can they attain higher value only buying/selling to the spot market (kind of like variable mortgage rates). Or would you prefer to lock in a price (fixed mortgage rate)? There’s no right answer.

[bull....]

looks like the whole sector is crashing back to reality and fundamentals , probably more downside to go i reckon as they are all pretty overvalued considering rising bond yields now and also the ETF selling to come. amazing how the picture changed so quick wasnt long ago they were the best thing since slice bread.
hence why so important i guess to keep up with changing facts in regards to ones portfolio