Government induced power crisis averted, for now

At 12 PM on 19 January the electricity market manager, AEMO, to its own and everybody’s great relief announced “VIC AND SA ENERGY SUPPLY REMAINS SECURE”.

It had been a knife edged couple of days with hot weather bringing high electricity demand (even though much of Australian industry remained on vacation).  As often occurs on hot days, wind velocity was low and this, the fabled modern source of electricity, was feeding in less than half its capacity.   On the spot market, prices reached $14,000, once, as often happens during periods of excess strain on generators, one of the Loy Yang B generating units had to close down.  Here is a graphic of the prices.

The January 18/19 prices averaged over $1,000 per megawatt hour compared to the regular price of under $50 in the days before government subsidies forced the closure of two major power stations, Hazelwood in Victoria and the Northern in South Australia.  In the past, the loss of one generator unit, as occurred with Loy Yang B, would have opened the way for another but we are now at the bottom of the barrel. Even on hot January days, if the closed the coal generators were still operating, prices would likely have averaged less than $100 per megawatt hour.  (Jo Nova saw this coming, had been tracking the summer peak electricity prices as they hit the peak, asked what the cost of the hot spikes would be,and explains why  a few coal failures are not to blame. She discusses the fallout on industry in SA, and calculates that this is a loss of about $45 per head in Victoria, and $70 each in SA. All in two days!)

Paul Miskelly and Tom Quirk (with the encouragement of Jo Nova) produced the following table estimating the market costs ($387 million) resulting from the heat wave.

In addition, the market manager, AEMO, on behalf of customers contracted stand-by power (mainly ancient gas and diesel generators) and, as in Third World countries, paid some major users to shut down to suppress demand.  The Market Manager claims this additional support totals some 2,000 MW (ostensibly an increase of 4.5 per cent) across the National Electricity Market

The $387 million extra energy payments on 18 and 19 January, and whatever costs the market manager has incurred in suppressing demand and contracting for reserve power from ancient generators, fall onto customers.  They will be reflected in higher future bills, unless governments step in to cap prices.  Such interventionary measures may well prove irresistible to politicians especially when the flip-side of the price surge, becomes evident in company profits.

But they will simply bring further distortions of the sort that is all too common.  Each new measure that the government brings in – the latest being batteries and Snowy storage to combat the ill-effects of the renewable energy subsidies have forced upon us – only exacerbates the problem.

The only solution is to abandon immediately all subsidies to wind and solar and expedite approval mechanisms for new coal and gas capacity. But only the Australian Conservatives, One Nation and the minority Coalition politicians supporting Tony Abbott are ready to accept this.

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56 Responses to Government induced power crisis averted, for now

  1. Muddy

    So how many hospitals, schools, or u-beaut submarines could we have built for that?

  2. teddy bear

    Thanks for the article Alan, unfortunately mentioning Abbott around here triggers a lot of people so the thread may dissolve into the usual.

  3. Muddy

    Scratch the above. If we explained the costs by mentioning that x number of Australian films could have been funded, or that ABC presenters missed out on a 45% pay rise, or similar, perhaps that would make it into the media?

  4. Nathan

    The only solution is to abandon immediately all subsidies to wind and solar and expedite approval mechanisms for new coal and gas capacity. But only the Australian Conservatives, One Nation and the minority Coalition politicians supporting Tony Abbott are ready to accept this

    As Lugwig von Mises said, “Either capitalism or socialism: there exists no middle way.”

    Given that reality, we should expect the NEM and gas markets to die and for the government to re-nationalise Australia’s energy markets.

  5. teddy bear

    Muddy unfortunately you are assuming this would cause them to miss out on anything.

  6. Roger

    “VIC AND SA ENERGY SUPPLY REMAINS SECURE”.

    Another lie from AEMO.

    Only QLD regularly generates more than demand.

  7. notafan

    A complete disgrace.

    When will the insanity stop.

    You’d think someone was adding something to the water for such collective stupidity.

  8. Roger

    Only QLD regularly generates more than demand.

    And with QLD’s Labor government ramping up towards 50% renewables by 2030, with no credible opposition in sight, their underwriting of the security of supply won’t last long under the present regime.

  9. David Bidstrup

    I sent the following for posting today but may as well add it now. My analysis is just for SA.

    Please explain!!!!!

    I have been using the AEMO “price and demand” reports for some time to determine the daily costs for electricity in South Australia. These reports list the demand in MW and the “Regional reference price”, (otherwise known as the wholesale price for retailers and “large users of electricity”).They list forty eight 30 minute intervals for “price and demand” each day.
    From this I determine the daily consumption, (MWh), and daily cost of electricity for South Australia. I also calculate an “average” cost per MWh. The initial reason for my interest was to see if the stories we hear about “lower prices” had any substance. They do not, as we all know.

    After we had our January “scorchers” that challenged the system I looked at the January 2018 figures to see what differences there might be between “hot” days and “normal” days, particularly considering the system is always teetering on the edge.

    In January we have had 3 days over 40 degrees in Adelaide; (6/1 /2018 – 42, 18/1/2018 – 42 and 19/1/2018, also 42).
    In each case the hot day was preceded by a day that was only 3 to 4 degrees cooler.
    The results show just how much we are vulnerable to predatory pricing in “the market”.

    Total daily wholesale cost for 24 hours:

    Jan 6: $3,047,000.00. (1.1 times the “to date” average).
    Jan 18: $67,970,000.00. (25 times the “to date” average).
    Jan 19: $59,970,000.00. (22 times the “to date” average).
    January “to date” (excluding 18 and 19): $2,758,000.00

    “Average $/MWh” taken over the whole day.

    Jan 6: $78.58. (0.9 times the January “to date” average).
    Jan 18: $1,404.00. (16 times the January “to date” average).
    Jan 19: $1,195.00. (13 times the January “to date” average).
    January “to date” (excluding 18 and 19): $88.36.

    Highest cost/MWh.

    Jan 6: $113.69. (1.3 times the “to date” average).
    Jan 18: $14,166.00. (160 times the “to date” average).
    Jan 19: $13,408.00. (152 times the “to date” average).

    These costs are “wholesale” so the consumer has the retail margin and transmission costs added as well as the $85.00 per MWh we have to give the renewable industry for helping us save the planet.

    Those people who are in energy poverty and swelter because they cannot afford electricity and those businesses who struggle to survive as power prices rise as a consequence of energy policies and a market that can only be described as a shambles are entitled to ask some questions of those who cling to the belief that they can fix the problem they created.

    1. Why does the market call “bids” every 5 minutes instead of contracting for firm power over a longer period, say a year?
    2. Who decides that “bids” of 160 times the going rate should be accepted when it is clear that they are just predatory bids made when the generators know the market is caught with its pants down?
    3. When are those who “lead” us going to realise that their policies are destroying the country and making ordinary folk electricity paupers?
    4. When will the leaders realise that renewables are the problem and not the solution, and when will they realise that there is no climate change problem to “fix”?
    5. When will the realisation hit that the electricity crisis is a creation of stupid policy decisions and is a technical problem requiring folk who actually know something about power generation. It is not one to be fixed by intellectually challenged politicians, economists and pet scientists who push their own agendas, egged on by renewable rent seekers and rabid left wing greenies.

    Just to put the renewables into context, here are the numbers for mid-day 21 January:
    • Total grid load: 24,000 MW.
    • Wind production: 300 MW, (1.25%) – (SA produced zero).
    • Hydro production: 1,400 MW, (5.5 %)
    • Coal and gas production: 22,300 MW, (93.25%).

    Who says “fossil fuels” are dead?

  10. Muddy;

    So how many hospitals, schools, or u-beaut submarines could we have built for that?

    Unfortunately, Muddy, in the Kleptocrat States that money wouldn’t even put one more floor on a major hospital, or paid for a periscope on our never-to-be-delivered Frogsubs.
    But it would pay for the pollies adjusted wages for another year.

  11. Graham

    A further sad fact is that only a few people get to be exposed to the facts that Alan mentions, and therefore the population generally does not understand the true costs of energy consumer subsidised so-called renewable energy. Most people are now told by the media, Animal Farm style, ‘Coal = bad, wind = good’.

    I doubt that even if Tony Abbott had decided to wind back the RET to Howard government levels that he could have got it through the Senate. However it would have been a great election issue: ‘Labor and the Greens stopping cheaper electricity’. Of course with Turnbull’s appalling political instincts this will never be a possibility.

    There are probably many people who are taken in by the AGL advertisements about getting out of coal and into renewable energy, and somehow think they are being altruistic rather than lining themselves up to price gouge consumers by being able to force up market prices for electricity by closing their own coal fired plants. Rational but despicable people.

    In the USA there are at least think tanks and billionaires who are prepared to spend serious money campaigning to educate and turn around public opinion. In Australia we have seemingly bipartisan irrationality, and business is so gutless or craven that it won’t campaign for realistic energy policies. We have seen how the managerial types that infest BHP have neutered the Minerals Council of Australia.

    Business was prepared to campaign against a mining tax, but won’t lift a finger to educate the public about the reasons for Australia impoverishing itself and destroying industries and jobs through the disastrous energy policies which were enabled by the Howard Government’s RET and then put into overdrive by the Rudd/Gillard governments.

  12. John Constantine

    Demand destruction is the aim of this.

    Users will set limits on their smart meters of the highest price they will pay, and they will have to tap and go with their credit cards at the smart robot meter if they want to buy dear power.

    Problem fixed.

    Sweat, Comrades, de-electrification is our strength.

  13. Nathan

    1. Why does the market call “bids” every 5 minutes instead of contracting for firm power over a longer period, say a year?
    2. Who decides that “bids” of 160 times the going rate should be accepted when it is clear that they are just predatory bids made when the generators know the market is caught with its pants down?

    1. The physical market (i.e. the NEM) is set around 5 minute dispatch due to the need for supply to meet demand instantaneously. Contracting for longer periods of time occurs in financial markets either via over the counter agreements between counter parties or via the ASX electricity futures exchange. These markets are settled purely financially and while they influence what happens in the physical market, they are not a direct component of it.
    2. The market decides. A true market however would not place price controls like in the NEM. High prices provide information to entrepreneurs to direct capital investment in the market (i.e. where to build more poles and wires and/or power plants). Labelling the behaviour of generators as predatory seems to imply they should be prevented by force from doing so. This will simply distort the market and lead to adverse outcomes.

  14. Herodotus

    We are all heartily sick of the propaganda that says renewables are cheaper, more advanced, and capable.
    Remove all subsidies and regulations that warp the market and stop the ban on coal, stop the ban on gas, stop the ban on dams, stop the ban on nuclear.
    Just stop the nonsense.

  15. Herodotus

    Calling for bids every five minutes is another warp that allows wind to butt in when the wind blows.
    Stop this nonsense.

  16. Roger

    We are all heartily sick of the propaganda that says renewables are cheaper, more advanced, and capable.

    Repeated every other day on PRAVDA/ABC and never questioned by any presenter in my experience.

    Your tax dollars at work.

    The revolution is being subsidised, comrades…with your taxes.

  17. Rafe Champion

    The AEMO data dashboard. Not looking good down south right now!

  18. Mr Black

    It’s an odd world we live in where politicians claim the power to rob us blind and burn our money in a pit and nothing… nothing happens to them.

  19. Kim H

    So the Government is opening the cray pot ( Perth Stadium ) or if your a media sycophant Optus Stadium , the Government sold the naming rites to Optus meaning what! a big sign saying Optus Stadium on the outside of the building or media advertising any event at the cray pot as Optus Stadium , I guess its the same with Ethiad in Melbourne , media complying to Government sponsorship .
    I did not name it the cray pot just heard it around the town , I like to think of it in crayfish terms heads full of s**t walking drones rather than the look of the actual stadium .
    Naming Rights vs Tax payer funds Vs Media ,
    All rhetorical its open in plain sight .

  20. NB

    Government has become the enemy of our prosperity. Who benefits?
    Politicians create a disaster that keeps them centre stage.
    A free market would repair the damage.

  21. NB;

    Politicians create a disaster that keeps them centre stage.
    A free market would repair the damage.

    A busload of Jihadis in Parliament House with AK47s would fix that little problem right up.
    Or a glass vial of Sarin.
    NADT, NTDWI.

  22. A H

    This is what the SA treasurer said on Friday.
    What a complete arsehole.

    “In terms of supply we should be okay,” he said.

    “Victoria I understand is about to load shed industry. So they’re not coping with the power supply.

    “They are a coal-dependent state and they are having to take industry offline to support their households. In South Australia we’re not having to do that today.”

  23. Roger

    “They are a coal-dependent state and they are having to take industry offline to support their households. In South Australia we’re not having to do that today.”

    SA was generating just over half what its market was demanding last time I checked, their shortfall being met at the end of the day by coal generated power from QLD via NSW & the VIC interconnector.

    Does SA media ever call Koutsantonis out on his lies?

  24. RobK

    Apparently, the the SA government didn’t use the emergency diesel gensets it is leasing/purchasing. Im curious to know if they have actually been commissioned yet. Does anybody know?

  25. Art Vandelay

    Apparently, the the SA government didn’t use the emergency diesel gensets it is leasing/purchasing. Im curious to know if they have actually been commissioned yet. Does anybody know?

    The media said that the diesel plant wasn’t used on Friday, however, according to the live energy generation widget, it was producing 170MW for most of Friday afternoon (which is its supposed max output in +40C temps) and over 200MW in the early evening.

  26. classical_her

    SA, doesn’t load shed, because it has no industry for which it can do it.

  27. classical_hero

    SA, doesn’t load shed, because it has no industry for which it can do it.

  28. Tom

    The property Ponzi, which allows some to profit from a highly regulated, government-controlled scam, is the only thing keeping the wreckage of the Australian economy afloat — with the help of deceptive official statistics which allow us to pretend the economy isn’t in recession and unemployment is below 10%. The current electricity chaos was designed by merchant bankers to extract super-profits from artificially restricted demand. It is exactly the sort of chaos a crony capitalist political dunce like Turnbull has always dreamed of. And, of course, like all leftards, when it is all over, he will retire to some crony capitalist boardroom to reflect on how stupid and ungrateful the proletariat is for not appreciating his consignment of the Australian economy back to the 19th century.

    Thieves like him have been put before firing squads for less in jurisdictions where corruption is actually illegal.

  29. Crossie

    the disastrous energy policies which were enabled by the Howard Government’s RET

    We keep coming back to Howard as the source of a lot of our present woes. I will never forgive him for encouraging Turnbull. History may not be kinder to him than to Rudd and Gillard.

  30. Crossie

    SA, doesn’t load shed, because it has no industry for which it can do it.

    Pretty soon this will be the case in all states.

  31. Dr Faustus

    The only solution is to abandon immediately all subsidies to wind and solar and expedite approval mechanisms for new coal and gas capacity.

    This is the correct solution, however it will not solve the short-term problem.

    New coal will take a minimum of 5+ years to arrive, taking account of site selections, ‘let’s destroy the economy’ legal challenges, and EPC (which will take 3-4 years minimum). The last coal project, Kogan Creek, took about 7 years.

    Gas baseload, while likely quicker to market, would still take 3 to 5 years through gas contracting, reserve/production development and EPC. Politicians will be amazed to learn that the Australian gas industry has not pre-invested to supply a large and entirely speculative domestic market.

    Our elected clown show has allowed the climate catastrophists and rentiers to irreversibly back the Australian economy into shitters ditch. There is no quick and easy extraction: we are cooked.

    To paraphrase an infamous clown, the panic of realisation will be beautiful in its ugliness.

  32. John Brumble

    Increasing the time frame for settlement would advantage the larger players, limiting competition and eventually pushing prices up. Recently, Sun Metals (a small generator) pushed for a rule change that effectively delivers faster settlement (kind of, it means that the metered data matched the settlement time- but it was proposed, among related reasons, so that Sun Metals and similar small generators could reduce the period of their exposure to risk).
    Once it becomes possible for individual house holds to trade their own micro-gen energy, they sill want even smaller periods.
    Long supply time frames must be force onto a market and, surprise surprise, like any other outsode control, it makes the market less efficient.
    Origin and AGL would love a return to long settlement periods.

  33. amortiser

    1. Why does the market call “bids” every 5 minutes instead of contracting for firm power over a longer period, say a year?

    Wind generators are guaranteed the sale of their power before all others. As a result coal fired generators are at the mercy of the wind when it comes to the sale of their power. In addition to this they have to pay $85 mwh to the wind generators for the power they produce.

    At this level of uncertainty is it any wonder that spot prices are so volatile. This will only get worse as more coal generators shut down. If power generation was so lucrative those coal generators would not be closing down.

    This gives everybody an idea of how distorted and expensive it has become to produce cheap, reliable power.

  34. When you are up to your chin in deep, deep sh1t, what does everyone say?

    “Don’t make waves!”

  35. JohnA

    Roger #2615708, posted on January 21, 2018, at 8:24 pm

    Only QLD regularly generates more than demand.

    And with QLD’s Labor government ramping up towards 50% renewables by 2030, with no credible opposition in sight, their underwriting of the security of supply won’t last long under the present regime.

    This, THIS is the core of the problem.

  36. Remove subsidies from ALL energy industries and let consumers drive the market – this means scrapping subsidies for coal and gas as well as wind and solar. Sadly, most on the Right want subsidies for their preferred form of energy, just like the Left.

  37. Rob

    Hilarious.
    South Australia, already heavily reliant for much of its electricity supply on the coal fired generators of Queensland, is contemplating an electric vehicle production plant in the closed Holden facilities.
    There will be serious consequences:
    1./ The high and steadily increasing cost cost of South Australian electricity will impinge on the plant’s viability.
    2./ The plant’s high electricity consumption will add to the already high demand being met by Queensland,
    2./ South Australia’s perilous reliance on the extremely long extension lead running into Victoria, across NSW, and up into Queensland will be put at greater risk,
    3./ The vehicle plant will need to shut when electricity supply exceeds availability or an interconnector fails,
    4./ When South Australia’s cohort of electric vehicles starts to grow, further demands will gone placed upon supply from Queensland (and that’s not to mention the impact upon other states),
    Given that Queensland Labor politician’s are hell-bent on designing an electricity system based on the horrible mess that is now South Australia’s albatross, it’s not difficult to see the whole Eastern Australian grid collapsing.

  38. Paul

    Looking at the forecast for this Australia Day weekend, there’s just no way that us here in SA are going to get through this without some serious load issues most likely load shedding. We will have had a whole week of hot temps heating everything up increasing energy usage as everyone turns things up to compensate as well as Victoria having the same, this coupled with their increased load and ours there just simply won’t be enough power. I cannot see how just looking at this last weekend and the sheer miracle that there were no blips at any major producer that we just scraped through with some little load shedding here I think. Am I crazy or I just don’t think there’s enough power in the grid to sustain SA this coming weekend unless on a dry 43 degree day we get the perfect breeze which usually those two are mutually exclusive things.

  39. Roger

    Given that Queensland Labor politician’s are hell-bent on designing an electricity system based on the horrible mess that is now South Australia’s albatross, it’s not difficult to see the whole Eastern Australian grid collapsing.

    It is indeed hard to imagine how the grid will be sustainable without significant advances in technology, which will again drive up prices. I expect we will resort to local supplies of varying reliablity and cost, essentially a deconstruction of the grid system.

    Btw, if you think the QLD target is merely aspirational, there are presently 22 large scale renewables projects either under construction or set to go kick started by government grants or subsidies, more than any other state in Australia.

  40. Motelier

    gI really need to kick start a company selling and servicing household generators.

    PS, the only batteries involved will be usted as starter batteries for the internal combustion engine.

  41. John Constantine

    Load shedding of hospitals, so admin can sell their diesel backup Gennie power into the grid.

    You know they have done the numbers on it.

    Comrades.

  42. H B Bear

    SA, doesn’t load shed, because it has no industry for which it can do it.

    They could ask the writers festival to switch over to candles for the wine and cheese Q & A session.

  43. The Beer Whisperer

    I like to think counter to conventional wisdom, so, rather than swelter through our hottest weather. I turn all the air conditioners up to eleventy.

    A blackout in this circumstance is a feature, not a bug. Firstly, I’m no worse off than if I sweltered on purpose, and secondly, I help create outrage in the community. I even hope that we have weather like I used to suffer so that people go full retard on pollies forcing us to go without respite.

    I consider it a great deed for the greater good. No, no need to thank me.

  44. H B Bear

    Anyone know what the transmission losses are when you sent an electron from Queensland to Mainland Tasmania? I suspect it isn’t a small number.

  45. teddy bear

    H B Bear from googling, some figures put 7% per 1000km. Also for power to SA I think the lines go QLD>NSW>VIC>SA so I imagine that would be an even greater distance to travel.

  46. teddy bear

    I had a look at some documents on the location of the lines and from what I could gather power goes down the east coast from QLD to NSW, then to VIC and Melbourne probably through where Hazelwood used to be, then goes east to VIC.

    Also the document on AEMO website about interconnects has most at 220kv with some at 375kv and one of the VIC to SA interconnects at 500kv. The higher the voltage the lower the loss not sure what voltage the above figure I quoted was for.

    There was also a lot about the effects of temperature in some other docs but I didn’t really read through it all to understand it.

    I doubt power would go all the way from QLD to SA though, the closest state would simply send what power they could and make up the shortfall from the interconnect to the state in the other direction. Still its pretty bad when QLD is holding the entire network together, and only by a thread.

  47. Seven steps to relieve stress.

    In case you are having a rough day, here’s a stress management technique recommended in all the latest psychological journals. The funny thing is that it really does work and will make you smile:
    1. Picture yourself lying on your belly on a warm rock that hangs out over a crystal clear stream.
    2. Picture yourself with both your hands dangling in the cool running water.
    3. Birds are sweetly singing in the cool mountain air.
    4. No one knows your secret place.
    5. You are in total seclusion from that hectic place called the World.
    6. The soothing sound of a gentle waterfall fills the air with a cascade of serenity.
    7. The water is so clear you can make out the face of the Green you are holding underwater.
    See, it worked. You’re smiling. You feel better already. Have a great day!!!!!!

  48. [I am not a fan in inter-blog discussion like this – if you have a problem with Professor Quiggin’s commentary go tell him at his blog. He has open threads. Sinc]

  49. RobK

    Anyone know what the transmission losses are when you sent an electron from Queensland to Mainland Tasmania? I suspect it isn’t a small number.

    Where transmission is in the form of Alternating Current (AC )loses are varied depending on the Power Factor (which is the phase shift between Voltage and current, also known as reactive power). This charactoristic varies depending on the impedance and capacitance of the line and load. The impedance of the load fluctuates and the centralized grid can attemp to compensate and restore the efficiency of transmission. Over longer distances and decentralised input it becomes difficult to correct poor transmission of AC and power conditioning needs to be done by variable line capacitors such as rotory condensors at sub station level. Long transmission lines will need to be very high voltage Direct Current (such as the bass strait line). Distributed supply up-ends the grid from an instrumentation and control perspective. It will require more monitoring and supervision which, as Finkel points out, means more capital expenditure and running costs. In my view a more complex grid, whilst technically possible, will be inherently less stable due to its complexity and inevitable sensitivity. This whole thing is an expensive experiment on a grand scale. It is bound to disappoint and entirely unnecessary.

  50. egg_

    Only due to decades old anti-blackout voluntary shutdown procedures being resurrected by Industry, e.g. smelters.

  51. egg_

    some figures put 7% per 1000km.

    From previous, a US source put it at c. 10% per 1,000 mi. so in that region.
    Not that the flow actually does that, it’s a knock-on effect, I believe.

  52. Rob

    Before the coming of the various interconnectors, each of the eastern states ran its internal grid based on sound engineering and management practices. The interconnectors provided a new level of grid security capable of alleviating a major shortfall of generating capacity in any region i.e. A major power station outage, transmission line collapse, natural disaster – flood, bushfire, cyclone, etc.
    Nowadays the interconnectors are in constant use, with all their hefty long transmission line losses, just to cope with the tragic failing of politician designed, renewables saddled, electricity generation and distribution systems, that are no longer fit for purpose.
    Add in the profit taking imperative of the multitude of entities that now pollute the entire system and it is easy to see the looming disaster.
    Instead of being a utility that props up and serves the public at large, electricity production and distribution has become a cancer that is eating the heart out of our community.

  53. Rob

    There is only one practical way to overcome the horrendous problem Australia has with providing cheap and reliable energy for the populous at large:
    Immediate re-nationalisation of all forms of generation, distribution, and retailing of electricity, and it’s administration, with ongoing design and development being assigned to competent, non-aligned, ideology-neutral professional engineers.

  54. egg_

    How’s the icecream market?
    Are the SA ‘tards shipping their icecream to the Eastern States on the cheap?
    Thanks.

    … and chocolate.
    Yum.

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