The word according to Jock

Earlier today, Spartacus published a post on electricity.  One of the comments was from someone called Jock.  Spartacus hopes Jock forgives him if this bothers, but it seems Jock’s comment is worth its own thread.  So here it is verbatim.  Thanks Jock.

Ok as a retired utility exec, let me go through this for you all.

Poles and Wires: The Regulator provides a return based on an established WACC. It is placed over an established and agreed RAB (Reg Asset Base) . The reason for the argument over WACC is simple. The Utilities want a reasponable rate of return. The regulators want efficiency, low cost, and near 100% up time. This is another triangle that cant be connected. There are arguments over beta, Risk free rate, debt rates., alpha, Everything in the WACC. The Reg Wacc is supposed to last 4-5 years. But inflation and interest rates change. Equity expectations change. But it is a monopoly asset and so regulation for what is a fairly low rate of return is a heated debate. The Op costs are calibrated and compared to Best Practice. Capex is always a big argument. The reulators want to keep it down as a way of reducing prices. but at the same time they want 100% reliability (a reliability requirement not applied to any other part of the supply chain.) NOW that has all been changed. To date there were rules in place that all worked with but now the Coalition changed them to empower the regulator to simply announce a rate of return that they swa as reasonable. Added to this the LIMITED review allowed previously has been taken away via a slight of hand. The right of review was based on the existing rules. But if their are no rules then there is no basis for a limited judicial review. Good way to screw them all. Not helped because the ACCC used Generation submissions saying they had no time. The reality is that the regulators have masses of info on every….EVERY aspect of Distribution company metrics and returns. Just recently the cretins in the ACCC said they would look at some tax aspects of the Utilities. These have been well and truly known to them for over 15 years. They have worked through them with the Companies and the ATO. The hide. However on the other side, the State owned distributors simply ignored the regulators ruling and did what they wanted.

Generators: In the first iteration of privatisation retailers did not have generation capacity or not enough. They were forced to deal with a price variation of $10000, yes ten thousand dollars a MW ,that is the price range. After being properly burnt by not being able to obtain hedge contracts for NGC in NZ, AGL realised it needed generation. They got burnt a few times in SA. You can lose all your profit in one afternoon if demand from your customers greatly exceeds hedged supply. Unhedged the loss for a retailer is gigantic. Hence all retailers went for vertical integration. This saved them being screwed on the hedges and gave them control over despatch. Then came renewables. They get first dibs on despatch if they are generating. This causes mayhem for the gas and coal generators. How do you not despatch a coal fired generator? I should add that coal and base gas gens always despatch. Renewables were a rent seekers dream. Yoy got subsidies, certificates and first dibs in despatch and the retailers had to take green energy. AND up until now you didnt have to create backup supply!!! Normally a wind generator will produce on average 30% of nominal. But this can range from 0 to 100%. When its under 100% then another plant is needed to supply electricity, bacause them customers out there want power when they turn on the switch (they dont realise its a free option) . A Wind farm SHOULd consist of a cost pie as follows: Capex winf Farm+ subsidies and RET certs+ Cost of gas Back up plant or other “firming” contract + cost of fuel for backup. + OP costs..
As you can see for 100mw of power the capital cost alone is over double straight fossil fuel cost. What a mess. Solar is even worse with idiot politicians allowing ridiculous rates for retailers to buy excess power. All generated when no one needs it. And that is besides the ridiculous subsidies.

Retail. Have to backend all of the above into a retail price. Of course the regulators want start ups and small retailers to be given same deal as majors. But this doesnt take account of credit risk. Or who assumes their customers if they go bust. Im not saying retailers have not seen the plum and done a Jack Horner. But A Gentailer cannot by itself manipulate the market.
I should add that like mortgage rates , retail electricity prices will always congregate around a small price area.

OK thats enough. Sorry its general but it gives a gist of a market and policies that even a bunch of pond scum could have better devised.

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34 Responses to The word according to Jock

  1. John Brumble

    Not sure. why you bother, Spartacus. More than half the commentators here would have no idea what he’s talking about.

  2. Not sure. why you bother, Spartacus. More than half the commentators here would have no idea what he’s talking about.

    Not sure that is correct. But even if it is, half the commentators do have an idea. And Spartacus does not know which half.

  3. Tom

    This is what you get in an interventionist system distorted by government subsidies, regulated by public servants who know nothing about efficiency and return on investment. It is a system that can’t exist anywhere else except in communist dictatorships.

  4. Gab

    Not sure. why you bother, Spartacus. More than half the commentators here would have no idea what he’s talking about.

    Speak for yourself, Johnny.

  5. Tel

    I understand there’s a trade off between redundant poles and wires for reliability and the cost of building all that, but thing is we never got to have that discussion in New South Wales. At no stage did any government (back when the wires were owned by government) explain “hey we will push up power prices, but this is good because there will be less black outs”. More importantly, they never asked what any of the consumers wanted.

    There’s no doubt that a whole bunch of money was spent on poles and wires (approx 2010 to 2015 but I can look it up because it’s in various published annual reports if anyone wants precise details). We can argue what that money gave us in terms of a better product, maybe it was “gold plating” or maybe necessary safeguards but that depends on your priorities. For a pensioner on low income heating her house in winter, I think price is the only priority. For a business wanting to keep the PABX and computers running reliability becomes more significant.

    Now let’s look at the recent blackout in Lidcombe & Auburn (Sydney) where those suburbs got deliberately switched off as a “load shedding” exercise because NSW is dependent on buying power all the way from Queensland and a long distance interconnect went down. Because we are bringing in more people and not building supply capacity, those poles and wires have to carry more power over a much longer distance than they used to, so when you stretch the rubber band it becomes more likely to break. You can buy a bigger rubber band of course, but the primary cause was too much stretching and the bigger rubber band was a coping strategy in reaction to that. So yeah, we had a pretty good balance of price and reliability when we used coal to generate power locally. Upgrading the wires in Lidcombe & Auburn don’t help a whole lot when the supply from Queensland isn’t available.

  6. Crossie

    OK thats enough. Sorry its general but it gives a gist of a market and policies that even a bunch of pond scum could have better devised.

    Not our pond scum in Canberra. The only way we will have any reprieve from this lunacy is if Canberra is limited only to the electricity generated by the wind turbines strung up on the far side of Lake George. They must be made to experience the reality of their policies.

  7. Boambee John

    Crossie

    Canberra local council claims it is going fully renewable, in part by “purchasing” capability in ruinable generation away from the ACT.

    Proposal: Each week, record how much power tge various ruinable generatirs sponsored by Canberra produced. That becomes the limit available to Canberra for the next week, from all sources.

    Watch the panic when everything else has to be shut down so the hospitals and traffic lights can operate when the sun didn’t shine and tge wind didn’t blow in the sponsored locations!

  8. Rebel with cause

    So get rid of the special subsidies and privledge for green energy generators and we go back to having a functional energy market. Simple. Plus added bonus that Turnbull’s banker mates that are up to their eyes in wind farms do their dough.

  9. jock

    I notice a few posts where commentators complain of lack of competition in poles and wires or gas distribution systems. Or transmission. These are regarded as monopolist systems where the cost of replication is too high. Regulation becomes the proxy competitive system. It provides a fairly low rate of return for low risk assets. All well unless you introduce sovereign risk or the regulators want high efficiency for low teturn. Note too these systems allow all third party access. Investors in these assets need to note that they can be the owners of stranded assets. Other costs to note are decommissioning . Not great when the overall return is a bond proxy.

  10. Crossie

    Proposal: Each week, record how much power tge various ruinable generatirs sponsored by Canberra produced. That becomes the limit available to Canberra for the next week, from all sources.

    Nope, not buying it. They want to be purists they must be made to live as such.

  11. Crossie

    Rebel with cause
    #2811616, posted on September 7, 2018 at 9:05 pm
    So get rid of the special subsidies and privledge for green energy generators and we go back to having a functional energy market. Simple. Plus added bonus that Turnbull’s banker mates that are up to their eyes in wind farms do their dough.

    Poetic justice would be sweet but not possible with this government. ScoMo is not the man to do it.

  12. Rafe Champion

    This year the AEMO published their Integrated System Plan which makes interesting reading, possibly beyond parody. They predict that demand will flatten despite population growth due to more efficient use and distribution. They did not mention disconnections, or old people spending cold days in public libraries or wrapped up in blankets and shivering.

    Over 2o years or so they envisage retiring 10GW of old capacity to be replaced by some 28G of solar and 10.5G of wind and a massive amount of storage (?).

    They anticipate considerable costs but also efficiency gains. See the second para below.

    QUOTE The investment costs associated with replacing old and retiring infrastructure with new plant, in one of the most capital-intensive industries, are significant and unavoidable. AEMO’s modelling shows that the total investment required to replace the retiring generation capacity and meet consumer demand has an NPV cost of between $8 billion and $27 billion, depending on assumptions made around economic growth and rate of industry transformation. This level of capital investment is going to be needed, irrespective of this plan.
    However, modelling shows that by spending 8% to 15% of this total capital investment on transmission rather than generation, efficiency gains are achievable. The ISP conservatively projects total system cost savings ranging between $1.2 billion and $2.0 billion with the integrated approach and new transmission investment in the ISP. These forecast savings do not take into account all the market benefits associated with a more robust transmission network, including, for example, the benefits of greater level of competition, increased resilience, and a more flexible and adaptable system. Conversely, ISP modelling projects that a less interconnected network will increase consumer costs and risks, through greater reliance on local gas-powered generation (GPG), reduced benefit from renewable resource diversity and storage diversity, and greater risk of local system failure.
    Transmission investment recommended for immediate action in this ISP is estimated to be between $450 million and $650 million. Once spread over the life of the assets, this is equivalent to less than 1% of the annual transmission and distribution investment in the current regulatory cycle ($6.2 billion per year).END QUOTE

  13. Norman Church

    Rebel with cause – I like the way you are thinking!

    Rafe – why would anybody rely on modelling that clearly works backwards from a result? Anybody sensible, that is?

  14. Tim Neilson

    Rafe – why would anybody rely on modelling that clearly works backwards from a result? Anybody sensible, that is?

    Hey, that’s climate denier talk, that is.

  15. Jock, thanks for that exposition of the situation.
    It’s a pity the chairmen of Spark, Ausnet, AGL and Origin can’t get up and say those things at their AGM’s.

  16. NuThink

    #Tel

    At no stage did any government (back when the wires were owned by government) explain “hey we will push up power prices, but this is good because there will be less black outs”

    It is a very cunning plan indeed to have fewer blackouts by raising prices till the number of people who are cut off cause sufficient reduction in consumption so that there is no need for load shedding. Just those poor sods who are living in the cold and dark eating Queen Marie Antoinette cake are carrying the burden of saving the world, and loving it.
    As more and more LED lamps are introduced the energy savings may not be as good as advertised on the boxes, because if they are not power factor corrected and if they have a low power factor it can also have an adverse effect on losses.

    A Power Factor of 1 means no power is wasted. A Power Factor of 0.8 means that 25% more current is required by the bulb to do the same amount of real work. But electrical losses are related to the square of the current. If you need 25% more current, you have 1.5 times the losses.

    http://luxreview.com/article/2016/05/two-minute-explainer-power-factor

  17. Robber Baron

    All my business friends are shedding staff. Rates, taxes, insurance and electricity costs have gone up way more than CPI. The party is over for a lot of industries. The de-industrialization is real.

  18. iain russell

    Sloop John B, we have an older, literate, numerate gang here, not numpty Gen F-ools. What’s difficult to understand about Jock’s offering? If you, on the other hand, are confused, please ask for advice on this thread, we’ll give it to you!

  19. Tel

    As more and more LED lamps are introduced the energy savings may not be as good as advertised on the boxes, because if they are not power factor corrected and if they have a low power factor it can also have an adverse effect on losses.

    That problem is not specifically related to LED lamps, you get this issue whenever you convert AC power over to DC and it just happens that LED needs to run on DC. This has been an issue with computer power supplies since the early days, and today we have computers all over the place (e.g. your flat screen TV is also a computer) so the typical house is packed with AC/DC conversion devices. It’s perfectly possible to make a power supply that plays nice with upstream power quality (check the more expensive computer supplies, they quote power factors) but it costs extra and for very small devices like light bulbs it isn’t worth it.

    A better design would be to have one big well built 50VDC power supply mounted at the main fuse box and distribute 50V throughout the house, then you guarantee a good power factor and as a bonus it’s difficult to kill yourself at 50V. This would require a new type of wall outlet but if done properly all sorts of devices (e.g. laptops, mobile phones, TV sets, etc) could use that and even better such an outlet could also operate as an ethernet port (because wireless ethernet is convenient but shitty).

  20. Dr Fred Lenin

    The elites of course will take no notice of Jock, he knows too much and would expose their ingnorance and total lack of thought ,you can’t have insurgents getting around telling the Truth about anything ,he’s like Trump and should be drowned in media bullshit to cover up our lack Of knowledge about anything .

  21. Muddy

    While I’ve acknowledged previously my non-scientific mind, I appreciate posts like this, because I do my best to self-educate. It’s a slow, noisy process (rusty cogs grinding against each other, throwing out sparks), but one I value. So I may not be one of the literate, but opportunities like this give me something to aspire to.

  22. Iampeter

    OK thats enough. Sorry its general but it gives a gist of a market and policies that even a bunch of pond scum could have better devised.

    Or a better way of putting it is that no “market policies” could be devised that wouldn’t fall apart by even the smartest Ubermesch imaginable.

    There should be no government involvement in the private sector and this includes energy generation. No restrictions on who could own, buy or sell energy and while the steps taken to get energy production out of the states hands were good, they simply didn’t go far enough and created a regulated mish-mash as described here.

    Get government out of energy as it cannot be centrally planned. But if you concede that we just need “better policies” then you would have missed the real issue entirely.

  23. DaveR

    Classic quote from Jock:

    Then came renewables…. Renewables were a rent seekers dream.

  24. classical_hero

    I like how people say that it’s the free markets fault for the rising price of electricity, but most people don’t understand how much the government interferes with energy policy that it’s inevitable that we’re in the mess we’re in. Yet these same people want the government to solve the problems. The definition of insanity is trying the same thing over again and expecting a different result. No wonder why this “lucky country” is run by second rate politicians.

    Also we should not question the modelers because they are expert modelers and we know they are accurate in what they do.

  25. DaveR

    Jock makes one clear point (actually several) that our “business experienced” politicians seem unable to grasp:
    because of wind power normally delivering only an average of 30% of nameplate capacity, and output varying significantly at times you cant predict, the backup conventional generation to fill the gap should be fully included in the capital cost of any wind project.
    Even coalition members are struggling to accept that, let alone ALP and looney Greens.

  26. DrBeauGan

    The fundamental problem is that we are ruled by bureaucrats who are ignorant of science, mathematics, engineering and economics. They can feel comfortably superior to politicians who are equally ignorant and of even lower intelligence, which in their minds justifies taking control. So they do, and the rest of us have to live with the ensuing balls-up.

  27. H B Bear

    Calling the NEM a market is a complete joke. It’s a rigged poker game and we are the suckers being fleeced.

  28. Jonesy

    Jock, mate…you need to be sitting at the right hand of Minister Taylor.

  29. old bloke

    Jock,

    I understand that a large percentage of the poles & wires capital costs was spent replacing transformers to cope with rooftop solar panels. The original transformers were built to take electrical current from one direction (your coal generators) and to distribute that energy in the opposite direction (your household users).

    With the advent of rooftop solar power panels all over the place, the transformers had to be upgraded or replaced to cope with electric current coming from both directions.

    Is my understanding correct? and if so, what percentage of the poles & wires capital budget was spent on this exercise?

  30. old bloke

    Some years ago I saw a poles & wires guy on a (Perth) TV interview. The interviewer raised the question of how the distribution grid would cope with future demand, and posed a question as to whether the distributors most feared more energy demands for large screen TVs, or more widespread use of air conditioners.

    The poles & wires guy considered the question for a moment and replied that neither of those two options was their biggest fear, what their main concern was the widespread use of electric vehicles.

    The interviewer was taken back by this statement, perhaps he was a Gaia worshipper, so he asked what problems would come from more electric vehicles on the road?

    The poles & wires guy said that if everyone drove home from work at, say, 6 PM, and plugged their cars into the power mains for a recharge, the demand would exceed the infrastructure’s ability to cope, and the grid would “melt” (his words).

  31. Boambee John

    Crossie at 2129

    Nope, not buying it. They want to be purists they must be made to live as such.

    That is making them live as purists, but because what they sponsor is not directly connected to the ACT, a week out of phase.

  32. cohenite

    Not sure. why you bother, Spartacus. More than half the commentators here would have no idea what he’s talking about.

    Get stuffed. Let me spell it out for you. The primary motivation for this is alarmism; the solution offered by the alarmists for the insane idea that CO2, not just any CO2 but only human CO2, is causing catastrophic climate change aka global warming are renewables, is primarily wind and solar power although wet and dry geothermal and tidal and wave power get guernseys.

    Jock’s rant is essentially correct but it overlooks the point above and the criteria which should apply to every power source: that is its capacity factor and reliability point.

    The capacity factor is the power the source actually produces expressed as a % of its name-plate or installed capacity (the power it would produce if operating 24/7 at its maximum capacity).

    The reliability point is the probability of the power source producing at its name-plate or installed capacity.

    Based on these 2 criteria all you need to know about wind and solar and therefore the diabolical mess Australia’s electricity grid is in is:

    1 Wind and solar have a capacity factor of less than 30%

    2 Wind and solar have a reliability point of less than 10%

  33. Rob MW

    Not sure. why you bother, Spartacus. More than half the commentators here would have no idea what he’s talking about.

    It can’t be that hard to understand if even little gst stuttering John Hewson can make his bones out of this boondoggle.

    Bottom line; in a fucker and fuckee scenario just follow your money.

  34. GoWest

    A protest song will spell it out. (Fight for your right to party.. ).. Beasty boys

    I’m from the govt , Money for nothin, free power and GST for me.. HA HA.
    You pay for next door’s solar power. $25 for me, $7 for them.
    Turn them off —
    You got to fight for your right to power a part…y.

    If that doesn’t spell it out clearly – nothing will.

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