A new study has revealed that fossil fuel generators could have withheld power at ‘strategic’ times in 2015, causing serious price spikes that led to a staggering $30.3m windfall.<The massive spikes in South Australia’s wholesale electricity prices were allegedly a result of some energy companies “gaming” the system and manipulating their uncommon market influence to charge “monopoly rents”; this is according to an extensive analysis by the Melbourne Energy Institute. Melbourne Energy Institute also found evidence pointing to similar practices from producers on 7 July that led to huge price spikes, insinuating the “energy crisis” in South Australia was actually caused by lack of competition within the state’s energy market. Recent weeks have seen sharp increases in South Australia’s wholesale energy prices, mostly driven by the rising prices of gas. Again, there have been severe spikes in the interim wholesale electricity spot price, sometimes hitting the cap figure of $14,000 per megawatt hour, up from the normal figure usually below $100. Some in the industry have blamed the power price spikes on South Australia’s wind farms and emphasised that this clearly showed some of the risks of fully relying on renewables. However, detailed analysis of the spikes in electricity prices indicated that they were as a result of fossil fuel power generators that strategically withdrew electricity supply for short-term periods, hence pushing prices up. Even more, the analysis also found that fossil fuel generators participated in “economic withholding” where they manipulated their monopoly position to charge consumers exorbitant amounts for the electricity supplied. Mike Sandiford and Dylan McConnell from the Melbourne Energy Institute discovered 41 instances in 2015 when the Snowy Hydro’s diesel generator Angaston withdrew supply, leading to increased spot prices. Together, the 41 instances delivered an extra $30.3m to the owners of dirty energy generators across the Aussie market. The study also noted that on 7 July 2016, AGL’s Torrens Island power stations appeared to have engaged in activities that were “suggestive of market power abuse” when it sold power in high priced bands that would otherwise be impossible if the market had more players. “We only looked at AGL because it was the largest – but it’s quite likely that other generators are doing this too,” McConnell said. The authors also found that, using several measures, the SA energy market is restrained and cannot function efficiently. For instance, they discovered that most of the large generators in the state find themselves in a monopoly suppliers’ state because their supply is required in order to meet the demand. They also uncovered that South Australia’s producers could gather much more profit margins for every extra unit of power generated compared to the other five Australian states, and this had risen more significantly since May 2016. Recommendations by the Authors of the Report
To improve the energy market efficiency, SA should increase its interconnections with other Australian states, or establish energy storage such as concentrating solar thermal, battery storage or pumped hydro.
Australian Conservation Foundation is the body that commissioned the report. Kelly O’Shanassy, ACF’s chief executive said, “South Australia should go further – a big solar thermal plant with storage would deliver power day and night and challenge the monopoly of gas generators.”
O’Shanassy added that the forthcoming Coag energy council meeting; a meeting of state and federal energy ministers is the ideal place to start a strategic and well-coordinated national plan to transform the country’s energy system as well as address the sheer lack of competition in South Australia.
“South Australia’s situation is different from other states, with a lot of renewable power and concentrated market power,” she said. “A coordinated national plan can help clean energy grow while avoiding the price spikes we’ve seen recently in South Australia.
“The clean energy revolution is here and it’s unstoppable. But it needs a plan to avoid disruption, look after communities and stop power price spikes that happen when companies play the market.”
The urgent need for a well-organised transition was suggested by the Australian Energy Market Operator in a recent report. The operator noted “the growing importance of network and non-network developments to securely manage an evolving, lower carbon electricity generation future”.
Mike Cleary, the chief operating officer of Australian Energy Market Operator said: “Possible solutions could include an increased interconnection across NEM regions, battery storage and demand-side management services.”
AGL’s spokeswoman told Australian Solar Quotes that the recent abnormal spot prices in SA “were driven by a number of factors”.
“With the closure of the Northern Power Station, the state is now heavily reliant on gas generation,” she said.
Snowy Hydro’s spokeswoman said: “Angaston is a diesel peaking generator, which has high fuel costs and limited fuel reserves. As such, Snowy Hydro manages its operations to minimise unnecessary burning of high cost diesel fuel.”
She also claimed that after the 41 price spikes were mentioned in the report, the Angaston generator has since been voluntarily “scheduled”, meaning the generator can no longer switch its electricity supply on or off as it pleases.
“As a scheduled peaking generator, we act to moderate and manage the security and reliability of the South Australian energy market at high demand,” said the spokeswoman.
