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AEMC delays 5-minute ruling again after protests from incumbents

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The country’s main energy rule maker has once again delayed a decision on the so-called 5-minute rule – a critical change that could help reduce electricity prices and encourage new technologies such as battery storage – after facing intense new opposition from incumbent utilities fearful of losing their pricing power.

The Australian Energy Market Commission says it needs more time to work through the complaints from the incumbent generators, who either want the proposed change delayed or scrapped altogether, claiming the costs will outweigh  the benefits.

There has been a bitter battle fought over the proposed rule change since zinc refiner Sun Metals first proposed it nearly two years ago in response to the bidding patterns which it says – and many other studies agree – are leading to market manipulation and pushing up prices unfairly and un-necessarily.

The AEMC, despite admitting that prices were being distorted, appeared set to drop the idea after intense pressure from the fossil fuel generators, but announced a more detailed study.

In April it gave its tentative support in a draft ruling, suggesting a three-year transition for what many believe will be a fundamental change in the way markets operate, and a shift from old, lumbering technologies to new smarter and faster controls.

It is seen as a critical move to “level the playing field” and encourage battery storage, which so far finds itself excluded because while the market “bids” every five minutes, the actual financial settlement only occurs every 30 minutes.

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One high bid in a single 5-minute period – often caused by the deliberate withdrawal of capacity – can guarantee high prices for the whole 30 minute settlement, often sparking an unseeming rush of new capacity suddenly “available” to cash in on the goodies. (see graph above).

The AEMC says it received more than 40 new submissions (many opposed), and needed time to consider the matters raised by stakeholders, including impacts on hedge markets. “In order to do so adequately, the Commission has extended the time for publication by two months,” it said.

The proposal to align the bidding and the settlement – as occurs almost everywhere else – has gotten the overwhelming support of the battery storage industry and other new technologies, and importantly the Australian Energy Market Operator and many government authorities and consumer groups.

In a new submission, AEMO reinforced its position that the change was important, because it would improve market efficiency by providing improved price signals, and facilitate new technologies such as storage and demand based resources.

The South Australia government also supported it, outlining the huge amount of battery storage it expected to come into the market, including its tender for 100MW/MWh of battery storage, several large-scale solar projects like Bungala and Tailem Bend that are “battery storage ready”, and behind the meter battery storage.

NSW energy minister Don Harwin last week described it as a “classic example of a rule made to suit existing technologies.” He said he supports the change so consumers can benefit from new technologies such as batteries.

Ross Garnaut, the economics professor and now chairman of Zen Energy, said the “uniquely Australian way” was handicapping technologies that are capable of responding quickly to and therefore removing imbalances between supply and demand.
He compared it to the Melbourne Cup. “Australia is the only country whose major horse race is a handicap, with faster horses being required to carry heavier weights,” Garnaut said in a speech to the Melbourne Energy Institute last week.
“The handicapping of the swift may not matter much for the Melbourne Cup, but it holds back productive balancing of the increase in variable renewable energy in the Australian energy market.”
And, as former prime minister Paul Keating once said, when it comes to backing horses, it’s unwise to bet against the nag called self-interest.

The submissions to the AEMC since its preliminary decision show an extraordinary amount of push-back from the incumbent utilities, but the most vociferous opponents were the Queensland government-owned entities, the grid owner Queensland Energy, and the owner of the biggest coal-fired generators, Stanwell Corp.

“We are strongly opposed to the rule change proposal submitted by Sun Metals Corporation Pty Ltd (Sun Metals). Of primary concern is the lack of a quantifiable, independent cost-benefit analysis,” Queensland Energy said.

“Stanwell has also yet to see any evidence to support the Commission’s expectation that the benefits are likely to outweigh the cost of such a change,” Stanwell said.

It’s a stunningly brazen comment from a company that had to be instructed by its own minister to change its bidding practices last month to think about consumers rather than its own profits.

Since that edict was made, Queensland prices – having trailed only South Australia in costs this past two years – have fallen heavily, lending credence to the view of networks and smaller retailers like Enova that are blaming the “greed” of fossil fuel generators  for the big jump in prices.

The Australian Energy Council, which represents most fossil fuel generators, said the proposed three-year transition period would be “manifestly inadequate” for the unbudgeted IT system changes, warned of security risks because gas peaking plants will exit the market, and said battery owners may exploit pricing in the same way that fossil fuel generators did.

It commissioned a study by Russ Skelton – the former CEO of Macquarie Generation, the former owner of the two biggest coal generators in NSW, which said that a positive cost-benefit result is “not proven”.

On it went: Arrow Energy opposed it, saying strategic late rebidding has been “addressed”, Tasmania’s Aurora Energy said that no case had been made that the benefits would outweigh the costs, and Snowy Hydro suggested it would lead to price increases, rather than price falls.

Even the Major Energy Users, a lobby group for large companies, questioned if it would result in greater competition in the market, and wind farm operator Infigen Energy – which like fossil fuel generators benefits from high wholesale prices – called for a 12-month delay.

The big three played for my time, although they agreed a change was “inevitable”. AGL wanted to be sure that it was introduces efficiently, and Origin Energy was along the same lines, wanting more time, as did Energy Australia, which wanted a 5 year transition commencing only after it was clear what the response would be to the Finkel Review.

In the meantime, companies are finding their own solutions to soaring wholesale and retail prices: Sun Metals is building a 116MW solar farm, Telstra is following suit, Nectar Farms is going 100 per cent renewable with wind and storage with what will be Australia’s largest glasshouse for growing vegetables, a $560 million project; and the GMA-garnet mine in Western Australia is also going down the renewables path, with wind, solar and storage.

 

 

  

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  • Grpfast

    Self interest is crippling Australia. Where is our country’s leader? Even if he is powerless to do anything, at least he could standup and tell us where the future is in power generation.
    The more big power users choose to go it alone with renewables and storage where does that leave us the general population. Our power costs will continue to rise as the “incumbents” attempt to recover lost revenue.

    • Chris Fraser

      The public are financially disadvantaged by the gaming because the public are not aware of this self-interested behaviour. This allows free-for-all intimidation of the market manager without risk to their own already dubious reputations.

      • MaxG

        Spot on!

    • neroden

      Bill Shorten, your country’s leader, is indeed still powerless to do anything, until the next election. 🙁

  • DJR96

    The entire industry is supposed to abide with the The National Electricity Objective, as stated in the National Electricity Law:-
    To promote efficient investment in,
    and efficient operation and use of,
    electricity services for the long term interests of
    consumers of electricity with respect to –
    price, quality, safety, reliability, and security of supply of electricity;
    and the reliability, safety and security of
    the national electricity system.

    Any and all decisions should be in the interests of supporting this.

    Having said that, the 5-minute settlement rule may actually increase costs slightly. It doesn’t address the other elephant in the room. Please read my FB page for details:-
    https://www.facebook.com/DaveRitsonAu/posts/558571054531928

    • Stewart Rogers

      5 minute rule is ridiculous. They need a transition plan if they are going to do it.

  • George Darroch

    Who benefits from these delays? Nobody, except the incumbent generators.

    Hopefully the rule is changed before summer. We’re going to need it.

    • George Darroch

      Oh, and every month this is delayed is another month in which more businesses and households will go behind the meter.

    • Mags

      Not only do the rest of us not benefit, we suffer higher prices as a result. This is simply industry rorting the public and government allowing it.

      • solarguy

        That’s right Mags, all of the bastards think we have an unlimited capacity to pay higher and higher charges.

  • George Michaelson

    “where is the independent research” isn’t such a bad question. I doubt the answer is “the minerals council has commissioned it with the IPA” but I also doubt the answer is “the wind lobby is preparing one”. Independent means what it says. So I think in posting that comment, the Qld Coal generators should be careful what they wish for.

    I would prefer it wasn’t one of the usual consultancies like Accenture or GHD who did this, because their basic operating rule looks very like “tell us what you want the report to say”

  • Stewart Rogers

    Fantastic decision by the AEMC. Gas peakers are needed more than ever to keep the grid stable, we wouldn’t want those shutting down.

    • Ren Stimpy

      Gas peakers use a fuel which has been driven up in cost from around $4/GJ to around $10/GJ and occasionally hit peaks of $15/GJ, mainly due to the prioritisation of LNG exports to meet overseas contracts before supplying the local market. Oh but the government waved a limp lettuce leaf at them so gas will return to the lower prices. NOT. EVER.

      Energy storage is needed more than ever to keep the grid stable. Unlike gas, the cost of energy storage is highly predictable, and more broadly, headed in the right direction – down not up.

      • Stewart Rogers

        the base is way too high for storage. $330 million for 120MWh?!? Who are you kidding.

        • Ren Stimpy

          As I said in a comment a few days ago, I’m more interested in the relative cost of the next one so as to judge cost by the trend, not just this first one which is breaking new ground – new supply chains etc. It has at least set a benchmark cost to beat.

          Secondly even at $330 million for 120MWh, who cares! The output of their battery is being sold into the various dispatchable electricity markets, so they just have to compete well with the gas fired generators to succeed, which won’t be too difficult, and that’s a good thing for all electricity consumers.

  • hugh grant

    Interesting that the Queensland networks are supporting the Queensland generators in being the most vocal opponents of this rule change. You would have expected then to be reasonably neutral on this rule change – however, they have clearly been instructed by Qld Treasury to voice much stronger opposition than the submission from the network lobby group (the ENA). Yet again, Queensland Treasury is calling the shots and controlling the lobbying of the Queensland state owned energy companies to profiteer from deficiencies in the National Electricity Market (NEM).