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Big utilities about to pay price of saying no to coal and COALition

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The attempts by the Coalition to jawbone the operator of Australian biggest coal generation fleet, AGL Energy, into keeping the Liddell power station open for another five years, or sell it to someone who would, may have one positive impact.

Federal environment minister Josh Frydenberg has asked the Australian Energy Regulator to investigate recent trading by generators in NSW to ensure that consumers “aren’t getting ripped off.” The media release targeted AGL and Origin Energy in particular.

The decision follows a weekend of continued attacks by Coalition ministers of AGL’s refusal to keep open the Liddell power station beyond its 50-year life in 2022. The Coalition accuses it of seeking to boost its profits from the decision.

There is no doubt AGL has done well out of its coal generators, which should be noted it only bought recently: Until 2012 its biggest claim to fame was its gas history and the fact it was the biggest investor in renewable energy. Then it bought Loy Yang A in 2012 and Bayswater and Liddell in 2014. It is making a mint.

Frydenberg’s office rejected the link between the Liddell imbroglio and this threat of investigation, coming as it did just hours before AGL boss Andy Vesey was due to meet Frydenberg and Turnbull to disclose the Liddell closure.

But it is clear that such bidding practices have been rampant – by many generators – across the nation for years, and the Schneider report cited by Frydenberg is just the latest of many that has identified the billion-dollar excess of the wholesale market.

The AER is also looking at bidding practices in Victoria and South Australia following the recent closure of the Hazelwood brown coal generator, since which time wholesale prices have soared across the National Electricity Market, and doubled in Victoria.

It is not clear exactly what the AER can do, given that market bidding practices may well be within the market rules, despite the obvious attempts to push the prices up in an indiscriminate manner.

And it already investigates them. Last week the AER wrote in great detail about how the big players in the South Australia market – AGL, Origin and Engie – had pushed up prices in the FCAS (frequency control and ancillary services) market despite having more than enough capacity.

When asked on seven occasions to provide 35MW of FCAS for reasons of grid security, the big players only made 34MW available at low prices. The price extracted to provide that extra 1MW of capacity? Up to $7 million or more per day.

It is not the first time. Way back in March, in this story “Gas generators hold South Australia consumers to ransom again” we identified exactly the same practices, reported by the AER, earlier last year.

And, we point out, the WA regulator has found the government-owned Muja coal-fired power station guilty of a series of erroneous bids way back in 2014.

Its penalty, imposed three years later for false bidding over more than 2,800 trading intervals? Two fines of $1,000 and $1,500 each – justified by Muja’s imminent closure. That’s less than $1 for each trading interval breach. Astonishing.

At last week’s Disruption and the Energy Industry conference, AER director Jim Cox was asked by RenewEconomy about the legality of such bidding.

“It’s a very interesting question,” Cox said. ‘Is it a good thing? Probably not. Is it legal? Not sure. If it’s a question of collusion, it might be an ACCC issue.”

Cox noted, as has ACCC boss Rod Sims previously, that if it is the result of the use of market power by itself, then it would not be illegal. “If there is a compliant issue with NEM rules, then we will investigate it.”

Such bidding practices have been rampant across Australia, in each and every state market, for years. It is recognised by all the major players in their submissions to the proposal to try to prevent such bidding by changing the settlement period to 5 minutes from 30 minutes.

That proposal was fiercely opposed by all generators who owned fossil fuel plants they could control, and their implied threats to cause havoc in the energy financial markets (through instruments such as futures, hedges and caps) forced the AEMC to delay the introduction until mid 2021 at the earliest.

The Queensland government was the first to open up about the bidding practices, and was in a position to do something because it actually owns the generation companies. A direction to change bidding practices has seen wholesale electricity prices fall in that state by around one-third.

Frydenberg used that occasion to blame Labor for high electricity prices. His decision to ask the AER to investigate NSW is an admission it has nothing to do with partisan energy policies, but is a fixture of the market that the feds have chosen to ignore.

It is convenient now because AGL is resisting those calls on Liddell.

The Coalition – with the support of the Murdoch media – has attacked AGL in recent days for its huge lift in profits, and the advantage it would gain from closing Liddell.

Murdoch tabloids have branded AGL CEO Andy Vesey a “power tool” and all its papers have launched extraordinary attacks on his salary and where he chooses to live.  

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  • Thanks for these articles Giles. It’s always nice know what’s actually happening behind the ridiculous name calling and 2 second “jump to conclusion” nature of the regular media / politicians. I wonder if these actual facts of $7 million / day price gouging will get out into the broader public anytime soon… I’d quite like my power bill to be reduced by 1/3rd!

    • neroden

      Given how long this market manipulation is going to be going on, I’d suggest getting your own solar and batteries — you’ll be well out of it.

  • DJR96

    It is clear and just starting to become better known just how broken out NEM really is.
    It is long overdue a total overhaul. Twiddling around the edges and small incremental changes aren’t enough. Scrap the lot and start again. Better still, just give the job to Power Ledger.

  • DevMac

    If this is what it took to get the government to do what they should have done a long time ago, then thanks AGL and Andy Vesey.

    In regards to “The Coalition accuses it of seeking to boost its profits from the decision”, isn’t that what privatisation is all about? Isn’t that then a failure of regulation? (the very regulation that the Liberal party is ideologically opposed to).

    I wonder if the Liberals sought to boost its profits from the sale of Telstra by choosing not to structurally separate the company first? Hmmm….

    • Joe

      …please do not mention the privatisation of Telstra. It gives me nightmares all the time.

  • Joe

    Just love Rupert’s newsrags going full tilt on ‘poor’ Andy Vesey. Of course what we see here is that old tactic of playing the man and not the ball. Two Tongued Turnbull is bereft of policy so shoot at someone else and with the help of those Liberal Party Newsletters ( The Daily Telegraph, The Australian etc ) Andy Vesey is a convenient sitting duck. I don’t think Andy Vesey is a fool so me thinks he will be thinking long and hard before making any decisions just because our ‘Strong Leader’ is talking the talk.

    • Richard

      No-one reads newspapers anymore anyway, so they are just shooting in the dark.

      • Joe

        Rupert’s flagship newsrags ‘The Australian’ and The Daily Telegraph just recently patted itself on the back for boosting its sales, print and digital, so someone is reading the stuff.

        • Richard

          Not enough to matter.

  • John Saint-Smith

    This utterly shameful national farce is beyond anything Trump could dream up. He already admitted that his ‘tough’ border policies were nothing compared to those of the Australian Government. Now, compared with his coal revival plans, the LNP’s Lunatic New Palaeolithic plan for sunny Australia is way beyond Alice in Wonderland.

    • Joe

      Don’t diss Alice in Wonderland.

      • John Saint-Smith

        But ‘Alice’ only had a mad hatter, a Red Queen, and a caterpillar smoking dope on a mushroom. We’ve got a beetroot in a hat, A crazy mother shaming Italian, A former PM who eats coal with a side of onions, A new PM who wants to build giant pumped hydro schemes in the Snowy and Tasmania, but nothing to charge them, a wingnut who’s trying to sell a corrupt Indian millionaire’s coal to India, and a herd of drongos who think that policy is something you dream up in a lift when you need to go to the toilet.

        • Joe

          …I feel the makings of a new movie here …’Josh & Barny and Mal & COAL’.

  • howardpatr

    Seemingly the National Coal Party and the RWandRNJs influenced by Mad Monk Abbott drive Turnbull on this and a number of issues.

  • Robert Westinghouse

    So much for government regulation. The real buck needs to stop with the governments
    sold the energy industry to private (and foreign) enterprise. Shame on you. But at the end of the day average Australian keep getting screwed.

  • trackdaze

    Scaremongering.

    By 2022 there will be 4 or 5 additional Liddells worth of wind and Solar and 1 or 2 liddels worth of storage. And 1 or 2 liddels worth of demand managment

    • Nick Thiwerspoon

      Yes.

      The AEMO said in its report that as at 1st July there were 21.7 GW of connection requests to the NEM. Applying reasonable capacity factors that about 7 GW of effective capacity, 6 or 7 times Liddell’s effective capacity.

      And that’s now

    • Ken Dyer

      By 2022, it is unlikely that Turnbull’s coal loving coalition will be in power, if the polls are any indication. AGL just has to stonewall until ……on or before 2 November 2019……..if the COALition lasts that long given the dual citizenship fiasco.

  • Lorraine Bates

    Just watch the coal stations, and/or the Coalition, turn off the power during a heatwave, just to prove a point and blame renewables. I can see it coming. Barnaby Joyce has already hinted at it, I reckon. Mark my words!

    • Joe

      ..hope Bananabee isn’t in a lift and dying for pee when the Coalers shutdown.

      • Greg Hudson

        It is possible he was thinking defecation rather than urination.

    • neroden

      Heh. And watch South Australia ride it out because they don’t use coal, and have batteries. The other provinces will rush to copy SA.

  • Tom

    I know what the question is (how do you stop these ever-so-close-to-corrupt market manipulations), but what do you think the answer is?

    I’ve got an idea. It’s only an idea – I’ve got no idea if it will work or not.

    The idea is that there are two parallel but linked energy markets – a base-cost market and a dispatchable market. Energy sold on the dispatchable market earns a premium to energy sold on the base-cost market of, say, 50%. ie, demand is 1000MW, wind is producing 500MW, open cycle gas is producing 500MW, and the spot price is $120/MWh, then in actual fact the OCGTs will be being paid $120/MWh while the wind generators will be generating $80/MWh, and all purchasers will actually be paying $100/MWh for their energy.

    All bids for the 24 hours from midnight need to be in by 8pm the previous night. Bids are accepted or rejected every 5 minutes, ie, the bids may be up to 28 hours old before they know if they are accepted or rejected for a particular 5 minute period.

    If a generator bids on the dispatchable market, is called on to supply power, and cannot supply it within 5 minutes, then they are fined. The fine might be (for example) the product of their deficiency of supply (MWh) and the spot price at the time of their deficiency.

    Base-cost generators do not have to bid. Their energy will be accepted before the cheapest dispatchable bid is accepted, and will be paid 2/3 of the spot price which is set by the lowest dispatchable bid.

    At times that base-cost power floods the market and no dispatchable bids are accepted then the base-cost generators are paid a floor price for their energy, say, $10/MWh.

    If a wind generator (for example) wants to be paid more and so bid on the dispatchable market, then they can, buy they must be able to supply or they will get fined. They can do this by managing storage. eg. a 400MW wind farm may also own a 100MW 400MWh battery. They bid 100MW on the dispatchable market for the next day. If their bid is not accepted they are only allowed to sell 3/4 of their instantaneous power onto the dispatchable market – they can either recharge their battery with the other 1/4 of their power or they can curtail their output. (You can’t just go flipping the same generation between the two different markets).

    Coal would probably sell into the base-cost market as they will not be able to make the 5-minute time frame to ramp-up or turn off their power. However, there is nothing stopping a coal-fired power station from installing a battery to provide the power when asked for while the coal boilers ramp up, and also to absorb the energy produced as the coal boilers wind down after their power has been declined by the market.

    Just a thought.

    • neroden

      The problem is not technical. Several people have provided excellent ways of stopping the market manipulation, *if the federal government would implement them*.

      The problem is, obviously, political. The COALition WANTS the market manipulation to happen (probably they get kickbacks from the profiteers).

      So you need a solution which bypasses the federal government. South Australia’s solution of installing large battery farms, which can underbid the market manipulators whenever needed, and which are *contracted by South Australia to do exactly that* — this works. Queensland’s solution — to order its state-owned generators to underbid the market manipulators — also works. Western Australia not being in the NEM — that also works.