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Charts of the week: Busting electricity market myths

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It’s always fascinating how far media and political narratives in Australia diverge from reality when it comes to the electricity market. This sequence of charts tweeted by this week by Simon Holmes à Court, senior advisor Energy Transition Hub at Melbourne University, helps illustrate the point.

On Monday the ACCC landed the interim report for their Retail Electricity Pricing Inquiry. Hardly friends of renewable energy, the hard-headed economists busted the myth that environmental charges are the driver for higher retail electricity bills.

Nope, environmental charges didn’t even make it onto the podium — with networks taking the gold medal, retailers the silver and wholesale energy prices awarded the bronze.

(Amusingly, ex-IPA energy tsar Alan Moran disputes the figures (as did other Murdoch columnists like Judith Sloan) claiming that:

“Such high and growing retail margins … are not plausible in a market that has the big three heavily competing with each other and something like a dozen other retailers seeking to find gaps and take share from the majors.”

Insert cry-laughing emoji here. Moran thinks the RET is responsible for 60% of rather than a share of the 16%.)
retail elec. pricing copy

Anyone listening to a politician or reading a major newspaper in the last few months would be led to believe that wholesale energy prices in South Australia are off-the charts.

Yeah, but nah. So far this financial year, there’s very little to separate the states — with Queensland being the notable exception after the state government directed the generators to stop gaming the market. You could forgive consumers for wishing that other states had that power.

(Sorry WA and NT, you don’t feature because you’re not in the wonderfully named National Energy Market and therefore not a part of the data series, available as AEMO’s Average Price Tables.)
electricity - daily wholesale price copy

In fact, South Australia has only had the highest prices on 20% of the days of this financial year. Given that there are five states, it is hardly shocking for SA to have highest prices on 1-in-5 days.

Nope, line honours go to NSW with 36% — keen readers will be aware that NSW had a late start to grabbing a share of the RET and lags other states.

Of course, it will be interesting to see how these numbers move around as we move into warmer weather over summer.
AEMO data - electricity price copy

  

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  • Brad

    The average wholesale price in WA from the 1st of July to the 17th of October was $64.90/MWh. This was the average of all 30 minute trading intervals from 0:00 on the 1st of July to 7:30 on the 17th (latest data), from this source: http://data.wa.aemo.com.au/datafiles/balancing-summary/balancing-summary-2017.csv

    • Rod

      Sounds like it would be better all round if the States abandoned the NEM and went there own way then.
      How does the Govt subsidy work over there? Is that calculated on the final retail price?

      • Simon Holmes A Court

        no! the interconnectors help to optimise for the lowest cost deliver, and provides significant reliability and security assistance. energy prices would almost certainly increase without interconnectors.

        • Rod

          Yes, I know. Should have put a sarcasm alert on it.
          But it does make you wonder if we are getting value out of the NEM

    • Andrew Roydhouse

      The true average price is calculated by multiplying the MW hours supplied/taken per 30 minute segment – taking a simple average of the 30 minute prices is meaningless.

      The high prices come at the peak demand times = when much higher volumes are required – so a period where the price is 6 times higher and the volume is 2.5x higher makes a HUGE difference to the weighted average price which is what AEMO provided.

      • Brad

        You’re absolutely correct. Anyone reading this should completely ignore my comment above. I’m not sure what I was thinking.

        • Andrew Woodroffe

          On top of which, STEM is only 5% of the total market in WA. The rest is hidden in long term commercial in confidence PPAs.

          Note also that householders can only buy from Synergy whose prices are regulated, once a year. Also, variable pricing did not go up in July this year BUT the fixed component went up 95%.

    • Simon Holmes A Court

      does this take into account capacity payments and any other fluff in the WA market? i haven’t turned my mind to analysing WA data.

  • Peter F

    I am not sure whether it is just spring winds or people working out to optimise wind/CCgas/export combinations but for the last 50 days SA has been a net exporter and average price is $71.6 vs NSW $84.6

    • Rod

      Spring winds yes but I think we have had some more wind commissioned and also as you say the AEMO directive for more spinning metal means all that power has to go somewhere.

    • Ewen B

      I noticed that generally SA is energy exporter and usually about the cheapest wholesale. Don’t understand why SA retail so high given above???

  • Ken Dyer

    One only has to look at one’s electricity bill to understand that every day, the fixed cost for Daily Supply charge is $1.245 a day (in Queensland), or $454.25 per annum. This was increased in July from $1.195 a day, a 4.02% increase, or what appears to be twice the inflation rate. I think everybody knows where the increased costs lie, that is anybody who has taken a closer look at their electricity bills.

    You can churn retailers as much as you like and save peanuts, but when nearly 50% of your bill is fixed and increasing network costs, the only answer is to load your roof with solar panels, install a battery ready inverter, and plan for a battery in 2018.

    • Ray Miller

      Queensland Competition Authority has informed the methodology that every (QLD) connection to the distribution network be entitled to share in equal measure in the cost of same regardless of usage.
      What should happen is a reasonable minimum charge (10% of an average usage) for connection and a network usage charge on each kWh used.

      and
      The way the costs are frequently quoted to the consumer is ex GST (is by the way illegal) and service charges are never included as part of the total cost which it should be. Look at most electricity bills which show the ex GST charges per kWh, then second bottom line add total GST amount. So the customer only ever sees is the ex GST price per kWh. If this is not meant to mislead what is!

      • Ken Dyer

        Spot on Ray. You get charged GST for the amount you use, the network charge and any other fee they can think of, then you get a credit for pension rebate (if eligible), then a credit for feed-in. So you feed-in credit is really only worth 10.8 cents, not 12 cents. Then they sell it back to you at 31.45 cents plus 3.15cents GST, further reducing your feed in benefit to 7.65 cents. It makes more and more sense to buy a battery, storing and using your own home generated electricity, and only use the grid if you absolutely have to, or better still, team up with a few neighbours, hook all your power grids together and go off grid. Then who needs coal powered gold plated national grids, rip off retailers, and peak stupid governments?

  • Julie Mulhauser

    My understanding is that a significant driver of elevated electricity prices is gas price and that our domestic gas prices are cross subsidising contracted LNG gas exports.

    This is possible because there is no domestic gas reservation policy.

    I found this Qld cabinet brochure from August 2009 published during the approval process for the Qld LNG projects.

    https://www.cabinet.qld.gov.au/documents/2009/Aug/LNG%20Impacts%20Review/Attachments/LNG%20Industry.pdf

    On page 5-6 there is a proposal for either reservation of 10-20% production or a particular field. I can’t find any further mention of this after this date. Does anyone know why this plan was abandoned?

    John Piece was Secretary of the federal department of Resources, Energy & Tourism from March 2009 to June 2010 when Martin Ferguson was Minister.

    On 24 March 2010 Minister Ferguson attended the signing of contracts in Bejing to sell Qld gas despite no approvals issued. These contracts later – apppear to be used to justify the issuing of approvals despite the EIS applications being seriously lacking in important detail.

    https://independentaustralia.net/politics/politics-display/whistle-blower-simone-marshs-new-expos-the-corrupt-birth-of-the-queensland-gas-industry,8547

    In June 2010 Mr Piece was appointed to AMEC.

    AMEC is responsible for the gas market as well as electricity. A review of the gas market by AMEC recommended more infrastructure (pipeline and hub) to facilitate trading but again no reservation policy. Rod Sims called the market ‘opaque’.

    Does anyone know why AMEC hasn’t proposed policy that addresses the causes of our high electricity and gas prices?

    • Ray Miller

      Mr Piece seems to be a central figure! And considering the AEMC has also been at the centre of policy and rules seemingly supporting more often than not the major players owning the large coal and gas plants.
      The AEMC has been the standout non performer in the efficient operation of the NEM.
      Maybe the Productivity commission should look very specifically at the AEMC to see what it can find in it’s role in keeping prices down?

  • trackdaze

    Network costs 1st, Network costs 2nd, Retail margins 3rd.

    Down a lap are gas prices. And market gaming by generators.

    Honourable mention must go to renewables for suppressing wholesale prices.

  • Tim Buckley

    Spot on Giles and Simon, worth reminding everyone daily that Josh, Tony and Mal’s war on renewables ignores the real culprit of excessive grid charges. But facts dont seem to feature in the LNP’s desire to provide even more coal subsidies in ridiculous attempt to hold back an inevitable technology driven energy sector transformation.

  • Jonathan Prendergast

    There are graphs being shared by the current government showing electricity prices to customers rose more under the previous government. Importantly, the data on the graph ends June this year, so does not sure the hit on the bills since July 1, as the doubling of NEM pool price and futures in the past 12 months take effect on people’s bills.

    I think this is the key current story, and reason behind the ‘crisis’. Missed also by the ACCC study, so it blamed network prices.