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Gas generators called out for exploiting NEM flaw, creating “obscene price spikes”

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A new analysis has called out Australian gas generators for choosing to exploit an energy market failure, rather than to fulfil their key role of complementing renewables by supplying additional local demand when needed.

In a statement published on Wednesday, The Australia Institute said a combination of “cooked up” high domestic gas prices and a National Energy Market that was driven by profit maximising behaviour by oligopolies meant that gas generators were “clearly not working in the best interests” of energy consumers.

Pelican-Point-2

Pelican Point

And it warned that if the situation was not rectified, and NEM not reformed, the wholesale transition to battery and other storage methods would be fast-tracked, leaving fossil fueled “base-load” generators in the lurch.

As we reported here, the sort of monopolistic pricing behaviour TAI is concerned about is precisely what the South Australian government has been trying to force out by building more wind and solar farms, and providing more interconnectors. But changes in the market rules will also be crucial to change the behaviour of generators.

“We have a situation where Australia’s second most efficient power plant (Pelican Point) is sitting idle in Adelaide while there is a spike in power demand. Something is very wrong with that picture,” said TAI senior economist Matt Grudnoff in the release.

“Gas generators are able to rapidly fire up additional output in the event of reduced renewable generation. That’s their advantage over coal,” he said.

“But due to export contracts, they’re picking overseas over local production.

“What’s happening in South Australia shows that gas is prepared to exploit the current NEM regime rather than perform that role.”

Grudnoff said that interconnector repair and upgrade work in both South Australia and Tasmania, combined with gas prices driven up by export contracts, had combined to create “obscene price spikes”, rather than “an orderly substitution between different forms of generation.”

“If this situation continues, and the government does not address the flaws in the NEM, it will only hasten the transition to battery and other storage methods,” he said.  

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  • howardpatr

    JOSH Frydenberg – the LNP could not possibly comment – for fear of upsetting the fossil fuel industry.

  • MaxG

    Don’t ya love it! The neoliberal capitalists exploiting everyone else… lying, cheating, fraudulent bastard… Nooooo, this story must be wrong….

  • RobS

    The most galling part is that they are clearly deliberately doing it in a state with an advanced renewable roll out then blaming the effect on renewables as part of a PR campaign against them.

    • Alastair Leith

      The law of manifold benefits, a bit like how invading Iraq spawned political opportunities for the military industrial complex for decades to come.

      • Chris Fraser

        And how the military businesses were (at least partly) owned by Dick Cheney …

        • Alastair Leith

          synergies… yes

  • Don McMillan

    I work in the natural gas industry and in my thirty years of experience I have never seen the phenomenon of high gas price and low activity and investment. I have for the three years endeavoured to encourage investment in Natural Gas without success. This is due to the Liberals in NSW and Victoria banning natural gas exploration. The NSW liberals terminated production licences causing investors to lose over 3 billion dollars of investment. The actions of the Liberals have scared off investment. Australia is a gas continent and historically always enjoyed low gas prices as investment always accelerated as prices increased.
    This high gas price is a self inflected event.
    If you want low gas prices just ask!

    • JeffJL

      Any thoughts as to the export contracts and the prices that Oz gas is receiving overseas in relation to our high gas prices Don?

      • Don McMillan

        In the early 2000’s there was a prediction of a gas oversupply [now] due to the expected NSW CSG and Conventional gas contribution and QLD ramp-up gas. ESG and others were planning LNG plants for export in Newcastle. At the time the NSW Domgas was happy to take gas produced in NSW as pipeline tariffs would be negligible. Political intervention both banning natural exploration and heavy regulation has changed everything.
        Piping gas from QLD which would go via SA or building a pipeline to NT will not help Domgas manufacturing [34,000jobs]. The pipeline tariffs alone make the factories uncompetitive.
        Gas prices will come down as factories close one by one.

    • Alastair Leith

      Burning gas is as bad as burning coal to generate electricity if the fugitives are >~3%, which evidence gathered by a consortium of NOAA, ivy league universities and NASA in the USA suggests is the case (if not worse). Gas heating for homes and buildings is many times more inefficient than using heat pumps that recover heat from outside air (even in the snow fields this works). A typical decade old ducted heating system is thirteen times less energy efficient that a high rating reverse cycle AC (or heat pump). Similar for HW units.

      We only need gas for the transition to 100%, in all other ways the sooner there is no gas industry the better from the point of view of the climate emergency we find ourselves in. BZE and others predicted the price rises of domestic wholesale gas (and therefore domestic energy prices) as export terminals came online FWIW.

      • Don McMillan

        Natural gas is cleaner than coal. Methane fugitives is a natural phenomenon. All basins “leak” methane as life on this planet is carbon based. It is important to understand the full environmental impact of each method of producing electricity. This is where the issues become very complex. You also need to understand its economic impact as poverty influences peoples environmental practices. These issues are amplified when dealing with developing nations, e.g Indonesia

        • Alastair Leith

          waffle… waffle… waffle… fossil gas is not cleaner from a GHG emissions perspective when compared with coal if fugitives are >3%. It’s pretty certain that in unconventional fossil gas extraction and even conventional fossil gas and distribution fugitives can be significantly higher than 3%. End of. Developing countries without significant grid infrastructure (India comes to mind) is easily better off providing solarPV and short term storage on microgrids because it’s already cheaper than the cost of transmission and network infrastructure. Centralised energy generation in developing countries is to provide energy for industrial estates (where the poor can be dispossessed off the land they’ve always farmed and used like indentured slaves) to make industrialists rich and for middle and upper class urban populations. Don’t give me that developing nation sop story, not buying it.

          • Don McMillan

            I have worked in developing nations and the challenges are enormous. With your beliefs and knowledge I hope you put them to good practice and go to a developing nation and help them out.
            I’m back from Jakarta, Indonesia and the air is disgusting, that may be a good place to start.

          • Alastair Leith

            Are the challenges any more enormous than those in front of C19th London or Berlin? As for Jakarta most of the air pollution is from transport. Any Google search will confirm this. here’s a quote from one site:
            “Transportation is the main source of ambient air pollution in Jakarta, which has 10 million people. It is larger than any other municipality in Indonesia with 15,000 people per square kilometer. According to the Statistic Central Agency, the number of vehicles in Jakarta in 2003 was 3.4 million motorcycles, 1.99 million passenger cars, 467,000 trucks, and 392,000 buses. Meanwhile, oil fuel consumption increased. In 2003, oil fuel use was 68 percent of total energy consumption. In 2004–2005, the demand for gasoline in Jakarta rose, resulting in increased air pollution. Ambient air pollution has a significant impact on the health and economic sectors. Health care costs increase by US$3.8 million per year. On average, people have only 18 “good air” days in a year. In 2004, 46 percent of all illness cases in Jakarta were respiratory related.”

            I lived in India for 5 months and travelled through Bihar and UP which are poorer states than sub-saharan Africa by almost any index you choose. Richest man in India is from Bihar though I heard. You just don’t see poles and wires away from the infrastructure hubs and lines like cities and railways. Therefore SolarPV with microgrids and small storage has already defeated centralised generation for village residences and commercial premises. Poles and wires cost more than PV + storage even before you add in wind/coal/gas/nuclear generation. Cities will require generation as will industrial areas and that’s where wind is second to none on price ATM.

          • Don McMillan

            This is the problem people are using Dr Google for scientific and engineering purposes which is why we have prolificated such bad engineering. The reason I have ventured in this domain is to understand what is happening. Most of my engineering collegues believe the “bus must crash”. Decisions are made without consultation with engineers and things get implemented which are doomed for failure. State ministers have a full time staff member monitoring “twitter” which have more influence than engineers and scientists. So Alastair please study Engineering at a university and show us how to do it better.
            PS Indonesia Take a trip there you’ll enjoy it.