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Gas generators hold South Australia consumers to ransom, again

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Wholesale electricity prices in South Australia soared again on Tuesday in what is being seen as another example of the small cabal of gas generators exploiting their market power to push up prices.

It comes as yet another investigation by the Australian Energy Regulator highlights how the same generators pushed the price of frequency and ancillary services to stratospheric heights in October, just as they had done a few weeks earlier.

It highlights, yet again, the fundamental problem with the Australian energy market. It has less to do with wind, solar or any technology than the market power of the incumbent generators, who have created market rules that allow them to exploit and distort pricing.

The most prominent of these is the so-called 30-minute rule, which means that prices are settled every 30 minutes, even though bidding occurs every 5 minutes. Critics, including large energy users such as Sun Metals, say this allows gaming of the prices.

Yesterday’s trading appear to be a perfect example. Note how the prices were bid up to high levels in the first  or second five-minute intervals – a pattern identified by research by the Melbourne Energy Institute and others.

south austraia prices

This guarantees a high price for the entire 30 minute period. Having created scarcity by withdrawing capacity in one five-minute interval, the market is flooded with bids as generators try to get in on the action in the subsequent five-minute intervals.

The best time to do this is when there is little competition, and that usually happens when the interconnections are constrained, often for upgrades or maintenance.

There are numerous other examples of this, such as when Origin and Snowy Hydro combined to push down prices, forcing competitors out of the NSW grid, and then used the scarcity to push up prices afterwards.

South Australia and Queensland are the most exposed, because they are at the end of the grid and their market is dominated by just two major players, and South Australia is particularly exposed when the interconnetor is down for upgrades or repairs.

When this happens, AEMO calls for enough locally sourced FCAS – frequency and ancillary services – to maintain grid security. There is actually heaps available, more than 450MW, but when AEMO calls for 35MW, that spare capacity can be mighty hard to find.

On October 18, because the interconnector was to be closed, AEMO called for 35MW of FCAS and expected it to cost no more than $100/MWh. But it ended up costing more than $5,000/MWh for more than five hours because of unexpected “problems” with two gas plants.

Engie’s Pelican Point experienced “plant problems” in the morning and had to withdraw 165MW of capacity. Wouldn’t you know it, but all that of lost capacity was the “low-priced” capacity. Tarnation!

“Difficulties in stabilising the combustion in the turbine that consequently delayed its returning to service” – the AER reported – and only 33MW of low-priced FCAS could be found anywhere in the state. So AGL’s Torrens Island filled in for the last 2MW – at a price of $11,499/MWh, which means all that capacity got that amount.

In the afternoon of the same day, it was Origin’s Quarantine gas station’s turn to have problems, with a “faulty valve” causing the plant to trip. You’re not going to believe the coincidence, but the capacity that was lost was all the lower priced FCAS. Tarnation again! And all that could be found was 29MW of lower priced FCAS in the whole of the state.

So again, Torrens Island rode to the rescue with the extra 6MW of FCAS to meet AEMO’s requirements – this time at a price of more than $12,000/MWh for low and raised FCAS – for most of the dispatch intervals from 7.05 pm to 11.30 pm.

This is not the first time that consumers have been burned. Almost exactly the same thing happened in August when the same players in the market contrived to bid FCAS prices up to similar levels. Apparently, the market operators and the regulators say, it is all within the rules.

May be those rules should be changed. In US markets, if you haven’t met your capacity commitments made a day earlier, you’d better have a bloody good reason. And the regulators go to the trouble of checking, too. Maybe that should happen here as well.  

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  • john

    It was such a brilliant idea to privatize the market.
    Mind in Queensland it is actually the government owned generators it seems who are up to the same disgusting tactics.
    One can only conclude this is sanctioned routing of the price mechanism.
    As such it is about time a prosecution was launched.
    Failing that a total rewrite of the rules to curtail this rotten system that allows payment of $12,000/MWh, that is immoral to put it polity.

  • Rob

    I thought Tony Abbott was supposed to rescue the poor electricity consumer by axing the big bad carbon “tax”? Seems he axed the wrong thing.

  • Rod

    Surely these generators have logs for each unit.
    Maybe the regulator should scrutinise these rather than accept explanations.

    • There are requirements around record keeping @rodneymunro:disqus. They were beefed up because too many generators were avoiding actions through deliberately poor record keeping.

      Cheers.

      Dave P.

      • Rod

        Thanks David,
        This story and some others alludes to generators telling porkies about the availability of their units.
        Maybe a more forensic investigation into their actual unit logs/maintenance records is needed.

  • Mark Roest

    John’s got it right; there must already be a law that covers this outlawry.

  • Ian Mclaughlin

    This high price has appeared on a coal supporting website distributed on Facebook comparing the relative prices at the time in, as they say, coal dependent NSW, VIC and QLD. Showing by their reasoning that proves coal is cheaper!! This is what reason is up against when big money can buy the minds of people with little knowledge of the subject.

    • Rod

      At least you could post to that page a link or something close to the truth.

      I got a $1 for the first Month sub to the Advertiser here in Adelaide. (never read it normally)
      Reading all the lies and misinformed opinion pieces about SA’s energy is doing my head in. Very few pro RE in the letters section. 90% anti RE.

      I write letters to the Ed, no joy.
      I respond to false statements via the reader online comments and they get deleted by the moderator especially any suggestion to get info elsewhere.

      With our one and only “news” paper in SA being so biased and practicing this sort of censorship I’m afraid our relatively pro RE SA government is doomed come 2018

      • Olwen2050

        I know what you mean, I feel the same way. Murdoch’s monopoly on SA press is toxic. For those interstate, News Corp publishes our Mon-Sat newspaper The Advertiser, The Sunday Mail and all metro and regional Messenger newspapers. The bias in favour of fossil fuels and nuclear, and against renewable energy is palpable. The Advertiser is already on the campaign trail to oust the SA Labor Govt next March. I’m not so sure it will happen. Most people still reading hard copy press are over a certain age and I have faith that the younger generation know that renewables are the future.

        • Rod

          So it’s not just my paranoia then. Thanks.
          I hope Get-up or Solar Citizens or some sort of an RE alliance can mobilise because we don’t want the anti RE Libs in.

  • I agree that there is a problem @disqus_an6c03erWr:disqus, but disagree with the solution. We don’t need the 5 minute rule change to stamp out bad faith bidding. We need the current rules to be enforced.

    A new rule commenced in July 2016 that prohibited the making of false or misleading offers by generators. It further stated that any variations to offers need to be made as soon as practicable and it beefed up the requirements for record-keeping around late rebids.

    [Please note – I use the term “offer” for offer, bid and rebid].

    The guts of the rule is in clause 3.8.22A. The standard is that an offer will not be changed unless the generator or market participant became aware of a change in the material conditions and circumstances upon which the offer is based. If circumstances change, then the new offer must be submitted as soon as practicable.

    My view of what these rules mean:
    * You absolutely cannot submit an offer that you don’t intend to honour, or had no reasonable basis to make that representation. For example, if you are making offers on behalf of a generator that you know is undergoing maintenance that limits the peak capacity, you can’t offer that volume to market.
    * You can’t “snipe” the market by materially changing your offers at the last possible moment, in reaction to new information that you received a (relatively) long time ago. When you have assessed the information and want to change your offer, you need to do it as quickly as possible.
    * You can no longer hide behind one line statements such as “economic rebidding” for material and late changes to offers. You need more proof than that of the decision making around the new circumstances that led to the change in offer.

    Readers should be aware that there have been several fines for prior breaches of early versions of these rules. The rules have now been strengthened. It is also worth noting that there is often a long delay between an event occurring and an investigation by the regulator, before any potential action is taken.

    Cheers.

    Dave P.

    Source: http://www.aemc.gov.au/Rule-Changes/Bidding-in-Good-Faith#

    • Yep, that’s worked really well hasn’t it. I’m sure it was designed by the fossil fuel generators.

      • Read the submissions made to the AEMC by AGL, Origin and others @disqus_an6c03erWr:disqus. I think you’ll find they fought hard to retain the old rules, but they lost on virtually every point.

        Maybe a different approach is warranted. It’s unlikely to be considered so quickly after the new rule was put in place. One option is to end late re-bidding (called early gate closure), replicating most other energy markets. Another way might be to move to 5 minute settlements – personally, I think that would cause chaos and higher prices given the current market structure.

        Cheers.

        Dave P.

        • I think we heading for chaos anyway. As Spark Infrastructure writes in their devastating submission to the Finkel review – see my article today – the fossil fuel generators are effectively holding the markets to ransom. Their stock in trade is to trade in scarcity, to push up prices, and that is what they do. I starting to think the only answer is heavy handed regulation, to ensure they not holding a gun to the head of governments as they are doing in S.A., although the S.A. energy security target might turn out to be a very smart move.

          • The near future certainly looks chaotic. I’m glad we agree on something at last @disqus_an6c03erWr:disqus 🙂

            Some people see the current state of affairs and believe it’s a sign of market failure. Based on that belief, calling for more regulation and intervention by governments is a reasonable response.

            I see very high prices and strong market signals, prompting investment in renewable energy and new technologies. I’d like the politicians to stay out of the way and the regulators to do their job to create a level playing field. I’m probably naive.

            Cheers.

            Dave P.

          • Imagine asking Nick Kyrgios and Bernard Tomic to set guidelines on court behaviour, based on their own. Then you’ll get closer to the AEMC views over how a market should operate.

          • neroden

            Best answer is nationalization by confiscation and criminal prosecutions for the former management. But I guess you’re not quite ready to go full Bolshevik in South Australia. 🙂

  • DugS

    Sunlight is the best antiseptic. Congratulations to Giles for extracting these obscure nuggets and hold them up for all to see. The truth will out and fact is vastly superior to opinion. With luck the gentailers have put their heads through so many loop holes they will end up hanging themselves on the rope of public opprobrium. A grass roots political movement is needed to counter the cash for comment fossil approach to the coming election, this is where RE and the readers are well placed. Spread the facts.