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Graph of the Day: Link between gas prices and electricity prices

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Over the past few days we have marvelled at the efforts by the business lobby, with the enthusiastic support of the Murdoch media and others in mainstream press, to blame wind energy for the recent price spikes in South Australia and the rest of the country.

And as we have also noted, the people that run actually run and regulate the grid have made it clear that these price spikes have been caused primarily by the huge rises in gas prices to record levels, and supply constraints on main transmission lines.

This graph below from the Melbourne Energy Institute underlines the link between gas prices and electricity prices. As we have also noted, South Australia has been without coal power before in the winter months, but the electricity price did not spike because the gas price was low.

And as we have also noted, South Australia – and other states – used to regularly suffer big price spikes of $5,000/MWh or more, but that was before the arrival of wind and solar. Again, that was caused then  by the high cost of gas and the costs of meeting demand peaks that have largely been removed by rooftop solar.

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We think that these price graphs are fairly clear. It has long been accepted that the price of gas sets the marginal cost of generation, and this just goes to prove it, and as the Australia Institute pointed out this week, the bidding patterns and price gouging of the big utilities has only increased the cost impact on consumers.  

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  • onesecond

    As if facts mattered. The “Conservatives” (that hate conserving the planet for the future) will just lie as will the Murdoch media and obviously the average Australian voter is too dumb to notice.

    • Charlie

      While this might be the case and the curves above do suggest a strong correlation between gas and electricity prices, it does not necessarily conclude gas price should take the full responsibility. To me, the pattern at the end of the curves also means a lot about a clash between a strong entry of renewable energy and the very limited ability of an old style NEM to accommodate the entry. The growth of renewable energy should go along with a transforming economy including its energy market and the transformation is by no means painless. To down play teething problems and sometimes major pains, or try to explain them away won’t do any good to renewable energy and a renewed economy in a long run. We should proactively address the bottlenecks and barriers in the energy market and the economy in general that started surfacing when the old ballgame is challenged by the growth of renewable energy.

  • Don McMillan

    It more like a chicken and egg situation. The NSW and Victorian Liberals banning natural gas exploration and the NSW liberals revoking petroleum leases caused investors to lose over 3 Billion dollars. This inevitably damaged the supply side for natural gas. So based on 101 economics as demand increases with limited supply the cost goes up.
    It was the labor parties of NSW and QLD that promoted natural gas exploration.

    • Mick

      This is an interesting point – but surely this is another reason not to blame the power prices in SA on renewables? (…but on the supply side ‘issues’ in the gas sector? )

      • Don McMillan

        Simplistically blaming is not constructive. The problem lies in the fact that with the growth in the public’s genuine concern for the environmental issues have been exploited by different interest groups. Often with good intentions. Unfortunately populous political decisions in approving renewables expansion without fully understanding the engineering implementations and banning perceived mining practices without understanding the unintended side-effects accumulate in the situation experienced in SA. I have no confidence that we are capable of making good decisions as it is so easy for interest groups on either side to vilify the decision makers.

  • Tomfoolery

    We desperately need stricter standards and incentive programs for energy efficiency to bring down peak demand.