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How Tesla’s big battery can smash Australia’s energy cartel

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A series of reports from Australia’s Energy Regulator has illustrated how Australia’s big energy players have taken advantage of their market dominance to push up prices for critical grid services, and underline why South Australia was so keen to support the new Tesla big battery.

The Tesla battery, due to be installed by December 1, has been derided by the federal government as too small to do much and about as useful as a Big Banana or Big Pineapple.

But going by the AER reports, it could completely puncture the price gouging (which, we should point out, is perfectly legal according to the market rules) by major energy players that is costing consumers $60 million a year.

The series of AER reports highlight how, on at least seven occasions over the last 10 months, the actions of the major players – AGL, Origin and Engie – managed to push prices of Frequency Control Ancillary Services FCAS) in South Australia up by nearly 100-fold, despite having more than enough capacity.

FCAS is needed to maintain the frequency of the power system within the operating standards, and is called upon by the Australian Energy Market Operator to cope with planned and unplanned network outages, particularly the Heywood inter-connector that links South Australia and Victoria.

registered capacity rate

AEMO needs around 35MW (megawatts) of capacity to raise or lower the frequency in South Australia in such instances, and AGL, Origin, and Engie between them have 386MW and 446MW of capacity available in that state to deal with this (see table above).

That represents between 11 and 15 times the capacity needed. But on the seven occasions investigated by AER, the big players contrived to create a short-fall of just a single MW – forcing the prices extracted by these players to soar into the stratosphere.

This is an illustration of how they do it.

FCAS regulation.

As you can see, the big generators had more than enough capacity, but only made 34MW available on November 9 at a relatively cheap price. AEMO needed just 1MW more to meet its demands, but that single MW is priced high, and so sends the price for the whole service up dramatically.

“As 1 MW of the 35 MW requirement for both lower and raise services was met by high-priced capacity, prices for both lower and raise regulation services were around $6500/MW for approximately fourteen and a half hours, exceeding $5000/MW for 175 dispatch intervals,” the AER said.

“AGL’s Torrens Island set the price for all but one of the 175 dispatch intervals priced above $5000/MW in both raise and lower regulation services.”

This is a constant pattern. It happens in the FCAS and the wholesale markets repeatedly, and it is lucrative. That bidding on November 9 earned the major players an extra $6.8 million in a single day.
And the event on November 9 was not a one-off. The latest AER reports cover similar events on the following days, and Premier Jay Weatherill, in launching the Tesla big battery in July, said the total costs of such bidding patterns was around $50 million a year.
“There is a limited number of private sector players operating in the FCAS market,” energy minister Tom Koutsantonis told RenewEconomy in an emailed statement.

“It’s clear electricity companies exploit that lack of competition and gouge prices whenever they can.  Our grid scale battery will add additional competition to this market, putting downward pressure on the cost of stability services and, ultimately, power bills for households and businesses.”

power station rates.

The AER analysis shows that the pattern of making only 34MW available was repeated – sometimes because capacity was “unavailable” (often due to “technical” or other obscure issues), or by simply using their market power to rebid capacity from low to high prices.

Take, for instance, March 30:

“From 9.05 am on 30 March, AGL rebid 2 MW of raise and lower regulation services from low to high prices. This left only 34 MW of regulation services priced below $5000/MW, one megawatt less than the requirement. As a result, high priced regulation services were needed to meet the requirement.”

The price for local regulation services in South Australia shot to above $11 400/MW and – because their market power is complete – stayed there for 54 consecutive dispatch intervals from 9.05am to 1.30pm.

Again on March 21, during a planned outage”

“A rebid by AGL, effective from 11.05 am, which shifted 6 MW of lower and raise regulation services from prices below $300/MW to $9000/MW reduced the amount of effective capacity priced less than $5000/MW to 34 MW, 1 MW less than the 35MW requirement.”

As a result, prices for both services reached around $9000/MW from 11.05 am until the outage ended at 4.25 pm.

On another occasion, an unplanned outage on April 18, AGL rebid 3MW of raise and lower regulation services at Torrens Island power station from $300/MW to $13 000/MW and above. This 3MW set the market price, and it remained high until AEMO intervened and introduced “administrative pricing” of $300/MW.

ancillary service cost graph copy

Like the November 9 incident, that particular event earned the big players a $7 million windfall. Another $6 million was earned on November 25.

The reasons cited are often obscure. In  one instance on May 22, when the price went to $10,700/MW, the AER gives the reason supplied by Origin Energy as: 1726A INC SA DEM 5PD 1724MW > 30PD 1572MW @HHE1800 SL”.

It offers no further explanation, and the consumer or observer is none the wiser.

Such is the cosy, coded world of Australia’s energy markets.

And it is worth pointing out that these reports have taken up to 10 months to come to light, even though most players in the industry know within a day or two exactly what has happened when they analyse the bidding.

This creation of scarcity is a common tactic in both FCAS and wholesale energy markets in Australia.

It has been identified by network operators, smaller retailers, energy equipment suppliers, analysts, and governments, but is laughingly dismissed by ACCC boss Rod Sims as an example of “the market at work”.

However, analysis shows it has added billions to the cost of wholesale generation and therefore consumer costs.

And, with the exception of South Australia and Queensland, governments and regulators have done absolutely nothing to stop it, instead blaming renewable energy policies or the lack of a climate policy for high electricity prices.

Queensland intervened a few months ago to stop the wholesale price manipulation by its state-owned generators, a result that has seen power prices fall by a third.

South Australia does not own the generators in its state, so instead it has had to turn to other means, including commissioning its own emergency generator to ensure there is enough capacity in the event the big players try to create “scarcity” as they did in the February load shedding, and to deal with these FCAS rorts.

The Tesla big battery will be contracted by South Australia to bid into the market for FCAS – and to provide other network services. It will cost South Australia about $50 million over 10 years, but on the basis of the AER reports it will get its money back very quickly.

Battery storage also has the potential to stop such gaming of prices in the wholesale markets, but a proposal put forward by large energy users, and supported by battery storage makers and AEMO, has been fought vigorously by the big generators, and the energy rule maker has repeatedly delayed a final decision on the proposal.

Another 30MW battery will also be built in SA early next year, but it will be operated by AGL, although the network operator Elecranet will have some control over its use.

  

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  • Joe

    Instead of Big Mal pissing around with letters and invoice barcodes from the enrgy majors why isn’t our ‘Strong Leader’ getting into the ‘price gouging’, ‘market gaming’ and ‘scarcity creation’….how does that all work? Oh, that’s right, we have privatised the whole energy system. How smart was that!

    • Dee Vee

      Big Mal is never going to upset his mates in Big Business. He’s currently giving them $50b in tax cuts, to ensure he has a nice cushy job at these big companies when he gets the boot at the next election. Electricity is exactly the same.

      “Electricity Bill” Shorten is just as bad.

      no wonder we have such high electricity prices in Australia.

    • Barri Mundee

      Oh yeah! What is free and fair about a market that allows or encouraging “gaming”?
      We are paying for privatisations many times over- a one-off addition to state finances that has been costing us all for years since, with no end in sight.

  • Dean Rizzetti

    This is a really compelling piece highlighting the complex, arcane ways we’re being gouged. Thank-you!

    • MaxG

      This is going on for 50 years… when will people notice. Considering that some were born and already died, we can safely assume the public will never catch on to this… how else can it be explained an article like this seemingly being a surprise or revelation.

  • Cooma Doug

    You will like the AEMO report Giles. That is my bet.

  • Ren Stimpy

    It’s disgusting. For a so-called free market economy with a so-called free market champion as Prime Minister, that this rigging of the market and gouging of the consumer is allowed to continue, is bloody disgusting.

    • MaxG

      There is no free lunch, and there is no free market! Everything ‘free’ is rigged against the public. It cannot be ‘free’, because the 1% would not make any money.

      • jm

        Agree. Talk of ‘free markets’ is simply a tool used to further the power and interests of big business, and crush ordinary people.

      • Ren Stimpy

        But there is always such thing as a free-er market – a market that is more free than it is now. The key is to smash the large generators into dozens of smaller generators, owned by dozens of different owners who bloody well compete with each other on price. Right now is the perfect opportunity to do that because our large generators are approaching 50 years old and are ready for retirement – it’s an opportunity being missed by a Prime Minister who is a champion of the so-called free market. If he doesn’t support more competition he should relinquish that self-description of free market champion, …and that other one – “Strong Leader” – while he’s at it.

      • Barri Mundee

        In the days of State Electricity Authorities the price of power was set by state parliament and prices were affordable. The SECV always paid an annual Public Authority Dividend to the state and funded all its operations and capital works from borrowings and internal revenue. It could safely maintain a high level of debt as it was a boring utility with predictable cash flows.

  • Grpfast

    If this is such a blatant manipulation, verging on criminal why aren’t our governments do something. Or maybe all these “authorities” with their hand out doing nothing but talk should.
    I want my money back!

    • MaxG

      Don’t pay it in the first place. Move to the country, make your own power… done!

      • Phil

        100% True , but only practical if you have a Job there or a self funded retiree , or on welfare / pension

        The Jobs situation and incomes in most of Regional Australia is nowhere near as good as Sydney where you have effectively zero unemployment

        This is what the energy markets rely on , time poor income rich people who keep paying no matter what.

        The issue is it is a market with little regulation. If we used the Singapore Model this would and could never happen. And they have no resources like we do.

        Australia the “Dodgy” country

      • Roger Franklin

        Grpfast, they are all have their snouts in the money bucket.
        MaxG – you don’t have to move to the country to make, store and use your own power – but you may need to look at how and when you use power, something that is a good thing!. Moving off the Grid is not cheap – but when you read these and other articles and factor in how good it feels, it makes it all worth while.
        The ACCC has and will continue to be as effective as ever and as as for waiting for a political solution, “if voting made any difference, they wouldn’t let us do it”
        Vote with your wallets and feet.

      • solarguy

        No one has to move to the sticks, I make my own power and I’m in suburbia!

  • Chris Drongers

    how quickly could 5min pricing be brought in if Big Mal had a press conference today and backed it up with energetic action? Assuming that he wins any parliamentary votes if needed.

    • Ren Stimpy

      seriously at the end of the day that is the only thing that will save him in my book. Some real systemic progression – some shift of gear progression.

      • Chris Drongers

        Yeah, you can only put off a decision/show down with the enemy by calling for reports for so long.
        Even calling for reports but ruling some options ‘out of bounds’ as in carbon pricing will eventually result in voters calling for action and making an issue over (the politics) of why certain options could not even be considered when dry economic theory says that the ruled out option is probably the best (cheapest/most efficient use of existing investment) option available

        • Ren Stimpy

          We don’t have ‘enemies’ FFS in this day and age. There are only people who have the ability to see logic and reason, and the people who don’t.

    • Michael Murray

      Mal ? Energetic action ?

  • Carl Raymond S

    Sack Rod Sims.

  • JIm

    Great article, Giles. Is the cost of $60 million per annum to consumers from ‘price gouging’ by major players a national figure? How does it relate to the $50 million cost of ‘such bidding practices’ claimed by SA Premier Jay Weatherill – which you refer to later in the article?

  • Zvyozdochka

    Geezus, did all the Enron energy traders leave for Australia’s basket case?

    • John Norris

      My thoughts exactly!

  • brucelee

    What would the net annual bill increase per customer have been for the incidences mentioned in the article?

  • itdoesntaddup

    You think the Tesla battery will be welcomed with open arms? Since its purpose is mainly to provide FCAS, you can expect the price of FCAS to fall close to zero, giving it a low or even negative return after allowing for charge/discharge cycle loss for the battery system and inverters. Its weak spot is when the wind doesn’t blow and demand is high. Once its 70 MWh of peak lopping capacity is discharged, it can do nothing to prevent sky high prices during a shortage caused by lack of dispatchable capacity. There is only one way to solve that: have a sufficiently competitive market and comfortable supply capability for dispatchable capacity.

    Remember, $60m on 250+TWh annual Australian generation is only 23 cents per MWh on average: it’s a price rounding error when you’re paying over 100 $/MWh wholesale. There are other ways to make good.

  • Radbug

    If nano-diamonds are added to the Li-ion electrolyte, they’ll settle out on the lithium electrode, making it super smooth, thereby preventing dendrite formation. The absence of dendrites will double the charge density and quadruple the lifetime of Musk’s batteries, if he chooses to avail himself of this discovery.

    • Wallace

      I’d bet Tesla’s battery lab is running tests now. But it takes years to prove out a new technology.

  • Ron Horgan

    Giles, You state that this market manipulation is “perfectly legal according to the market rules”, and results in additional costs to consumers of $60 million per year.
    The evidence of manipulation shows the identical pattern of reduced service from nominally competing suppliers in several instances.
    That is Origin 8 ( of 50), Energie 4 (of 100) and AGL 22 (of 200).
    This is clear evidence of collusion to artificially create a shortage and to thereby profit.
    While the market rules may allow such rapacious behaviour , surely this is a conspiracy to defraud the consumers and as such must be illegal!
    Can you refer this situation for expert legal opinion. If it is in fact legal due to some loophole ( rathole) then amendments to the law must be made by our employees in parliament.
    Great work providing the facts of this underhand theft.

  • Greg Undy

    What an excellently written piece!!

  • Gavin Mooney

    $60 million sounds like a lot but divided by Australia’s ~10 million consumers (?) that’s only $6 a year… not that much compared to the average household electricity bill

  • Les Johnston

    Pricing for frequency control services is overdue for new suppliers. It is essential that critical analysis of energy market information takes place outside the closed circle. Great article.

  • john

    Put several others into the system.
    Enough to totally smother the present ringing of the price system.
    This is dealing with the present system.
    If the system had never been sold and the generators had not been sold then this situation would not be faced.
    WHY because the old owners would have ensured such a situation would not have happened.
    Frankly the problem is a due diligence of government has failed.