Baseload outages and generator rebidding: How energy customers got screwed by high prices

On December 3 last year, just about everything that could go wrong with the electricity grid in NSW – short of a blackout – did go wrong. And it is a perfect illustration of how fine margins and the behaviour of the big energy players can have such a big influence on the size of household energy bills.

On December 3, things had already started badly. It was a hot day and demand was expected to be well above average, but one quarter (2 gigawatts) of the coal fired capacity in NSW was unavailable because of unplanned outages – the machines had broken down for various reasons – and another 1.2 GW was missing due to planned maintenance.

To make matters worse, two transmission lines were also heavily constrained by planned maintenance, meaning more than 1.2 GW of low priced supply could not find its way to the state’s biggest load centres around Sydney.

Then, according to the Australian Energy Regulator in its latest review of high priced events on the main grid, at around 11.30 am a large amount of solar generation went missing because of passing clouds, and some other capacity was diverted towards the frequency control markets by the market systems.

It should been manageable, but one of the coal generators that was supposed to have spare capacity, the Vales Point generator on the central coast, could not ramp up (respond) quickly enough, and Snowy Hydro was unable to start its “fast start” Colongra gas generator quickly enough to make a difference for the 12pm trading period.

That took a combined 400 megawatts out of the equation, according to the AER.

It got worse. Delta Electricity withdrew a total of 225 MW of low-priced capacity at Vales Point “due to technical issues including milling limits and fabric filter limits”, according to the AER, and AGL Energy removed 45 MW of low-priced capacity at Bayswater due to “unexpected plant limits.”

But then, a short time later AGL Energy shifted 65 MW of capacity at Bayswater from $36 per MWh to the price cap of $17,500/MWh due to a “change in forecast prices.” Two minutes later, the plant limit was lifted and at extra 20 MW was offered, but only 5 MW was low priced, the rest was high priced.

“The combined effect of the three rebids by AGL Energy contributed to the high-priced periods at 11.45 am and 11.50 am,” the AER notes.

Just 5 MW to 57 MW of low price capacity – out of round 9,500 MW of total grid demand – would have been needed to avoid the high prices, but in the end every single MW produced received $17,500/MWh for one five minute period and $9,371/MWh for the 30 minute period.

It was not an outlying event. The latest AER report identified 67 different high priced events in the quarter, with almost half of them directly attributed to rebidding by the big generation companies, and some smaller ones too.

This is having a major impact on consumers – in NSW just 13 price spikes amounting to just a few hours- pushed the average wholesale price of electricity for the quarter up by $46/MWh.

In Queensland, equally dependent on coal fired generation, the impact of just a few hours of high priced events was $26/MWh – spread across every trading period in the quarter. In South Australia, with no baseload, but still at the mercy of the gas generation companies when network constraints limit supply and competition, the impact was $5/MWh.

These impacts will likely be reflected in future household and industrial bills.

Tight supply conditions can happen for a number of reasons. On the demand side, it is usually driven by high temperatures and the need by many to switch on air conditioners, adding to system load.

On the supply side, it can range from low solar and wind conditions (mostly predictable), network constraints, planned and unplanned baseload outages, and the failure of other equipment, such as so called “fast start dispatchable” gas generators that on these occasions prove to be anything but.

But it is the sheer scale of the “baseload” outages that makes the eyes water. Remember, “baseload”, according to its old fashioned proponents, means they are “always on”. But, quite clearly, they are not.

They were never really designed to be, and now that they are old and decrepit, they represent the biggest threat to grid reliability. And yet some, including the potential Coalition government, would have us try to keep these thing burning fossil fuels for another two decades to come.

Over the entire December quarter, according to the AER, the “average” outage of “always on” baseload coal was nearly 2 gigawatts, and this is just in NSW. Throw in Queensland, and the total is 3.5 GW. In the same period last year it was 3.1 GW. It is not a one off even.

Let’s underline that point on the “average” outage – that means that there in NSW there were 92 consecutive days when nearly 2 GW of “always on” baseload coal capacity was always off.

On some days, it was far worse than that. On November 7, 26, 27 and December 3, for instance, up to 4,700 megawatt of coal powered capacity was unavailable because of planned and unplanned outages, a situation made worse on November 27 by the fact that Origin’ Uranquinty gas fired generators tripped and couldn’t fill the supply gaps.

It seems a common problem: The AER report documents three separate occasions when Snowy Hydro’s Colongra gas fired generator was slow to ramp up. “125 MW of low-priced capacity at Snowy Hydro’s Colongra Power Station could not start up fast enough to prevent high prices,” it noted.

Snowy’s web page boasts that Colongra is not just the biggest gas generator in NSW, and one of the newest, it is also “fast start” – but often not very fast when consumers need it most.

One truly shocking aspect is the sheer number of high priced periods that are the result of nothing else but generator bidding – often deliberately ramping up the price of a small amount of capacity one hundred fold to the market cap of $17,500, or withdrawing capacity – simply because they can.

According to the AER, 40 per cent of the price spikes above $5,000/MWh came from this sort of activity.

“There were 67 unique 5-minute prices above $5,000 per MWh when the 30-minute prices were high. Around 40% of these 5- minute prices were a result of participants rebidding small amounts of capacity from low to high or withdrawing low-priced capacity due to technical reasons,” it says.

One of the blatant examples of this behaviour regularly occurs in South Australia, which has limited links to other states, and where competition is weak, so allowing major players like AGL to easily push the prices to the market cap of $17,500/MWh with some simple rebids.

“This was mainly a result of AGL shifting 120 MW of capacity at Torrens Island from $138 per MWh to $17,500 per MWh at 2.08 pm due to a change in forecast prices,” the AER says of one event. The cost of gas did not suddenly jump, but the opportunity to extract maximum rent from innocent consumers did suddenly materialise. And AGL pounced.

But AGL is not the only offender. The AER notes that virtually every generation company had its hand in the till at some point in the quarter, and the federal government owned Snowy Hydro figures large among them. But also – on occasions – Engie, the state-owned Stanwell and CS Energy, and even battery operators such as Genex and Neoen.

Often there were large amounts of capacity re-bid from high to low prices – but mostly this was like Republican Senators voting against a Trump nomination when they knew it would have no impact. All it needed for prices to go high was a rebid of a small amount of capacity elsewhere.

Many in the market justify this as rational economic behaviour. Others have different words for it. But given the nature of the political debate around energy and energy prices, it seems extraordinary that we allow the progress of the energy transition be held to ransom by bad behaviour and corporate greed.

But we do, and we don’t even like to admit it.