BNEF says broken gas market main offender in SA energy “crisis”

Print Friendly, PDF & Email

BNEF report says poorly functioning gas market main cause of SA power price spike, blaming renewables “erroneous and simplistic.”

share
Print Friendly, PDF & Email

Another independent analyst report has cleared renewable energy of most of the blame for South Australia’s July energy “crisis”, pointing instead to Australia’s “illiquid, poorly functioning” gas market and the lack of competition as the main causes of the recent price spikes.

The report, published on Wednesday by Bloomberg New Energy Finance (BNEF), notes that South Australia’s high penetration of renewables does pose some challenges, particularly to the physical management of the grid, but says that to just blame renewables – as many politicians and media outlets did – is “erroneous and simplistic.”

pelican point gas

“The high penetration of renewables does …make meeting peak system demand and maintaining stable frequency more challenging,” said BNEF Australia’s chief analysts Kobad Bhavnagri in the report.

But “a variety of factors are at play, most potent of which is our illiquid, opaque and poorly functioning gas market.”

His comments echo those of new environment and energy minister Josh Frydenberg, who said last week that it was wrong to blame renewable energy for the price spikes in South Australia, noting that such price spikes had been a regular occurrence before wind and solar plants were developed.

Bhavnagri says that while renewable energy can cause large swings in supply, having less renewable energy – and more gas – would have increased the market’s exposure to volatile gas prices.

“It is erroneous and simplistic to just blame renewables for the recent price rises in the South Australian market,” he said in the report.

“A variety of factors are at play, most potent of which is our illiquid, opaque and poorly functioning gas market. While renewable energy causes large swings in supply, having less renewable energy (and more gas) would have increased the market’s exposure to volatile gas prices when the old coal inevitably retired.

“For power prices to stay as low as possible gas markets need to function in the interests of consumers, not just producers and LNG exporters. Renewable energy does pose challenges – so economists and engineers need to work to adapt our decades old market and centuries old system to enable a cleaner, more diversified energy system.”

 

The report finds that South Australia’s electricity market faces four clear problems: decreasing supply margins; a lack of system stability services; high and volatile wholesale electricity prices; and an illiquid futures market.

This is BNEF’s list of Drivers of higher wholesale electricity prices in South Australia

1. Exit of low-cost generators
The exit of 1GW of low-cost generation in South Australia has pushed up the clearing price in the market. Increasing renewables are only one of a variety of factors (including old age, high fixed operating costs and the inflexibility of coal) which lead to the retirement of South Australia’s low-cost coal plants. It is important to note that with or without renewables, power prices would eventually rise with the exit of the ageing coal plants, as gas is a more expensive fuel source.
2. Increase in gas prices
Out of the three contributing factors, the increase in domestic spot prices for gas has had the biggest impact on electricity prices in South Australia. The sharp increase in natural gas prices were a result of an increase in demand for gas from the LNG market as well as for heating during a cold winter spell. While renewable energy penetration causes large swings in supply, having less renewable energy (and more gas) would not have reduced the market’s exposure to volatile gas prices, unless more coal was built. Gas prices have been rising along the interconnected east-coast of Australia since 2014 due to the commencement of LNG exports from Queensland. This has placed upward pressure on gas prices – and reduced the availability of long-term gas supply – as gas is preferentially supplied to the higher value export market.

3. Reduction in competition
The exit of Alinta’s Northern power station has increased the market power of AGL, Engie and Origin to around 50%, 20% and 17%, respectively. It is not possible to determine exactly how much impact the reduction in competition has had on prices, however as with any market, lack of competition leads to higher prices and inefficient market functioning. A lack of competition has been an issue in South Australia well before the introduction of renewables, due to the market’s small size. The introduction of renewables – many of which are independently owned – actually helped remedy this problem. However, it has resurfaced with the inevitable closure of older generators. Ultimately, a small market with limited interconnection is vulnerable to low levels of competition. This is a structural issue that should be carefully managed, and depends little on the fuel mix of generators.
Print Friendly, PDF & Email

4 Comments
  1. howardpatr 3 years ago

    Yet Minister Canavan, as late as last Monday, on Q & A, was trying to blame the solar and wind generators.

    Canavan is getting off to the start anticipated of him.

  2. Phil 3 years ago

    I can can 100% guarantee that my 100% off grid renewables are not to blame for the crisis.

    I Don’t use town gas , don’t use grid electricity , don’t use sewer , don’t use townwater – Life is perfect

    If yours is not then ask your local council , state governement and federal government who are earning and taxing more money than they ever have why.

  3. iampeter 3 years ago

    “Bhavnagri says that while renewable energy can cause large swings in
    supply, having less renewable energy – and more gas – would have
    increased the market’s exposure to volatile gas prices.”

    OK let me try untangle everything wrong in that quote. Basically he is saying: “Alternative energy hasn’t been able to provide reliable base-load power at affordable levels, but previous industry that was able to do this, would be even more unreliable if it were back in business in SA”.

    Classic.

    It’s like you all know what you support doesn’t work (you can’t not know it given the evidence right in front of your eyes) but instead of facing facts, you blank-out and double down. This is going to end well for everyone.

    • Brian Tehan 3 years ago

      The quote is quite simple to understand but you seem to have completely misread it.

Comments are closed.

Get up to 3 quotes from pre-vetted solar (and battery) installers.