Two of Australia’s biggest utilities and retailers have been accused by the energy market regulator of seeking to “maximise profits” over the last two months as they sought to cash in on tight market conditions caused by the failure of some of the country’s ageing coal assets.
Prices soared in May and June, mostly due to unplanned outages at coal plants, multiple trips at the country’s biggest coal generator at Eraring and the nearby Vales Point, and technical issues that reduced capacity at Eraring, Vales Point, and Bayswater.
The situation was worsened by major network constraints that limited supplies coming from competitors interstate and renewables in the south-west of NSW, along with the inability of some units, such as Snowy Hydro’s Colongra peaking gas plant, to do what it is supposed to do and respond quickly to such events.
That left the big players in control of the market and – despite their repeated protestations that consumers are really important and the heart of their business – they immediately cashed in on the situation.
“While rebidding to maximise profits is permissible under the National Electricity Rules, the behaviour may not have been in the best interests of energy consumers,” the AER noted in a newly released compliance report.
This behaviour is not uncommon. Energy giants have been pushing prices to the market caps on repeated occasions whenever the opportunity emerges, even thought the asking price has nothing to do with the cost of generation.
At times, particularly in the fossil-fuel driven and largely fabricated energy crisis in 2022, they drove up prices so high the market had to be suspended. And here they were doing it again – the administrative price cap was in force for a week in May, essentially to protect consumers from further price gouging.
Renew Economy has been banging on about this for years. At least the Australian Energy Regulator is starting to show it notices, and perhaps even cares, not that there is much evidence it can or will do much about it.
The AER report on the events in May – when prices jumped repeatedly above the $5,000 a megawatt hour threshold that triggers a compulsory investigation – appears to go further than previous reports in digging into exactly what happened, and how the big gentailers helped engineer the price spikes.
The AER report observes that normally the output of the big coal plants is bid at low prices, to ensure they are dispatched because the coal plants do not like to be forced to ramp up and down.
But in May, the AFR notes, when up to 2,500 MW of coal capacity was sidelined by trips and technical faults, big players like AGL Energy and EnergyAustralia repeatedly boosted the asking price for significant amounts of the output from their Bayswater and Mt Piper coal plants above $5,000 MWh – (about 50 times the actual cost of generation).
“AGL offered a higher proportion of Bayswater’s capacity at or near the price cap from 2 May (the first high-priced day) when compared to the previous week,” the AER noted.
“On 7, 8 and 20 May, for example, it offered near 30% of Bayswater’s capacity at or near the price cap. Similarly, EA offered Mt Piper’s capacity above $5,000 per MWh for a small window around 6 pm from 2 May onwards. On 8 May, it offered 35% of Mt Piper’s capacity at or near the price cap.
“This offer behaviour represents quite a contrast with offer behaviour of the previous week when all station capacity was offered below $5,000 per MWh across the evening peaks.”
That wasn’t the only thing going on. The wholesale price at any given time is set by the price of the last megawatt into the market. If that megawatt of power is priced at, say, $500/MWh, then every megawatt produced at that time – and there could be thirty thousand of them – receive that same price.
Only one megawatt is needed to change those prices. And one of the great mysteries of the market – well, not a mystery at all really – is the sudden disappearance of low priced capacity from the market offers, forcing the price into those higher band.
This happened in May. Repeatedly. The AER notes that the inability to ramp up capacity quickly enough helped push prices beyond the $5,000 MWh on four separate days.
On May 3, it noted, some 244 MW of low priced capacity could not be dispatched. If just 30 MW had reached the market, then it would have avoided high prices.
The AER says all three of the country’s big gentailers – AGL, EnergyAustralia and Origin Energy offered their capacity at ramp rates that were at or close to the very minimum allowed by the market operator.
No explanation of why that was so was provided. But you could hazard a guess. “If the unit ramp rates were near their
maximum or accurately reflected their technical ability, high prices on 3 May and two further 30-minute intervals (one on 7 and 8 May) would likely not have occurred,” the AER said.
To be fair, they were not the only offenders. Queensland’s state owned CS Energy rebid capacity at its Gladstone coal unit, Alinta did the same at its Braemer gas plant, and AGL and Genex did the same with their Wandoan and Bouldercombe batteries respectively.
In the latter two cases, just a single megawatt of repriced capacity was enough to push prices into a higher price band.
All this means, of course, that consumers will take a hit. The activities and bidding tactics of the big gentailers resulted in high wholesale prices, which will be used by them as an argument to push up retail bills next year. And it also had an impact on the futures market, possibly locking in those high prices and the impact on consumers for longer.
“There has been a general uplift in forward prices across all forward quarters and retailers entering into contracts in the future will require these elevated contracts,” the AER wrote. “Retailers are likely to reflect their increased cost to buy electricity in future contracts with consumers.”
But finally, it seems, the AER is making clear it is seeing what is going on. “However, the AER sets a maximum price that retailers can charge electricity consumers through the Default Market Offer,” it wrote.
It remains to be seen what levels of control the AER can exercise over this behaviour and the prices for the next default market offer. But there is a deeper, more troubling issue here.
The big gentailers have done sweet F.A. in the general scheme of things to ensure that enough new wind, solar and storage capacity has been built to replace the coal fired generators that they know are ageing and getting increasingly decrepit.
Yes, they are making all the right noises now. But they have used this delay to preside over rising prices, and extract money from governments fearful of potential blackouts and yet more price spikes to keep those coal generators running longer.
That’s bad enough, but a large part of the green energy transition will be delivered through what happens in the home and the business, and the decisions made by consumers on items such as rooftop solar, battery storage, electric vehicles, heat pumps and other appliances.
The big legacy generators and retailers want the public to believe that they should be “trusted” to enter the home and help orchestrate those appliances and consumer assets.
They want the public to believe that they have the interests of consumers at heart. Yet there is absolutely nothing in their day to day behaviour that should cause anyone to believe a single word they are saying. And that is not good.
