Fossil fuel generators demand king's ransom for energy security | RenewEconomy

Fossil fuel generators demand king’s ransom for energy security

Energy prices are soaring again in South Australia, but the clean energy industry is blaming the market operator for poor choices and bad planning, and allowing a few generators to virtually set their own price for frequency services.


Extraordinary price movements have again hit the South Australian electricity market, with prices for “ancillary services” soaring on Thursday and Friday, drawing criticism from the renewable energy industry about the management of the grid.

Prices in the market for frequency and ancillary services – known as FCAS, and which provides stability to the network – soared to nearly 10,000 times their normal price on Thursday, taking the total bill for a single day to around $8 million. The normal annual bill for such services is $5.5 million.

On Friday, the prices were still high. While wholesale prices in South Australia traded around $21/MWh at noon, FCAS prices were running at $300/MWh in South Australia, 30 times higher than in other states.

The Clean Energy Council is outraged by the spike in prices, and is questioning why the Australian Energy Market Operator chose to allow a small number of fossil fuel generators to bid the prices up so high, when it could have found a cheaper alternative.

The event occurred on exactly the same day as a report from the Melbourne Energy Institute raised concerns about bidding practices in the wholesale electricity market, which it says may have resulted in fossil fuel generators “gaming the market” and adding up to $60 million to consumer bills.

There is growing concern across the industry about the structure of Australia’s energy market, and the ability of a small number of generators to control and set prices much higher than they need be.

In Queensland last year, a Productivity Commission report noted, around $170 million was added to the wholesale market by the bidding practices of several dominant state-owned generators.

South Australia is seen as another market where a few generators can control and manipulate prices, which is why the state energy minister is pushing for more renewable energy (to help democratise the market), another interconnector to further increase competition, and for a regulatory review of recent bidding patterns.

The latest price spike has been caused by more planned outages on the main interconnector linking Victoria with South Australia. Because South Australia will have less access to imports, AEMO wants to make sure it has enough back-up generation to keep the local network steady.

But the CEC has questioned several of AEMO’s assumptions and its choice of action.

There was controversy last October and November when AEMO took a similar course action, causing the cost of FCAS to soar to $27 million over the period.

But even with these payments, the network still tripped, and the failure of one gas generator generator to follow market instructions caused blackouts to last more than half an hour, rather than just a few minutes, in turning causing a big outage and public controversy that was wrongly blamed by fossil fuel apologists and nuclear advocates on renewable energy.

More upgrades of the interconnector are planned by AEMO in coming weeks. The CEC fears that the cost could reach $21 million, a bill that will be shared by large energy consumers and other generators.

“It is questionable whether the mechanisms that are being relied on for this service are indeed in the interests of consumers,” the CEC says in a briefing note.

It points to a lack competition to provide these services in the SA market and a lack of preparation by AEMO – even though the exact same thing happened last year and “they knew this was coming.”

The CEC questions the AEMO’s assumptions that 35MW of FCAS capacity is actually needed, and wonders why it has only sought these services from three South Australian generators, and none in Victoria. And it also questions why no consultation took place, as it says is required by the market rules.

The FCAS regime was designed back in 2002. It is specifically tailored to the prevailing generation technologies of that time, namely coal and gas generators that include complex and slow (in electrical terms) thermal steam systems.

Although there has been a call for reforms to the market to encourage battery storage, which could provide quicker and cheaper alternative, specific requests for rule changes that could facilitate that are being rejected by the fossil fuel generators and their lobby group.

Indeed, an analysis for a new grid-level battery storage project in South Australia found that it would not be economic under current market structures. The design of FCAS places no value on the very fast response capability offered by inverter-based technologies. Effectively, there is no fast-acting FCAS market in Australia.

The irony is that if the battery storage plant proposed for South Australia was to receive the amount received by fossil fuel generators last October/November and this August, it would just about pay off its capital costs in one event.

The clean energy industry also notes that renewable energy sources such as wind and solar could provide these services, but there is currently no market to encourage it to do so.

In response, AEMO said in a statement that the market was first informed of the requirement to purchase regulation FCAS during planned outages impacting the flow of the Heywood Interconnector on July 2, just four days after it was   first made aware of this maintenance work.

“This follows considerable consultation with industry from late 2015 to clarify AEMO’s procedure to purchase 35MW of regulation FCAS when the Heywood Interconnector is at a single, credible contingency,” the statement said.

“When the Heywood interconnector is on single contingency, it falls into the ‘credible risk’ category. Due to a heightened risk to power system security, AEMO limits the flow across the interconnector, and purchases regulation FCAS, required to maintain frequency after an event where South Australia (SA) separates from the NEM.

“It is important to note, the 35MW of regulation FCAS procured by AEMO equated to approximately 30% of the regulation FCAS services available on 11 August 2016.”


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  1. Chris Fraser 4 years ago

    Imagine the ideal situation where all consumers have batteries and supply regulators. The grid could sustain more unstable moments. That FCAS market would likely fade away …

  2. john 4 years ago

    It is very apparent that the present major producers of power will ensure they put every price signal up to give a message to the people, that look using any kind of Renewable Energy is a really bad idea; because it costs you a lot of money.
    Frank thoughts yes SA does not have enough dispersed RE to cope for peats sake it does not like have a majority production situation ATM.
    To look at this price signal and go into panic about using alternate energy is not a sensible or prudent conclusion.

    • Analitik 4 years ago

      Isn’t this a signal then for SA to abandon the traditional FCAS providers and go whole hog with renewables and batteries?

      The 35 MW mentioned in the article is nothing vs even a relatively small OCGT so what’s stopping the changeover?

      • Chris Fraser 4 years ago

        I think there’s a clear signal. The question is whether batteries or some other load-levelling devices are the efficient successor technology. AEMO is a regulator and probably needs someone else to make the investment and prove it will work.

        • Charlie 4 years ago

          AEMO is not the regulator. It’s just a market operator and administrator. AER is the regulator and AEMC is the legislator and policy developer.

  3. Phil 4 years ago

    Well they are only “On Gridders” , does anyone care ?

    And governments can just say “well private enterprise sets the price the market can afford to pay”

    If this isn’t proof the Neo Fuedal model is firmly entrenched in Australia then nothing is

    • MaxG 4 years ago

      Nothing Neo about the Feudal model… however, the neo-liberals have stepped it up a notch, pillaging whatever they can get their hands on… E.g. electricity, water, health, education… in fact, every public good that hasn’t been sold yet is up for grabs.

      • Phil 4 years ago

        I think PREDATORY behaviour is now the norm.

        I used to think they (corporations) would be at least be as smart as parasites and NOT kill the host that feeds them .But i think they may very well do just the opposite and kill the host off just for fun rather than need.

        Thankfully i’m 100% off grid as far as all essential services which are now oligopolies

        • lin 4 years ago

          There are so many of these parasites bleeding us dry. They know they are killing us but are each maximising their take, with the willing cooperation of “our” representatives. Reducing reliance on the system before one of a number of big red buttons gets pressed is an excellent strategy.

          • Phil 4 years ago

            That’s the neo fuedal model and precisely how it works
            It’s actually mostly Global corporations now ,so it’s a Globalised neo feudal model

            The Majority of Australians blissfully ignore it and many support it

            I suppose at least it’s a plan with known outcomes. Which many may , and obviously do prefer , to a plan such as chaos or an alternative that is more consumer friendly.

            Personally i like the SIngapore Business model or Tripartite model as they call it . It seems to work because everyone gets something out of it . And all have to do the right thing by the Sovereign State, and if you do it gives back , you are rewarded for your efforts

            The Neo Fuedal model seems to Predate heavily on many

  4. MaxG 4 years ago

    I am glad I have set myself up self reliant when it comes to electricity. My suspicion held for a few years has eventuated that these corporations will take the consumers to the cleaners. A huge money-making scheme and nobody cares. I certainly don’t ROFL LMAO 🙂

  5. Don McMillan 4 years ago

    Renewables cannot guarantee supply nor meet demand therefore when they do supply they must disrupt the generators that can guarantee supply & meet demand. Disruption in any market, stock-market, exports etc causes massive fluctuations and often chaos.
    Right or wrong this disruptions and future disruptions will be blamed on renewables. To prevent damaging the product further the industry must rethink their strategy.
    I see two options [ there maybe more] Nationalising the NEM which would be horrible.
    The second option is the renewable industry start introduce technologies [tried and tested] to guarantee supply and meet demand.

    • Catprog 4 years ago

      Well for the $8 million for a single day that got paid to the gas generates.

      42MWh of batteries could be purchased.

      So if the renewables got the same funding, they certainly could provide the same deal. Plus with more competition the price spikes will lessen.

      • Don McMillan 4 years ago

        The funding is there big time. Just returned from Sydney and the Private Equity, Fund managers etc have huge $’s to invest. [Low interest rates & US & Europe Bond purchasing]. All you have to do is have an Engineered designed project, Economics model showing profitability and if required government sanction. The latter in this case is easy.
        Engineering lets say its a development in progress. But its the economics. to make it work requires ….Subsidies……
        The scary thing about this is that in Europe & now Australia’s Government deficits & debts indicate that we’ll have to borrow to pay for all future subsides.
        There is plenty of money [if project profitable] and huge community & therefore political support. The latter is very true – Just listen for the politicians words ………are doing this because of “community concerns”….. which is code for we are ignoring the engineers & scientists and siding with the voters. This crisis was predicted.

  6. Daniel 4 years ago

    In psychology and social science, the problem is called having an “external locus of control” instead of an “internal locus of control”. SA needs find a way forward that is within their control, rather than battling hegemony and inertia of the previous paradigm of electricity provision.

  7. Charlie 4 years ago

    Stop whining, CEC! Think strategically, plan systematically, and act courageously.

    Please admit it IS a renewable energy problem, please don’t say not. We’re in a market economy which allows monopoly and oligopoly to exploit but also allow new entrants to challenge. Surely there are market failures to the introduction of clean energy, in especially NEM – a designer’s market. Government intervention and assistance is necessary – on that account, renewable energy has actually already had a better position than energy efficiency. But begging for mercy is not the best solution, the renewable energy industry should take responsibility to convince government an alternative business case that public money can be spent more on renewable energy instead of the traditional powers.

    Both government and the industry should step out of its respective comfort zone, but the latter should make the first move this time. Off the grid and self-reliance is not the final solution. A modern efficient economy relies on inter-connection and co-operation. The renewable energy enters NEM is not to destroy it but to transform it to a better form.

    Of many possible ways to try, an ancillary service dedicated to managing renewable’s intermittency and “duck curve” which will sooner than later become the most critical bottleneck of renewable should among CEC’s immediate agenda for communication with COAG, AEMC, AER, AEMO and DNSPs. While battery storage cost is yet to be break-even in small scale and non-critical situations, I believe it has already made an economic sense in a grid-scale and in a situation of crisis as SA experienced recently. Anyway, talk and do something more proactively and constructively, CEC.

  8. Daniel 4 years ago

    SA needs to continue moving forward by encouraging individual households, small business, farms, commercial and industrial precincts to integrate renewable energy with storage and shave off spikes during seasonal peak demand. SA and the ACT are leading the country and their individual citizens will inevitably adopt PV/storage when the generous Feed-In-Tarrifs end. As we gain confidence at a micro level of implementation with renewable energy, macro solutions will inevitably become more apparent to all of us and the distributed paradigm will accelerate in momentum. Local, State and Federal solutions to renewable energy need to remain autonomous in their leadership and yet nested and interdependent within their larger grids.

  9. Marcel 4 years ago

    Interesting, wouldn’t be surprised this happens in other places as well.

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