Gas generators called out for exploiting NEM flaw, creating “obscene price spikes”

A new analysis has called out Australian gas generators for choosing to exploit an energy market failure, rather than to fulfil their key role of complementing renewables by supplying additional local demand when needed.

In a statement published on Wednesday, The Australia Institute said a combination of “cooked up” high domestic gas prices and a National Energy Market that was driven by profit maximising behaviour by oligopolies meant that gas generators were “clearly not working in the best interests” of energy consumers.

And it warned that if the situation was not rectified, and NEM not reformed, the wholesale transition to battery and other storage methods would be fast-tracked, leaving fossil fueled “base-load” generators in the lurch.

As we reported here, the sort of monopolistic pricing behaviour TAI is concerned about is precisely what the South Australian government has been trying to force out by building more wind and solar farms, and providing more interconnectors. But changes in the market rules will also be crucial to change the behaviour of generators.

“We have a situation where Australia’s second most efficient power plant (Pelican Point) is sitting idle in Adelaide while there is a spike in power demand. Something is very wrong with that picture,” said TAI senior economist Matt Grudnoff in the release.

“Gas generators are able to rapidly fire up additional output in the event of reduced renewable generation. That’s their advantage over coal,” he said.

“But due to export contracts, they’re picking overseas over local production.

“What’s happening in South Australia shows that gas is prepared to exploit the current NEM regime rather than perform that role.”

Grudnoff said that interconnector repair and upgrade work in both South Australia and Tasmania, combined with gas prices driven up by export contracts, had combined to create “obscene price spikes”, rather than “an orderly substitution between different forms of generation.”

“If this situation continues, and the government does not address the flaws in the NEM, it will only hasten the transition to battery and other storage methods,” he said.