Gas generators profit from scarcity in S.A. again, and again | RenewEconomy

Gas generators profit from scarcity in S.A. again, and again

Big gas generators in South Australia have combined again to create “scarcity” and push prices into orbit, pocketing windfall profits at the expense of consumers.


Cast your mind back to early September and the big public debate about the market power of generator bidding, and the protests from the big incumbents that they were innocent, your honour, of exercising any undue market power.

But it seems that as they were protesting their innocence in public, in the oblique arena of electricity markets, the big generators were busily creating “scarcity” again and profiting once more from surging prices in the South Australian market.

Two new reports from the Australian Energy Regulator illustrate how – like on many previous occasions – the big gas generators used their dominance of the market to force prices up 10-fold on two occasions in late August and early September, pocketing a bonus $14 million on the way.

See our previous stories: How Tesla’s big battery can smash Australia’s energy cartel; Gas generators hold South Australia consumers to ransom, again; How the fossil fuel industry screwed energy consumers; and AER details extraordinary price gouging by gas generators in South Australia.

Both of these new events took advantage of a network repairs, which force the Australian Energy Market Operator to impose market constraints, and request a minimum 35MW of so-called frequency control and ancillary services (FCAS) while the repairs are under way.

These FCAS services are provided – at the moment – uniquely by the owners of the big gas generators – AGL, Origin and Enegie.

Their capacity is actually have more than 10 times that ever needed by AEMO, but it seems that every time AEMO imposes that constraint, and calls for 35MW of FCAS, the big generators jack up their prices.

As we reported previously, the tactic is usually to provide only 34MW of FCAS and then charge whopping prices – usually in excess of $10,000/MW – for the last megawatt needed.

It’s breathtakingly cynical, but merely part of what the Australian Competition and Consumer Commission admiringly calls the “exercise of market power,” which is no comfort to consumers.

On August 28 and September 14, the tactics were varied slightly. Available capacity on August 28 was 33MW, and on September 14 it was 30MW.

On August 28, the AER notes: “On the day before the planned outage, AGL shifted (rebid) capacity from low prices to above $5000/MW at its Torrens Island power station for 28 August.”

That meant only 33MW of “low priced” capacity was now available. The high cost for that last 2MW sent prices into orbit, with “high prices of around $10,000/MW or above for the duration of the outage (approximately eight and a half hours, or 102 dispatch intervals).”

Likewise, on September 14, the AER noted, that not enough low priced capacity was made available,”resulting in prices of around $10,970/MW and above from 8.35 am until 4.30 pm inclusive, after which time the price for both services fell to significantly lower levels.”

The result, a total bill of $7 million on each day, more than 10 times the daily average. (See August 28 above).

Little wonder the South Australian government is sick and tired of this market extortion and is seeking a change of rules to encourage battery storage operators, and opportunities for wind and solar farms, to play in this market.

Energy minister Tom Koutsantonis last week lamented the fact that private owners of energy assets were  wanting to make sure that they got their maximum return – through monopoly rents – and cited this “deliberate policy of scarcity” in order to increase prices.

To change the rules, however, means getting past the Australian Energy Market Commission, which sets the market rules, but has been slow to adopt them – under enormous pressure from the very same generators that benefit from the current arrangements.

The proposed 5-minute rule is one example. Under the 30 minute settlement currently in place, it is generally recognised that the generators are able to game the price by creating scarcity at certain intervals. But the change has been punted until 2021, under pressure from the generators.

But it also goes to the heart of concerns about the National Energy Guarantee, which critics say will simply reinforce the market power of the incumbents and make it more difficult for new competitors to enter the market.

The lead author of the NEG? The AEMC. The chief supporters? The Business Council of Australia and other bodies that represent the big generators. Truly, it is cynical beyond belief.


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  1. George Darroch 3 years ago

    Five years to change the five minute rule. It’s unbelievable.

    • Andy Saunders 3 years ago

      It’s not just the 5-minute/30 minute rule. This one is rorting the FCAS market.

    • Hettie 3 years ago

      Realistically, how quickly could it be done?
      Probably not overnight, but 2 weeks? 3 months?

  2. trackdaze 3 years ago

    It’s up to solar wind and storage to remove that scarcity.

  3. John Herbst 3 years ago

    AEMO really needs an ace in the hole, like its RERT Panel, to break up collusion and gaming like this.

  4. Rob Atkinson 3 years ago

    which generators are these – I would hate to think I might be a retail customer of one of them

    • Andy Saunders 3 years ago

      Their names are mentioned above…

  5. Ian 3 years ago

    This is all in the past now that both the big battery and the diesel turbines are available.

    • Rod 3 years ago

      I think you will find the diesel/gas turbines can’t help with FCAS (unless they are already running) and the plan is to leave them off unless required to cover peak demand.

  6. Hettie 3 years ago

    Please, Giles, as well as stating the grossly inflated price, state the everyday price too. First time readers would have no idea what it is, no notion of the extent of the rort.

  7. Rod 3 years ago

    AEMO does have an option to suspend the market in times of high system risk (as they should have done during the SA tornadoes)
    Maybe when interconnector maintenance is happening they could invoke that suspension.

  8. Kevfromspace 3 years ago

    What would it take to break this energy cartel? New entrants like the Tesla 100MW Battery, Wattle Point 30MW battery, Lincoln Gap 10MW Battery and Aurora Solar and Storage? AEMC Rule changes? Both?

    Does anybody know if any rule changes are in front of the AEMC regarding the FCAS market which could limit this behaviour in the future?

  9. Ron Horgan 3 years ago

    Quite apart from the “rules” this has to be a conspiracy to defraud the consumers.
    Can a class action be mounted representing the consumers who have lost defined sums in aggregate? Both losses and punitive damages may be recovered from the parties who have colluded to make such illegal profits?
    How can this plain theft be allowed to continue?

  10. Robert Comerford 3 years ago

    I once heard it stated that OPEC could not hold a meeting in Australia as they would be arrested, as cartels are illegal under our laws.
    Seems they operate fine in the electricity supply markets.

  11. Chris Baker 3 years ago

    Maybe its the design of the market that’s broken. The idea that FCAS is provided by particular generators rather than every synchronous generator in the pool I think is flawed. If every generator was required to provide frequency support, as was once the case before we had the NEM, the system would be more stable. Here is a snippet from the recent report on frequency commissioned by AEMO. “It is concluded that there has been a very significant decline in the amount of governor response being provided within the normal operating frequency band since the introduction of the FCAS markets, when the compulsory provision of this governor response was removed from the NER.”

    • Hettie 3 years ago

      Everthing I read about the NEM, AEMO and AEMC convince me that if the regulatory appararus is not broken, if it is operating as planned, it must have been designed specifically to provide obscene profits for the gentailers, and increasing pain for consumers.
      Way past time to start again from scratch. To set out objectives for this essential service and design the regulatory framework to reflect the fact that electric power is indeed an essential service, not a gravy train for the fossil fuel and generating magnates.

    • Pixilico 3 years ago

      What market? It’s a monopolistic scam disguised as a competitive structure from the outset. No wonder they keep rigging the “market” in order to extract monopolistic rents out of it. I guess what’s also broken is the sorry state of the economics taught at universities and business schools. What passes for an eulogy of the so-called “market forces” is nothing but ill-disguised ideological BS. Quick, we need to educate ourselves better. Capitalism is all about the evolutionary survival of the fittest. So, inevitably, at some point in time we’ll have to face the harsh realities of oligopolies and monopolies that can grow out of the anarchy of market competition. So much for fairy-tale “market economics”! There’s only one planet Earth and we’re killing it with the help of the ideology of unfettered market mechanisms, while equally being ripped off mercilessly.

  12. RobertO 3 years ago

    Hi All, introducing new rules (5 Minute rule, and or day before dispatch bids) would improve market behaviour, as would disabanding Gentailers (remove Gentailers from MRET claims would start the seperation process, ie Gentailers must buy LGC on open markets, and can not sell own LGC from RE they make, must be handed to ARENA or CEFC for $0.00 for them to sell at market price. Tell your pollies you want changes made to Gentailers in Australia. (Remove market power).

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