Gas generators send electricity prices soaring again in South Australia

Gas-fired generators in South Australia have again sent electricity prices soaring towards the $14,000/MWh mark in the state  – the most recent occurrence because of the need to meet just 10MW of extra demand.

The extraordinary price jump is just one of a number of examples chronicled in the latest weekly market reports from the Australian Energy Regulator, and highlights the slow and clunky nature of Australia’s current energy fleet and its inability to respond to sudden shifts in demand and supply.

But unlike events in July – which the Coalition parties in South Australia and Canberra sought and the fossil fuel lobby sought to blame on renewables – these latest spikes have drawn no comment. And the Murdoch media and the ABC, forever acting to protect consumers, we are not have not mentioned them either.

The latest event occurred in the early morning of November 1, Melbourne Cup Day. In its report, the AER says demand was running about 100MW ahead of predictions, but a small increase in demand at 7.20am, along with a small decrease in supply from wind generation, gave the peaking plants the opportunity to pounce.

So much of the blame for price spikes in South Australia is put on renewable energy, but it is hard to imagine a better argument for more renewables and new technologies such as battery storage.

Remember, such high price events used to be commonplace before the advent of wind and solar, when gas plants controlled the marginal price of generation. With the closure of the last brown coal generator, they have that power again, and are exploiting it ruthlessly.

Incidentally, despite this and other high-priced events in the last few weeks, South Australia wholesale prices have actually fallen below those of New South Wales and Queensland, because those states have had to rely on gas-fired generation and South Australia has been blessed with more wind power.

The absurdity of the situation is that while governments and fossil fuel lobbyists argue that the reason is a shortage of gas, it is in fact noting of the sort. Some 1500MW of gas-powered generation was sitting idle at the time. Drilling for more gas won’t change that dynamic because the market will still be dominated by just a couple of players.

And if the South Australia government awards a new contact to Pelican Point, as it seems intent on doing, rather than new technology like solar towers and molten salt storage, then that will likely force other gas generators out of the market, leaving the problem unsolved.

The obvious solution , of course, is to encourage battery storage and other technologies. These can respond in seconds, rather than minutes, and because they will be spread throughout the network will be unlikely to exert he same pricing power.

What happens now is that one generator forces up the price of electricity in a five-minute period, and then all the other generators  bid in to the market so they can cash into he premium price.

That’s why a big price spike in one five-minute interval can deliver such a bonus, because the price is spread out over the whole half hour period – and every generator operating at the time cashes in.

One way to solve that problem, and remove what he AER has admitted is a major distortion, is to settle the prices in every five-minute period. But guess what, the big fossil fuel generators have fought against that proposal, arguing that it will force dirty and expensive peaking power plant out of the system.