Gas plants fingered again for South Australian power price hikes

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New data shows South Australia electricity prices fell sharply in August as gas prices fell, confirming the critical role of gas generators in setting power prices.

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The amount of wind energy generated in South Australia fell in August – from its high levels in July – but contrary to what most people would expect, electricity prices did not surge. In fact they fell, and the role of gas is once again at the forefront.

New analysis from energy consultants Pitt & Sherry and The Australia Institute shows that the mean pool price for electricity in South Australia’s wholesale markets plummeted to just $66/MWh in August, down from its controversial highs of $229/MWh in July.

The July events were widely blamed on the role of wind power and its occasional absences – most recently by renewable energy “advocate” John Hewson. But most analysis points to the role of gas-fired generators, and the soaring price of gas to record highs and the bidding patterns of a few gas-fired power plants, who exploited their market power when the main inter-connector to Victoria was down for repairs.

The new analysis reinforces that view. Even though wind generation fell in August, prices fell too. That’s because less gas generation was used, and the gas that was used was sourced at sharply lower price than in July.

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Wind generation, the chart above  shows, fell from 41.3 per cent of demand in July to 38.5 per cent in August. But the share of gas fell even further, from 45.6 per cent to 38.6 per cent, as the supply from interconnections nearly doubled from 12.7 per cent to 24.7 per cent.

The report’s author Hugh Saddler notes that in wholesale natural gas prices in the Adelaide market during the first seven days of July was just below $18 per GJ and in the next seven days it was just below $17 per GJ.

By the last seven days of July, when wholesale power prices had begun to fall, the average gas price had fallen to just under $9 per GJ; by the last seven days of August it was under $7 per GJ.

“The SA electricity market during the first two weeks of last July was particularly heavily dependent on gas generation at the precise time that wholesale gas prices reached by far the highest level ever seen since the wholesale gas market was launched, in September 2010, while available import capacity on the Heywood interconnector was at near record low levels,” Saddler notes.

“Several independent analyses demonstrated that the main causes (of high electricity prices) were the severely reduced capacity on the Heywood interconnector because of work on the upgrade being undertaken at that time, and very high wholesale gas prices, which made gas generation very expensive.”

“Comparison of the July experience with August confirms that these explanations are basically correct.”

Interestingly, South Australia is adding more wind generation, with the first 100MW stage of the Hornsdale wind farm coming on line, and another two stages totalling around 200MW to be built over the next year as part of the ACT reverse auction program.

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