Graph of the Day: Link between gas prices and electricity prices

Over the past few days we have marvelled at the efforts by the business lobby, with the enthusiastic support of the Murdoch media and others in mainstream press, to blame wind energy for the recent price spikes in South Australia and the rest of the country.

And as we have also noted, the people that run actually run and regulate the grid have made it clear that these price spikes have been caused primarily by the huge rises in gas prices to record levels, and supply constraints on main transmission lines.

This graph below from the Melbourne Energy Institute underlines the link between gas prices and electricity prices. As we have also noted, South Australia has been without coal power before in the winter months, but the electricity price did not spike because the gas price was low.

And as we have also noted, South Australia – and other states – used to regularly suffer big price spikes of $5,000/MWh or more, but that was before the arrival of wind and solar. Again, that was caused then  by the high cost of gas and the costs of meeting demand peaks that have largely been removed by rooftop solar.

We think that these price graphs are fairly clear. It has long been accepted that the price of gas sets the marginal cost of generation, and this just goes to prove it, and as the Australia Institute pointed out this week, the bidding patterns and price gouging of the big utilities has only increased the cost impact on consumers.