How Queensland govt generators loaded $200m extra on consumer bills

The Queensland Coalition government has been quick to blame carbon and green energy schemes – and particularly solar – for the surging prices of consumer electricity bills in the state, but a new report by the market regulator confirms market views and points the finger straight at government-owned generators.

The Australian Energy Regulator, in its annual state of the energy market report, says bidding strategies by the government-owned generators, particularly CS Energy, pushed wholesale prices way above where they needed to be last summer, and delivered an extra $200 million of revenue to the state-owned companies.

The AER report says over the summer period in 2013/14, average spot prices in Queensland were 14 per cent higher than NSW prices, after previously being lower for several years. It says this was due to volatility in the Queensland part of the national market, and was caused by the bidding practices of the sate-owned generators.

“The rebidding strategies of some Queensland generators caused this volatility. Generators rebid capacity from lower to higher price bands during each affected trading interval,” the AER noted.

“Demand and generation plant availability were within forecasts on each occasion, and pre-dispatch forecasts did not predict the price spikes.

“Most rebids occurred late in the 30 minute trading interval and applied for very short periods of time (usually five to 10 minutes), allowing other participants little, if any, time to make a competitive response.

It says the government-owned CS Energy was by far the most active player rebidding capacity into high price bands (above $10 000 per MWh) close to dispatch. Towards the end of the summer, other participants similarly rebid capacity from low to high prices, causing prices to spike more frequently.

“The behaviour compromised the efficiency of dispatch, causing prices to spike independently of underlying supply–demand conditions,” the AER noted.

The average Queensland price for summer 2013–14 was $68.77 per MWh. Had the short-term price spikes not occurred, the average price would have been 18 per cent lower at $56.10 per MWh.

“The increase represents a wealth transfer of almost $200 million based on energy traded. More generally, spot price volatility puts upward pressure on forward contract prices, which ultimately flows through to consumers’ energy bills.”

It is not the first time that Queensland government-owned assets have been caught out by pocketing extra revenues from consumers.  Last year, a report prepared for the Queensland CaneGrowers association by Melbourne-based energy consultancy CME says receipts pocketed by the state government from its network operators has more than doubled each year – from $47 million in 2007/8 to $970 million in 2011/12 – and this has been paid for by the consumers.

Energy market participants say that one of the reasons the likes of CS Energy and others have been bidding the way they do is the absence of market spikes in summer because of the role of solar PV. Queensland has the highest uptake of solar in Australia – more than 1GW – and that has removed many of the peaks in the market – where coal-fired and gas-fired generators used to make most of their money.

The government-owned Stanwell Corp last year blamed solar PV for causing revenues to fall and profits to evaporate. CS Energy had similar problems. Seems like their bidding patterns might have been designed to recapture some of those lost peaks.