Jumping electricity prices – It’s a gas, gas gas

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Spot electricity prices have gone through the stratosphere this summer, particularly in Queensland where average prices have been more than double of renewable energy leader South Australia.

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Thanks to our embrace of rooftop solar, more of our summer peaks are being satisfied by this clean, cheap energy. But the markets are again finding themselves at the mercy of the gas cartels who can manipulate pricing by abusing the one advantage of gas generation – fast response.

I penned an article back in February 2016, forecasting a price increase after this summer and it looks on-track to be bigger than imagined.

The average spot price this January hasn’t dropped below 8.3 c/kWh in NSW, and in Queensland it is sitting at an incredible 23c/kWh. The chart below shows a snapshot of prices for the first half of January and it isn’t a pretty sight.

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We will focus on Queensland as this is a standout in gas driven, price gouging as the lack of government regulation sets the cartels loose on residents and industry. A typical residential bill per $100.00 is made up as follows:

  • Network (connection) charges $48.00
  • Retailer costs (churn, billing, profit) $21.00
  • Metering costs (now in addition to network costs) $ 3.00
  • Green Schemes $ 3.00
  • Wholesale energy prices $25.00

Total            $100.00

According to AEMO, the average wholesale electricity price in Qld for last January was $0.052 and annually it was $0.06 per lWh. At $0.23 per kWh this month this represents a four-fold increase in prices so the flow-on effect is sure to be significant, and it’s all because of Gas.

According to AEMO data, the scheduled generation for 19th January for Qld is 7.5 GW, the actual demand is approaching 9 GW, so who takes up the slack? Unscheduled gas.

Because gas generators don’t need to run constantly to keep the boilers hot they don’t need to commit to generating power, so they simply sit back and wait for the demand to rise before punching up spot prices, knowing full well that they can charge what they like given they don’t have to generate anything if they don’t want to, leaving the state in an energy crisis.

This is like selling rice to a starving person at a premium because you become the only source, and the government is the main beneficiary, through majority ownership of these generators.

As mentioned last year, there is a genuine capacity for 3 gigawatts of solar in Queensland. This capacity is currently being displaced by what should be peaking or reserve gas generation, however gas is now a baseload contributor at peaking prices, there is something very uncompetitive about this situation and if the government didn’t benefit something would be being done about it!

Generally, the effect on households is expected to push the price of a kilowatt hour close to 30 cents, for business however the effect is going to be much more significant.

Where large consumers paid basically a low contract rate close to the wholesale rate for their energy plus a demand charge of around $23.00/kvA , energy prices made up only a small portion of the bill.

In the last two years saw 40% rises in forward supply contracts and are likely to see a similar increase this year a whopping jump from 5-7c to 12-15 cents! This is great for the future of rooftop solar for commercial premises, but an increased uptake of commercial solar will only serve to exacerbate the situation in terms of gas gouging as less coal fired power remains in the mix.

Unless the government intervenes soon and both regulate these gas barons and get some serious large scale built, Queenslanders will remain stooges for tax by stealth on both network and supply charges, and have no fear that the same situation will be played out across the National Electricity Market in years to come.

Rob Campbell is director of Vulcan Energy.

 

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14 Comments
  1. Chris A 2 years ago

    Well, this looks right in theory. However the details and events of the 14th of January tell a different story. You will find upon examination that gas generation (and Heavy Fuel) was pumping, the price stayed continuously high above $12k, while Stanwell Corporation had over a 1GW bid at the Market Cap! Dysfunctional much?

    • Stewart Rogers 2 years ago

      Quite correct, I don’t understand why they the author of this article blames gas. The last bidder of energy with the highest price sets the wholesale price. Gas peakers are profitable at $80/MWh and more supply will be built if there is a constant supply shortage.

  2. horsewhisperer 2 years ago

    “Because gas generators don’t need to run constantly to keep the boilers hot they don’t need to commit to generating power, so they simply sit back and wait for the demand to rise before punching up spot prices, knowing full well that they can charge what they like given they don’t have to generate anything if they don’t want to, leaving the state in an energy crisis.”

    This is a bit ridiculous – just how do gas generators ‘punch up’ spot prices? The generators can’t ‘charge what they like’, they can only bid in to the market.

    • Rob Campbell 2 years ago

      How many people have 2 GW of generation ready at a given time? Anyone knows you can win an auction if your the only bidder, even a reverse auction.

  3. Jonathan Prendergast 2 years ago

    Just a note that the retailers are not the only ones making profit. Networks and generators do too. They get a bit unfairly treated sometimes.

    Their job is to provide customers set pre-agreed prices in a volatile management – trading and risk management.

  4. Malcolm M 2 years ago

    Here’s another missing part of the puzzle. Queensland has a 500 MW pumped storage station (Wivenhoe), which if operated by an independent owner would generate during these high-priced periods and pump at night when the price has typically gone down to about $50/MWh. Round-trip energy losses are about 30%, so it would need a sell price at least 50% more than the buy price to make a profit. Wivenhoe is owned by the State-owned company CS Energy, which also owns coal-fired power stations at Gladstone, Callide and Kogan Ck. According to graphs of power station output on the Aneroid Energy website, Wivenhoe has only generated 3 times so far this month, the most being 240 MW on Monday 16th January, and not at all on Tuesday the 17th, when there was record demand in Queensland. By contrast, the other major pumped storage station in Australia – Shoalhaven – generated 14 times over the 20 days, usually for a few hours in the evening peak. Why is Wivenhoe used so rarely ? I suspect it is to boost the power price for the coal-fired stations in the company’s fleet. During a pump phase Wivenhoe might increase night-time spot power prices by 10% from $50 to $55/MWh ($5/MWh), whereas during a generate phase it could decrease spot power prices by 10%, from say $300 to $270/MWh ($30/MWh). There is clearly more money to be made by holding the asset and preventing others from using it, than there is in allowing it to be used by an independent operator.

    • Chris Baker 2 years ago

      Good point Malcolm. If Wivenhoe was independently owned they would want to work it hard to get a return. There’s a case for splitting up CS energy and Stanwell into much smaller units with separate trade desks. As separate entities they are more likely to bid at what is the reasonable return that they need for the asset, rather than bidding in a strategic manner to maximise the profits for a portfolio of assets. CS Energy has already been pinged by the market operator for opportunistic bidding behaviour. It could not do this so readily if its portfolio was limited.
      Because Wivenhoe has such a significant capacity and so fast to respond these characteristics allow it be used to manipulate the market, rather than support the network as it was designed to do.
      The community is the ultimate owner of these assets and its a pity our assets have been prostituted in this way. Wivenhoe is such a useful asset to have for time shifting of generation and as we bring more renewables into the system it would be good to see it put to better use than it is now.

  5. Don McMillan 2 years ago

    Gas Shortage? It the public’s choice.
    Historically the petroleum industry has always met the challenges of supply. When prices increase investment and technology follows, generating additional supply leading to lower prices. In Australia, the current high gas price has failed to generate investment and this is due to state governments bans and moratoriums. Public’s choice!

    The destruction of the OZ gas industry is the renewables biggest threat. Ironically we may have to start building coal fired stations again.

  6. liquidblueocean 2 years ago

    I’m fine with the high prices pushing even more people into solar

    • George Darroch 2 years ago

      It’s not good for renters – usually the people who can least afford it.

      • Don McMillan 2 years ago

        Thank you. Unfortunately the “people who least can afford it” will also get hit with unemployment with the closure of OZ manufacturing. Natural Gas is feed-stock for making plastics, most chemicals we use day to day & fertilisers etc. Solar cannot manufacture these items.

        • George Darroch 2 years ago

          Reducing demand for fossil fuels will bring down their costs as feedstocks and allow a more competitive sector.

          • Don McMillan 2 years ago

            The cost of natural gas in OZ will come down as demand is reduced to match the diminishing supply. This sudden change will be accomplished by the closure of manufacturing. E.G IPL announced [ASX 10May16} the imminent closure of their QLD fertiliser plant. A lot more factories to close. Our manufacturing is very un-competitive caused by policy decisions.

      • liquidblueocean 2 years ago

        Renters are also voters.
        It’s the only way I see politicians finally forced into allowing electricity to be traded between normal consumers, giving us all cheaper power.

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