Queensland generators pull capacity as energy market lurches into new crisis

The crisis of confidence in Australia’s broken electricity market deepened on Tuesday in yet more extraordinary scenes that saw prices hurtle towards the market cap, emergency intervention by the market operator and a sudden, massive withdrawal of capacity from major generators.

The fast moving events were again triggered by the soaring cost of coal and gas, and the ability of coal and gas generators to exploit the market to deliver maximum returns.

Wholesale electricity prices in Queensland on Monday and Tuesday hurtled towards the newly raised trigger point for an automatic price cap – $1.398 million averaged over 2016 trading periods, or an average of $693/MWh over a whole week, or more than 10 times the normal “average”.

Queensland is the state most dependent on coal and with the least amount of renewables, and is quite literally the canary in the coal-mine of the market dysfunction caused by the soaring cost of fossil fuels.

The Australian Energy Market Operator was forced to intervene on Tuesday, triggering its reserve trader mechanism, issuing directions to at least one market player, but the industry was stunned when 1.3GW of capacity in Queensland was suddenly withdrawn on Tuesday morning.

“What the hell?” Tweeted energy analyst Dylan McConnell, who noted that the sudden withdrawal came before the administered price cap had been triggered, and despite pleas from market bodies for the generators to play fair and not hold the market to ransom, as they were accused of doing in June.

See: The day the fossil fuel industry lost all perspective, and threw away its social licence

At the time of publication, it was expected that the price cap would be triggered later on Tuesday as wholesale prices were expected to surge in the late afternoon and evening as the market operator juggled a tight supply situation.

McConnell told RenewEconomy that there is no excuse for the generators not understanding their obligations in the market, given the repeated warnings from the various market bodies.

“It’s outrageous,” he said. But on Tuesday it seemed that the market was determined to bring things to a head.

Meanwhile, Alinta Energy led a push – supported by others – to lift the administered price cap from $300/MWh to $600/MWh – to cover the inflated cost of fossil fuel generation.

Gas prices have forced the cost of gas generation up to $500/MWh or more, while the cost of coal generation – to those generators that have to source coal on the open market – has leaped to more than $300/MWh.

Alinta said this may be the only way to avoid another market suspension. “If the relevant underlying market settings are not changed, there is a real risk that we will again see the same conditions that led to the unprecedented dysfunction and suspension of the market,” it warned.

It is unclear, however, how a price cap of $600/MWh could help when the average price of generation over a week is already more than that.

The long term solution is, of course, more renewables and storage to replace the increasingly costly and unreliable fossil fuel generation, but the quest for a short term solution has everyone stumped.

It was not clear in the early afternoon on Tuesday what measures would or could be taken, or how quickly a doubling of the price cap could be introduced, barring ministerial intervention – and particularly in Queensland where most of the generation is state owned.

Paul McArdle from Watt Clarity, noted that the 1.3GW of capacity withdrawn in Queensland on Tuesday morning happened in just 10 minutes and accounted for 14 per cent of total capacity available at the time.

It also happened with at least five coal units not generating due to various problems and as the market operator was flagging a supply crunch later in the day.

“This ‘2022 Energy Crisis’ still has a long way still to ride,” he wrote.

The more fundamental problem is the loss of trust in the energy industry. Bad behaviour might have been predicted of a fossil fuel industry now keenly aware of its own mortality and so used to setting its own rules, as it has done in Australia and elsewhere in the world over the past few decades.

But the impact on consumers is severe. Labor finds itself caught in a bind – celebrating the record fossil fuel earnings as enthusiastically as the right wing antagonists from the LNP, while at the same time trying to express concern and solutions for consumers hit so hard by these super profits.

But consumers don’t believe the industry any more. Last month, Energy Consumers Australia wrote of a loss of trust – and a new survey out on Wednesday will be interesting to see – and even the regulator noted recently the loss of trust and faith in the industry.

This is an unfolding story, more to follow

See also: Alinta calls for urgent doubling of electricity price cap, as fossil fuel costs soar

And: Price cap could return on Tuesday as coal and gas drive prices higher again

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