Rapacious utilities send power prices soaring as they seize on coal and network faults, and low wind output

The Coalition might want to be careful what it wishes for. The case continues to mount that gas fired generation is increasingly responsible for the very surge in wholesale electricity prices that the Coalition is using to justify its demand for yet more gas power.

The Australian Energy Regulator has released its assessment of the September quarter wholesale prices that, on the face of it, presents a grim tale of soaring wholesale costs. But most of these were entirely driven by high priced events when generation companies seized on unplanned baseload and network outages.

The most affected state was South Australia, at the end of the country’s long stringy grid and which has the highest share of wind and solar in the country, and the world, at an average of 72 per cent, but which is still afflicted by a lack of competition in the market.

As Renew Economy wrote when these price spikes occurred, incumbent generators have seized on any opportunity – particularly the failure of baseload generators and network constraints, many of them unplanned, along with periods of low wind output – to excercise their considerable market power and push prices higher.

Essentially, these generators are fighting against the future, which promises lower costs because of the switch to cheaper technologies. But as long as the incumbents hold the levers over pricing power, those benefits will be hidden by the impact of predatory behaviour.

The AER is yet to complete its statutory obligation to investigate power spikes in the September quarter – even those that occurred in July – and says it won’t do so until November.

But it says the power price spikes of more than $5,000/MWh that occurred in just 27 half hour trading periods over the Setptember quarter were responsible for an average $77/MWh increase in wholesale electricity prices in South Australia.

The AER said most of the price jumps occurred when wind output was low, but also when network constraints, most of them unplanned, further reduced competition.

“Network outages also contributed to the high price periods with the Heywood interconnector being constrained during the majority of events occurring in South Australia and Murraylink offline for both planned and unplanned outages for some of the quarter,” it writes.

“Some market participants rebid by shifting offers to higher price bands which reduced low-priced capacity
further.”

Without those price jumps, South Australia’s average wholesale prices would have been significantly lower than the June quarter.

The same story can be told of Queensland, where a big increase in baseload coal outages, and subsequent price gouging, meant that it was the only other state to report an increase in wholesale prices over the June quarter.

This is not the first time this has occurred, of course. The AER came to similar conclusions in its June quarter assessment, when its report highlighted that without the small number of price jumps caused by market manipulation, average wholesale prices would have actually fallen, including in NSW and Victoria.

Mainstream media, of course, chose an alternative narrative. And the AER says the behaviour is not illegal. “While rebidding to maximise profits is permissible under the National Electricity Rules, the behaviour may not have been in the best interests of energy consumers,” the AER said at the time.

In the latest quarter, gas generators were again the main culprit and according to the AER set the prices on most occasions, particularly at very high prices.

The AER said gas generators set the price significantly higher than in the same quarter last year (up $159 per MWh in NSW, $137 per MWh in Victoria, and $108 per MWh in South Australia).

But gas was not the only culprit.

Baseload coal outages increased markedly in the two states most heavily dependent on ageing coal fired generators – up 63 per cent to an averag 757 MW in Queensland and up 42 per cent to an average 350 MW in NSW.

And while the capacity of coal fired generators bidding below zero increased by an average 392 MW – presumably to ensure those coal generators did not have to be switched off – so too did the capacity of coal bid above $5,000/MWh.

According to the AER this increased by more than 391 MW averaged over every trading interval in the quarter. That $5,000/ MWh price tag is probably 50 times the plausible average cost of generation (some might be higher, but many lower). Total black coal offers between $0 per MWh and $5,000 per MWh decreased by an average 873 MW.

Hydro generators offered more capacity overall, but at higher price, with more offers pitched between $150 per MWh and $500 per MWh and over $5,000 per MWh, the AER said, adding that hydro generators reduced the amount they were offering under $70/MWh.

The AER noted that the growing number of big batteries set the price more frequently across the National Electricity Market, ranging from 3% of the time in Tasmania to 6% of the time in South Australia. Batteries also set prices at high levels in the quarter, ranging from $355 in Queensland to $753 in South Australia.

It is important to note, however, that big batteries are now increasingly owned, or at least operated, by the biggest players in the market, which means that competition is not being reduced as much as might have been expected.

They are simply a new tool for the incumbents. This is just as much a story about corporate behaviour as it is about technology.

There was some good news in the report.

Significant amounts of new clean energy capacity entered the market this quarter as delayed new entrants came online, with approximately 1445 megawatts of capacity added through batteries (600MW), wind (729MW) and solar (116MW). 

However, it will take some time before these units reach full output, the regulator said.

And despite the numerous problems with its interconnectors, South Australia became a net exporter over a whole quarter for the first time since the December quarter of 2020, the AER said, exporting an average 423 MW while importing 317 MW.

Forward contract prices were mostly lower in all regions from the December quarter of 2024 through to the end of 2025. “Importantly, forward wholesale electricity prices for 2025 declined slightly this quarter,” AER board member Jarrod Ball said in a statement. That however, could change.

In the meantime, it might be useful if some of the so-called “consumer groups” started complaining more vocally about bidding behaviour rather than spending an inordinate amount of time quibbling about the scale of solar feed in tariffs, which largely remains the only line of defence for most consumers against such price gouging.

See also:

Generators fill their pockets again, pushing grid prices to new highs and leaving renewables to cop the blame

Regulator to probe why South Australia price spiked despite much unused capacity