The Australian Energy Regulator has pinged another of the country’s energy oligarchs over illegal market bidding, and issued penalties against the Queensland government owned generator CS Energy for the breaches that occurred more than two years ago.
The decision by the AER to taken action against CS Energy comes amid widespread concern and controversy over soaring wholesale electricity prices in Australia, and the role that powerful market players, and the role of contentious bidding practices, play in the key state markets.
The fact that it took the regulator two years to bring the action against CS Energy illustrates the complexity of the task, and how difficult it is to prove wrongful action in a market that is notoriously opaque.
The action taken by the AER against CS Energy relates to bidding practices and activity in February and April 2014, and relate to its 500MW hydro electric plant at Wivenhoe Dam in Queensland (pictured above).
Two infringement notices relate to CS Energy’s alleged failure to cease generating at Wivenhoe on two instances in February, 2014, resulting in over-generation by 256MW and 208MW respectively.
The other two infringement notices relate to CS Energy’s alleged failure to ensure that its generating units were capable of complying with the offers submitted to AEMO by CS Energy.
“The AER considers that the efficiency of the national Electricity Market and system security may be compromised when dispatch offers made by generators do not reflect their actual capabilities, and where generators fail to comply with the dispatch instructions given by AEMO,” AER Board member Jim Cox said in a statement.
It is not the first time that the regulator has pinged generators. In May, ERM Energy paid a $40,000 fine for failing to follow instructions at its Oakey power station on two occasions in 2015, and Origin Energy was fined $20,000 for a similar breach at its Uranquinty power station in September last year.
Last year, Snowy Hydro became the first generator to be fined for failing to follow dispatch instructions for two instances that occurred in 2012 and 2013. It had to pay $400,000 in penalties.
Regulators have sought to address re-bidding practices with the issue of its new “Bidding in good faith” rules that came into force last Friday.
The Queensland Productivity Commission earlier this year recognised the problem around “re-bidding” – particularly in states such as Queensland and South Australia, where the market is dominated by a few powerful players.
It noted that an AER investigation into re-bidding in Queensland identified 50 occasions of “opportunistic” generator bidding behaviour, which resulted in average prices nearly 20 per cent higher than they would have been otherwise.
It noted then that “CS Energy was by far the most active player rebidding capacity into high price bands (above $10,000 per MWh) close to dispatch”, although other participants similarly rebid capacity from low to high prices, causing prices to spike more frequently.
An Ernst and Young assessment suggested that re-bidding practices increased the cost of wholesale generation by around $170 million in December 2014 and the March quarter of 2015.
Some want to go further that the “good faith” rules. As we reported late last month, there is also a push for new rules that would remove the discrepancy between the five minute price setting period and the 30 minute settlement period, which many claim is distorting prices and making it difficult for new technologies to gain a foothold in the market.
The changes have been proposed by energy user Sun Metals, and has the support of the regulator, the market operator and those behind new technologies, particularly software and battery storage firms.
But a quick assessment of the submissions show that the energy oligarchs, the large generation companies that dominate the market, are against, saying it would be costly to implement and would result in some large scale “peaking” plant being removed from the market.
Meanwhile, continuing monitoring from the AER on movements in wholesale market prices has found some interesting results, including that most of the surge in prices in the latest weekly assessment in June were caused by sudden and unexpected withdrawals of capacity (and not renewables as some suggest).
All of these came from coal and gas plants, including one by large brown coal generator Loy Yang B, which cited “supply” problems – although it is located next to a big mine – and Origin Energy, which decided not to make capacity from two gas plants available, citing “uneconomic restart”. Prices jumped 50 per cent as a result.