South Australia’s “new” competitor shut down a week before Northern

The 17-year old gas fired generator being deemed by the South Australian government as a “new competitor” withdrew its services from the state grid little more than a week before the closure of the Northern coal-fired generator.

The 485MW Pelican Point gas generator, owned by Engie, the French company that also owns the Hazelwood power station, produced electricity on April 30, just 10 days before the last unit at Northern was shut down.

Engie is believed to have decided it could make more money selling the gas it had contracted to the LNG export market, but its withdrawal left the state’s market at the mercy of just two gas-fired generation companies, who took full advantage when gas prices soared and the main interconnector with Victoria was down for repairs.

Pelican Point resumed production in mid July – less than three months after its “mothballing” – after pleas from the government and business users to re-enter the market to reduce the power of the remaining generators to exploit the market.

Now, it is being deemed as a “new entrant” under a new tender conducted by the state government specifically to bring “new competition” to the market.

But many people are scratching their heads about how this can be seen as new competition, and why the state seems so determined to invest more in gas, which has been at the core of its high electricity prices since the National Electricity Market was created (around the same time that Pelican Point was built).

They warn that if Pelican Point gains a new contract, it may trigger another generator, AGL’s near 50-year old units at the Torrens Island power station, for instance, to go ahead with previous plans to mothball its capacity – although the state may be happy just to see AGL’s dominant position reduced.

Analysts say it shows the power of the fossil fuel industry, which they accuse of holding the government to ransom. Not only are they lifting margins and maximising profits by exploiting their market power, they are also fighting rule changes that might lift competition.

For years, they fought against an upgrade of the Heywood interconnector to Victoria, and a new connection to NSW, and now they are fighting against rule changes that could encourage battery storage and other competitors.

They have successfully campaigned against a rule to introduce more demand response mechanisms to the market, something that most analysts say will reduce prices, and they are also fighting a proposal to change the settlement period from 30 minutes to 5 minutes, which is the period of time currently used for dispatch.

This new rule change would encourage fast-responding technology, such as battery storage, and could eliminate the bidding patterns which forced up wholesale prices by up to $190 million above normal during the recent supply issues.

Better, the analysts argue, that South Australia seek a new form of dispatchable generation, such as solar with storage.

An analysis from Bruce Robertson, gas market analyst at the Institute for Energy Economics and Financial Analysis (IEEFA), says the $24 million that the state government has promised to help producers unlock gas reserves in the state is another gas subsidy that will do nothing to cut prices for consumers.

“South Australia is already a major international producer of gas, exporting from its Moomba gasfields to Asia and supplying other eastern Australian states.

“There is something fundamentally amiss when a state with an excess supply of gas has to award a multi-million dollar tax-payer funded subsidy to major gas companies in order to supply its own consumers, who are already facing sky high bills.”

Whilst the new subsidy may encourage some producers to enter the onshore gas production market in South Australia, onshore shale and Coal Seam Gas (CSG) extraction is inherently high cost to produce, wells decline in production quickly and new wells must constantly be drilled.

Due to the lack of pricing transparency and competition in the domestic market, producers are able to charge consumers extremely high prices for types of gas which are expensive to produce, such as CSG.

“This subsidy is expensive and will achieve no discernible outcome for the consumer of gas in South Australia apart from lining the pockets of gas producers and potentially threatening water resources,” said Robertson.