When generators jack up prices 100-fold, and regulators do nothing

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AER report finds generators jacked up energy prices 100-fold, even when there was more than enough capacity. But don’t expect regulators to do anything about it.

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A reader sent in an email late last week about the huge price spikes in Australia’s wholesale electricity market in the midst of the heatwave that swept south-east Australia.

In what other industry, he asked, can you see such sudden gyrations where prices jump 50-fold or more in a matter of minutes? And how is this allowed?

They are perfectly valid questions.

The huge jump in prices – often from ar0und $50/MWh to peaks of more than $14,000/MWh – have been happening for years, and well before the introduction of large and small scale renewables that often cop the blame.

(This graph above highlights the number of price spikes above $5,000/MWh recorded by the AER in a previous report).

The wholesale electricity market is dominated by the major generators (coal, gas and hydro) who have the ability to add or withdraw capacity at their whim, and who are able to manipulate prices in times of “scarcity” – real or manufactured – because they can.

And because no one will do anything about it.

The Australian Energy Regulator said late last week that it would “report on” the price spikes in Victoria and South Australia that occurred last Thursday. But don’t expect a report anytime soon, and don’t expect it to cause any problems for the market players involved.

It will likely find that the price spikes were a “market” response to a sudden loss of capacity – in this case the tripping of one of two Loy Yang B units on Thursday afternoon that removed 530MW without warning. It will take the AER two months to tell us that.

Even when the price manipulation appears contrived and deliberate, nothing ever happens. Take, for instance, reports by the AER into two price spikes in a related energy market last year – the market for Frequency control ancillary services, or FCAS.

The FCAS market – which provides grid services to make sure, among other things, that the frequency of the network is under control – is not a market that is ever in short supply.

In South Australia, where most of the price spikes occur, there is more than 400MW of capacity, and the Australian Energy Market Operator only ever needs less than a tenth of that – 35MW – such as when the inter-connector is down for repairs or sudden failures.

But every time AEMO calls for this capacity to be put on standby, the price shoots up. Why? Because the main providers – AGL, Origin Energy, and Engie – simply refuse to sell their capacity at normal market prices.

Often times, as we have reported on numerous occasions, and most recently here – they make only a total of 34MW available at normal prices, but charge $15,000/MW for that last MW. That sets the price for all the capacity needed.

Sometimes, the actions of the generators are quite deliberate. Take October 24 last year, when an unexpected equipment failure on the interconnector linking Victoria and South Australia forced AEMO to invoke its call of 35MW of FCAS support, in case it was needed.

The AER report into the incident noted that at the time there was more than enough “low-priced” capacity in the “raise regulation” market. But within six minutes of the AEMO announcement, that all changed as AGL bumped up its prices around 100-fold.

“(Data) shows that there was enough low priced capacity (blue shaded area) to meet the requirement for raise regulation service (red line) when it was introduced at 6.25 pm,” the report says.

“At 6.32 pm, effective from 6.40 pm, AGL rebid 16 MW of raise regulation services at its Torrens Island power station from prices less than $12/MW to $11 500/MW and above.”

 

Prices jumped to 11,500/MW and stayed there until AEMO removed the requirement two hours later.

What will the AER, or the Australian Competition and Consumer Commission do about this?

Absolutely nothing. They see it as the “market at work.”

Proposed reforms to those markets, such as creating a more efficient FCAS market, changing the settlement periods on energy markets to encourage smarter and quicker technologies like battery storage, have been fiercely resisted by the incumbents, and delayed by the market rule-maker, the Australian Energy Markets Commissions.

Most of the cost of wholesale electricity prices are sourced from just a few hours of trading a year – when the market participants are able to manipulate prices, and get away with it because electricity is an “essential service”, and when generators choose not to switch on at critical moments, as Pelican Point did last February, then the lights might go out somewhere.

This hasn’t got anything to do with technology or emissions, greens, browns or blacks. It’s all about market control, greed, and piss-weak regulation.

 

 

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39 Comments
  1. Gordon Bossley 10 months ago

    I actually think this is for the long-term good.

    It’s precisely this rorting behaviour that drives the market to take matters into their own hands – so we’ll have accelerated disruption (by individuals, households and businesses) via PV and storage.

    I try to imagine an Australia where there is an abundance of near-free energy. I think this is coming, and we haven’t begun to react to it!

    • Mike Westerman 10 months ago

      Precisely Gordon – we’ve not even begun to think what a shift free energy would facilitate – transport and household use are the start, but extend that to water recycling, pneumatic toilets, etc

      • Gordon Bossley 10 months ago

        I only hope we don’t see it as an excuse to continue to overpopulate the planet!

        • Pixilico 10 months ago

          No worries, mate! It’s likely not to happen. Here’s an explanation why: https://www.youtube.com/watch?v=2LyzBoHo5EI

          • Gordon Bossley 10 months ago

            Interesting. Encouraging even. The remaining environmental problem is the human footprint – which of course why some of us are interested in renewables – some hope of improving the footprint?

          • Pixilico 10 months ago

            By getting wiser for starters?

          • wideEyedPupil 10 months ago

            Even with Rosling’s projections, and I’ve watched most of his videos as some point in time, we’re still talking about massive pop growth this century and likely forced or unforced immigration from poor nations where population will continue to grow rapidly (African countries) all this century (in spite of increasing drought and famine events) to rich nations like Australia. And it only takes 1% of China’s population (the wealthy ones) to want to live in Australia to push our population up 57%, same for India.

          • Pixilico 10 months ago

            We’ll have to deal with it. And I’m optimistic about it.

    • Greg Hudson 10 months ago

      IMO there is already an abundance of near-free power available (in Victoria) from mostly wind, and with PV imports from SA… You could therefore assume that power prices should be getting lower as more and more wind and solar are added… However my power retailer (Red Energy / Snowy Mountains Hydro) just hit me with an ex GST 21.43c to 26.86c/kWh (23.38% increase) (Jan 2018) rise on top of the 20% rise in Jan 2017. If they think I’m going to put up with BS like this, they have another thing coming. I’m considering switching to Alinta today at 18c and Red can get stuffed (unless they can do a deal to keep me as a customer). If Alinta screw me, then I’ll switch to someone else while I wait for my own PV array to be installed.
      Disclaimer: I have sold this house, and have to move out by the end of April…

      Everyone: What do you think I should do?

      • Steve h 10 months ago

        Buy shares in coal….. Not seriously but

  2. Fizzelen 10 months ago

    When the market acts against the National interest, then the market should be Nationalized.

    • Andy Saunders 10 months ago

      Or reformed. Which is entirely possible.

      • Patrick Comerford 10 months ago

        It’s certainly not possible with the current regulators in their positions aided by a totally compromised LNP government. Take the recent changes to the 5 min rule. The regulator made damm sure none of the gougers would be inconvenienced until 2021 I think. Is this the kind of reform your certain of?

      • Pixilico 10 months ago

        Sure. This time the foxes will run the chicken house right.

      • wideEyedPupil 10 months ago

        But AEMO is 50% owned by the gentailers and the rest by governments. AER and AEMC appeared to be totally captured by coal/gentailers.

  3. Grpfast 10 months ago

    Our Prime Minister who has an understanding with the big generators will ignore this pricing scam because politically it suits him to do so. Victoria and SA are Labor states and the more pain he causes them the better. To hell with his fellow Australians.
    Hopefully this will be remembered. Not only at the poles but historically as Australia’s worst Prime Minister.

    • wideEyedPupil 10 months ago

      Way to complicated to parse for the average swing electorate voter, and Turnbull and Lydenberg know it.

  4. PaulC 10 months ago

    Various governments sold assets to “their mates” under one of two models: (a) sell them cheap and then see them make mega-profits for new owners or (b) sell them for more money but with an implicit agreement for weak regulation so as to maximise the sale price.

    The textbook example is Sydney Airport which is so weakly regulated that they can gouge as much as customers will bear. Not far behind are the transmission assets which are on a guaranteed and very generous rate of return on capital.

    Then we have the generation assets. Some sold on the cheap (Vales Point anyone?), and others were kept by governments who wanted their own opportunity to gouge customers (Queensland!).

    Our energy market is now so farcical that has become one giant trough which is crowded by the snouts sucking up profit from the populace. Australia used to be exploited economically as an outpost of Empire – whereas now the exploitation is home grown but no less brutal.

    • Stephen Allen 10 months ago

      In political philosophy that began with the Greeks, the Australian polity is ruled by a plutocracy, ie Parliamentarians that pass law to establish and secure the corporate energy oligarchy. The energy oligarchy is a family of people (the executives of the energy corporations and the members of boards who appoint the executive) who have similar academic training, by and large neo-liberal economics, or equivalent (engineering, finance, accounting, business) that write the law on behalf of the plutocrats, are then appointed to the regulators, and subsequently migrate to the energy corporation (wholesaler, distributor, retailer etc) and vice versa. Just have a cursory glance of who the energy executive are and what their bacground is.. if you are real investigative journalist,you will expose who specifically wrote the law and convinced the plutocrats to call for a law rewrite and subsequently passed the law.

  5. Diego Fuentes 10 months ago

    What are Labor’s proposals around this matter? Important to know since odds are they’ll form next fed government and have said they’ll campaign on electricity prices.

  6. Robert Westinghouse 10 months ago

    I am mad as hell and continue to write to my government representative. But this is not enough…we ALL must tell them that we are sick of taking it in the bottom. All those who can, need to get PV and batteries before they make it illegal. I am praying to all the gods that all the genetailers go bankrupt and loose their immoral grip on people.

    • Ross Flint 10 months ago

      This is a copy of my comment on the article by Simon Holmes à Court:
      Frydenberg Factcheck: Is S.A really burning 80,000l of diesel an hour to keep lights on?

      “Keep the bastards honest” was the catch cry of The Australian Democrats leader Don Chipp in 1977. Sadly it was a lost cause and still is. Just how do you “Keep the bastards honest” and held accountable?
      Obviously at the ballot box – but what about the time between elections?
      johnnewton was correct when he said: “most people are too lazy to check” the details and facts and the chances are the pollies know this and therefore know they can pull the wool over the eyes of the majority of the electorate.
      I find the whole political scene to be so wearisome – deception, half-truths, spin, outright lies – I get so angry !! So many times I want to walk away from this whole sorry saga painted over with political deception. Fortunately the words of the prophet Jeremiah keep me pressing on:
      But if I say, “Forget it!
      No more God-Messages from me!”
      The words are fire in my belly,
      a burning in my bones.
      I’m worn out trying to hold it in.
      I can’t do it any longer!

      • rob 10 months ago

        religious freak! This has nothing to do with your imaginary man in the sky! It is simply business as usual …..

        • Ross Flint 10 months ago

          Hi Rob,
          I guess if being passionate about issues of justice, honesty, compassion, concern for the poor and the disadvantaged, concern for the plight of refugees, empathy, doing the right thing, exposing dishonesty, integrity etc. is termed “being religious”, I guess I am. I don’t see any harm in reading the writings of prophets because that is what their main concern was too – to bring about reform in a country that was corrupt.

      • Robert Westinghouse 10 months ago

        Thank you for your passion. We need more people with passion to support “the people”. While I do not share your enthusiasm for religion, we need to “drain the swamp”. We are being manipulated and we need a voice…..

  7. Barri Mundee 10 months ago

    Markets are usually nothing like the “Free Market” in neoliberal economic theory. The electricity market needs tighter regulation to avoid gaming at the expense of domestic and small business consumers. Meanwhile both are installing solar and batteries.

  8. Joe 10 months ago

    Demand and Supply at work setting the price, yes.

  9. solarguy 10 months ago

    It’s disgusting, but the day is a commin, when they won’t be a hummin.

  10. MaxG 10 months ago

    Well, people are supporting the ‘free market’ for decades, in particular when voting for the neo-liberals. I have been asking pretty much everyone I come across when talking politics: do you actually know what the neo-liberals stand for? And what does it mean? There is probably 1% that actually know the answer. All these guys stand for is anti-democratic, fascist, minimum government (which is implicit and rule by corporations) and above all, against the well-being of the population. Unless this is understood and vehemently opposed, no amount of whining about anything will change that.

  11. digicle 10 months ago

    I can tell Giles has had a good break when he starts back and publishes p*** weak, noice.

  12. Nick Kemp 10 months ago

    Looks like a cartel, smells like a cartel….

  13. Michael Murray 10 months ago

    Imagine if an oil refinery broke down and the price of petrol went from $1 a litre to $280 a litre.

    • RobSa 10 months ago

      A conflict on the Korean Penisula is not unlikely. This scenario would change Australia forever and we are completely unprepared for it. Lots of people would learn some hard lessons. My buses (running on natural gas) would go from mostly empty to packed out.

    • Brunel 10 months ago

      Petrol is easily stored.

      Electricity is also easily stored in batteries – so these price spikes should not be happening.

      Powerwalls across Vic/NSW (granted, there are not many) should discharge when the prices go sky high. What the heck are they doing? Ironically, Powerwalls are required to be connected to the Internet for warranty purposes!

  14. Stephen Allen 10 months ago

    The article does not expose who specifically runs the energy plutocracy and its corporate oligarchic masters. A cursory glance of the executive members of the regulators and the energy corporations exposes an energy oligarchy ie a family whose members have similar training in business, accounting economics or engineering and who interchange frequently between the plutocracy and the energy corporations. They all espouse a neoliberal economic dogma that treats us as mere energy consumers rather than as energy citizens. Until this oligarchy is exposed and destroyed, which can only occur through revolution, the citizens of Australia shall continue to be treated as fools.

  15. Trevor Beal 10 months ago

    One of the primary reasons the western economies are wealthy is low cost energy and if we as a people do not activity work to maintain and limit energy costs at the grass roots level then we are finished The people who run this country will not do anything to reform the system so we as a people must instruct them of the error of their ways before it is too late . Any suggestions on how to do it ??

    • Stephen Allen 10 months ago

      It has to be remembered that Australia’s parliamentarians have become a plutocracy. In relation to energy, that means they pass law to secure the corporate energy oligarchy (just have a careful look at who the executive are of the regulators and the regulated (producers, distributors, wholesalers and retailers). The parliament serves the oligarchy and hence has become a plutocracy. There actions are not in “error”, rather deliberate for they serve their oligarchic masters. The Greens have are becoming economic liberals so we cannot look their… Rather, it can only be through ongoing public exposure of the plutocratic oligarchy and call for revolution… else as Nietzsche says “forever return of the same”, which is a profound statement regarding Western metaphysics consummated in the plutocratic energy oligarchy.

    • Brunel 10 months ago

      Interesting animated video on why poor nations are poor:

      https://youtu.be/9-4V3HR696k

      I disagree with the religion-bashing aspect along with blaming the flora and fauna, but it makes some good points.

      Imran Khan (cricketer turned politician) reckons the 3rd world is the 3rd world due to corruption.

      With regards to cheap energy, one massive difference is that I get clean drinking water 24×7. While 3rd world houses only get water 1 hour per day and it is not safe to drink – so they actually spend more than us per litre to run a water purifier in the kitchen every day. (I have never had a water filter).

  16. neroden 10 months ago

    What the hell is this “rebidding” thing? In a normal market that isn’t legal, you have to stick with the bid you already made. Seems like it’s a straight-up scam.

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