It’s one thing to feel you are being held hostage by privately owned provider of an essential product, but quite another when the stand-off may involve a publicly owned company providing a service as fundamental as electricity.
The extraordinary scenes that emerged in Queensland over the long weekend, and which quickly infected NSW, where generators threatened power shortfalls unless they got paid more money – come from an electricity system – its markets and its regulatory environment – that are completely broken.
It has turned into a state of complete farce when, in Queensland, a state dominated by publicly owned electricity generators – apparently can’t guarantee an essential service because they can’t make sufficient profits.
Both Queensland and NSW were faced with the possibility of forced outages for some consumers on Monday and Tuesday.
But it’s not that as thought there is not enough capacity to meet demand, just a bunch of generators holding out until they get the highest possible prices. AEMO, the market operator, made this abundantly clear in its statements to the media.
“Despite there being sufficient physical generation capacity in Queensland today, AEMO is taking steps to address a critical electricity supply shortfall presently forecast for 6pm to 8pm (AEST) today,” AEMO said.
It noted that as a result of the price cap imposed on Sunday, “available offers from generators reduced, contributing to a forecast supply shortfall.” Two gigawatts of capacity was suddenly withdrawn from the market by their owners, and AEMO spent the day trying to force them back on.
“To maintain power system security and reliability, AEMO is using its powers under the National Electricity Rules, including to direct generators, to alleviate lack of reserve conditions.”
Frankly, it’s an outrage. Some of the private operators should hang their heads in shame, and if it is confirmed that state owned companies are doing the same thing, then those CEOs and the minister who has been so slow to react, really ought to be handing in their resignations. Now.
(Update: one of the state owned generation companies CS Energy rang us to say they did not withhold any capacity. And energy minister Mick de Brenni’s office later also stated that no capacity had been withdrawn by state owned generators).
Consider this: Queensland – thanks to its status as the state with the grid most dependent on coal, has seen its prices surging in recent months. Since last August, a few months after a unit at the Callide coal generator exploded, it has experienced the highest wholesale electricity prices in the country.
In recent weeks those prices, like Callide, have exploded. It hasn’t been helped by the fact that one quarter of its coal capacity is not available, because it is broken or being repaired.
The prices have been so bad that the Australian Energy Market Operator was forced to introduced an administered price cap on Sunday, which it then extended into Tuesday and will likely have to leave in place for up to a week.
What followed was the outrageous actions of a system not just in crisis, but in total failure. Generators, one by one, and some of them state owned, withdrew their capacity to the point where AEMO was forced to warn of “load shedding” – switching the power off to some customers – on Monday evening.
At first the shortfall was 173MW, then it quickly grew to 530MW, before trebling again to nearly 1.5GW as yet more generators withdrew capacity for what is an essential service. By early afternoon, it was back to 800MW, and then back out to 1147MW.
The emergency reserve trader mechanism was then triggered, which is designed to pay big energy users to not use power at certain times. State owned transmission company PowerLink issued a call asking consumers to cut back on consumption.
Why did the generators get withdrawn from the market? Because under the price cap of $300/MWh, most gas generators – and probably diesel too – can’t make any profits. As they say in the lingo, the facilities might work, but they are not economic to run.
With current gas prices, they need a price closer to $400/MWh just to break even on the cost of fuel. And in the electricity market, sad to say, public service doesn’t rate so high, it’s the profit motive that rules, even when state owned.
So the generators withdrew capacity, likely because the rules of the market cap are so vague that they could not be sure how much they would get paid if they were forced to switch on. That’s because the rule makers and the regulators have not done their work.
They pushed AEMO into a position where it had to declare a Lack of Reserve 3 – warning of load shedding, and then invoke the RERT.
Under the rules of the LOR3, the generators have greater certainty that they will make money out of providing an essential service in a crisis. Well done, people. Great work.
It begs a lot of questions. How the hell did the nation’s electricity market get into such a state? These are the sort of outcomes predicted for a market dominated by private players and “intermittent” renewables when the wind don’t blow and the sun don’t shine.
But it’s happening in a state that produced less than 20 per cent renewables in the last year, and is the most dependent on coal. Its coal fleet is relatively young, in Australian terms, but not very reliable. And not in the least bit cheap.
It’s also happening in a state when the majority of generators are state owned, and it is they that control the market. How can the government allow this to happen? Are they asleep?
Five years ago, the Queensland government intervened and told Stanwell to dial down its bidding practices, one of the principal causes of the push to 5-minute settlements in a bid to end the widely alleged rorting.
The implication was clear – it was seeking to maximise its profits with high bidding. After the directive, prices in Queensland plunged to the lowest level in the country. But the profit motive has not stopped, only the state Labor government has lost the will to intervene.
Dylan McConnell, from the University of Melbourne, said that what is happening in the market may not be illegal, but it is certainly an example of “gaming the compensation regime.” He noted: “There’s some funny buggers going on. It’s bonkers.”
On Monday, the contagion spread to NSW, which is also getting close to having an administered price cap due its own soaring prices, and where AEMO warned of an LOR3 shortfall of more than 400MW because of capacity that has been withdrawn.
NSW is the grid with the second highest dependence of coal and the second lowest share of renewables, although – unlike Queensland – its generation is privately owned.
At least its state Liberal government has a plan to try and manage the switch from coal to renewables and storage over the next decade, which it is now trying to implement as quick as it can. Queensland promises to produce a plan by the end of the year, although why they don’t already have one is not clear.
Added to this, Australia is now counting the cost of nine years of a disastrously incompetent federal Coalition government, blinded by climate denial and technology phobia, which produced no energy policies, despite 23 attempts, and can show little more than ill-fated taxpayer funded investments into potential white elephants such as Snowy 2.0 and the Kurri Kurri gas/diesel generator.
Snowy 2.0 is the real disaster for the energy market. It was supposed to be running by 2025, had already slipped to late 2026, and now looks likely to be delayed until 2028.
The project – likely to blow out to a cost of $10 billion or more – was always controversial because it made little economic and environmental sense, except to Snowy Hydro itself.
But its approval meant that many other smaller storage projects that could have been built at lower cost and greater speed have been sidelined by the market. Their absence will be keenly felt as the delays at Snowy 2.0 drag on – no one is going to suddenly step in for a short term fix.
The fact that Snowy 2.0 will be at least three years late won’t get more substitute facilities built, because they will be priced out of the market once the government funded Snowy 2.0 comes on line.
It’s a right old mess, made worse by the global supply crunch, the war in Ukraine which has lit a fire under international coal and gas prices, and a heady and unpleasant mixture of greed, incompetence, ideology and stupidity among the nation’s politicians, regulators and many in the market.
But it also comes as these same players are calling for the introduction of so-called “capacity” markets to ensure that the lights stay on.
The fact that they are so ready to play a game of brinksmanship on such a fundamental service makes you wonder if their arguments are made in good faith. Is it really about keeping the lights on and working for the common good, or just extracting as much money from week-kneed regulators and politicians as is possible?
It’s going to take some clear thinking, and strength of character, to sort this mess out.
