An energy economist calls for an independent inquiry into Queensland’s power output after millions of households were told to conserve power for a second night in a row due to reduced output from generators in response to a price cap.
Australia’s Energy Market Operator (AEMO) ordered power generators to again cover forecast electricity supply shortages last night, after a perfect storm of energy chaos in Queensland and New Zealand. South Wales, including cold weather, offline generators and soaring electricity prices.
Victoria Energy Policy Center director Bruce Mountain said Australia was going through an “absolute market crisis”.
Professor Mountain said generators are largely insulated from volatility in spot prices (the market value of energy) and effectively maintain production to drive up prices.
“Nothing like this has been experienced in Australia,” Prof Mountain said.
“What’s really going on, I guess, is the intimidation of coal and gas producers – they’re pointing the finger at spot prices.”
He said most generators secure their fuel through contracts that are priced months in advance.
“I suspect this is most likely a very serious case of market cornering,” Prof Mountain said.
“We need an independent investigation into the extent to which their production is affected by spot prices.
“Serious government action is needed now.”
Why are some generators turned off?
Because the AEMO set a fixed price cap for consumers at $300 per megawatt hour, some generators pulled supply from the market.
Director of Green Power Markets Analysis Tristan Edis said the $300 per megawatt-hour figure is lower than the cost of fuel for many gas plants.
“They said they didn’t want to supply electricity because that price was not enough to cover our costs and so they withdrew their supply,” Mr Edis said.
“They actually switch off…or say, ‘I’m not available to generate’.
“It’s like someone saying – I want to give you a job but I want you to go 2,000 miles away and I want you to drive or fly at your own expense and I’m not going to compensate you for the cost of this whole trip.
Gas prices also remain capped at $40 per gigajoule, so effectively it’s too expensive for some generators to hook up.
Energy market analyst David Leitch said it takes around 10 GJ of gas to produce 1 MWh of electricity.
This meant that it would cost the gas generators $400 to produce 1 MWh of electricity, plus operating expenses.
“Your base cost before you’ve even made a dollar is about $450,” Leitch said.
Mr Leitch said they were waiting for the market operator to order them to generate at a loss, entitling them to compensation.
“They covered their costs and made a reasonable profit,” Leitch said.
Who will pay the bill?
The short answer is: the consumer, eventually.
Professor Mountain said generators ordered to connect would apply to the Australian Energy Market Commission to recoup their costs.
“It’s basically compensation for production costs plus a margin,” Professor Mountain said.
“It is then up to those market participants to provide evidence that they are buying on spot prices.”
The cost of the intervention will eventually appear on Queenslanders’ energy bills.
“It is paid by all consumers, as they would if there was a price set by the market,” he said.
Which generator sets are offline?
Five generator sets belonging to the Queensland Government offline for maintenance.
Queensland Energy Minister Mick de Brenni said this included one gas-fired station, one hydroelectric station and three coal-fired stations.
“They’re going to start coming back on Thursday… [others] will return sequentially until April next year,” he said.
The Callide C4 coal-fired generator near Biloela has been offline since an explosion in May last year and the Swanbank E gas generator in Ipswich is also out of service.
Mr de Brenni said public generators, Stanwell, CS Energy and Clean Co have “provided all the supply possible”.
Mr Leitch said the recent floods had also affected coal production in Queensland and New South Wales.
“[Rain] flooded all surface coal mines and restricted supply,” he said.
How long will this continue?
A spokesperson for AEMO could not provide a timeline on how long the tight supply would last.
Spring could bring some relief, with less heating required and more solar generation.
Mr Edis said the risk factors could persist for years, with high gas and coal prices lingering.
“I guess one would expect a number of coal generators to come back online, which will largely mitigate the risk of shortages,” he said.
“Unfortunately, this is not going to mitigate the high prices we are seeing at the moment.
“They are going to be here for a while because unfortunately the invasion of Ukraine has caused gas prices to rise which will continue for … at least a year to two years and probably the same for the international price of coal.
“This will affect electricity prices.”
What can be done in the long term?
Mr Leitch said Queensland had not built enough wind and solar power as coal-fired power stations age.
“Queensland is expected to produce two or three times more wind or solar power than it produces annually over the next decade.”
Associate Professor of Energy Economics at the University of Adelaide Liam Wagner said “a wide range of technologies” need to be implemented in the domestic market.
“Wind and solar…and hydrogen and pumped hydro so we can move away from coal and rely on these very old coal-fired generators that are high maintenance and break down all the time,” a- he declared.
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