Wind Power Chaos Sets Up Rampant Price Gouging by Conventional Generators

There aren’t many guarantees in life (death and taxes usually top the list). However, after the debacle that’s played out in South Australia (the pinup girl for renewable energy zealots), there is nothing more certain than the relationship between subsidised renewables and rocketing power prices.

Among energy market illiterates the argument goes that, because the wind and sun are free, South Australia’s rocketing power prices must be the consequence of some evil conspiracy (apparently headed by Tony Abbott) between coal-fired power generators who have determined to screw retail power consumers.

South Australia blew up its last coal-fired generator last year, so the absence of a key conspirator makes the conspiracy theory a little harder to sell in SA. True it is that South Australia imports huge volumes of coal-fired power from Victoria via interconnectors, a fact usually ignored by its vapid Premier, Jay Weatherill.

No, the only conspiracy evident is one involving the weather – and the opportunity it presents on a daily basis to the owners of conventional generation plant, allowing them to rape and pillage in the power market, whenever wind power output collapses, on a total and totally unpredictable basis.

AGL has mastered the art of corporate hypocrisy, shouting from subsidised solar-panelled rooftops that it’s “getting out of coal”.

What it is doing is setting up a ‘system’ in which it plans to offload meaningful generating capacity, in favour of thoroughly unreliable wind and solar generation, backed up by fast-start Open Cycle Gas Turbines; highly inefficient and costly to run.

The chaos delivered by mother nature makes perfectly legal that which would otherwise be criminal market manipulation.

As we have pointed out numerous times before, wind power output collapses allow the owners of peaking power plant to collect $2,000-4,000 per MWh for power that a coal-fired plant can deliver all day every day for less than $50.

Wind power output collapses in SA have resulted in the spot price repeatedly hitting the regulated market cap of $14,000 per MWh – this from August 2015, when the cap was a mere $13,800: South Australia’s Unbridled Wind Power Insanity: Wind Power Collapses see Spot Prices Rocket from $70 to $13,800 per MWh

And South Australians wonder why they pay the highest power prices in the world.

Here’s Alan Moran detailing AGL’s plan to gouge even more out of power consumers in New South Wales.

AGL’s proposed power station closure would ensure continued excessive electricity prices
Catallaxy files
Alan Moran
10 December 2017

Yesterday AGL confirmed its plans to close the Liddell coal powered electricity generator in 2022. It did so in the face of calls from the government – even by notorious green aficionado Malcolm Turnbull – for its life to be extended.

AGL epitomises the sort of firm that Warren Buffett invests in – that is a “business any fool can run, because someday a fool will”. It has previously been managed by a fellow fresh from running a Danish wind turbine manufacturer, Paul Anthony, who wiped out much of its value leaving it to now retired CEO Michael Fraser to rebuild value. Fraser did so largely by some astute purchases of coal generators including the planned-to-be-closed Liddell. AGL is now Australia’s largest energy supplier and on top of the 2,000 MW in Liddell it has over 6,000 MW in major fossil plant capacity (Loy Yang A, Bayswater and Torrens Island) plus other smaller fossil fuel plant and, of course, some wind generation.

Under its present management, led by American Andrew Vesey, the firm has taken the opposite tack to that adopted by his predecessor, firmly embracing the notion of wind and solar energy and lobbying for increased and longer-lived subsidies, without which that form of electricity could not be viable. Renewable policies have been responsible for Australia losing its pole position in electricity competitiveness transforming the industry into, on some measures, one of the most expensive in the world.

At the heart of this is the boosting of the wholesale price for electricity from around $40 per MWh to north of $80 today (in addition to which wind/solar receive a subsidy from the consumer of $85 per MWh) That price rise results from the subsidised renewables displacing cheaper coal and, in an outcome the green rent-seekers and their modelling auxiliaries assured us would not happen, bringing about the premature closure of the coal power station – most notably the Victorian Hazelwood facility. It also has brought additional costs to compensate for the intrinsically less reliable wind/solar facilities, costs that the government recognises with its requirement for renewables to have “firming” insurance.

AGL, in its statement to the stock exchange justifying its decision to close Liddell plant showed the costs of different options. With Liddell remaining open it maintained its “levelised cost of energy” would be $106 per MWh; with the plant closing and its output replaced by additional generation from its remaining fossil fuels stations the cost would be $83 per MWh. Not shown is the cost of the subsidies AGL receives for its renewables – these are $85 per MWh at present and $50 in 2022 according to the forward price curve. In other words, the renewable power which is partly to replace the lost generation from Liddell receives between $150 and $165 per MWh. According to work commissioned by the Minerals Council a new power station in Australia would be profitable at an energy price of under $50 per MWh.

AGL claims that it is only closing Liddell because the plant is too costly to maintain. This is untrue – if AGL were to offer to give the plant away, there would be numerous takers but the firm’ s profit depends on the plant’s closure boosting prices throughout the market. With 30 per cent of the nation’s generation and a strong retail position, AGL is well placed to ensure that its activities maintain the current excessive price of electricity. Closing a key and expensive power station is essential to this and the loss of revenue from Liddell is easily recouped by the higher prices received by other power plant the firm owns or has contracted.

In using its strong market position to manipulate supply and boost its profits, AGL is exploiting and magnifying the damaging effects of renewable subsidies. It supports its actions in a most sanctimonious manner starting with the ads where an actor impersonating a bearded lefty introduces the future of renewables with, “let’s face it! Things are changing.”

However, calling AGL a rogue firm for this role may be unfair. Its management is, after all, only seeking to maximise shareholders’ wealth.

The upshot of AGL increased income at the expense of the nation as a whole is the clear derivative of years of subsidies to accelerate the onset of the ever receding future of low cost renewable energy. It stems from government policies, and the Turnbull government is only maintaining a policy set by John Howard, 17 years ago (a policy Howard now says he deeply regrets). The policy was not curtailed by Abbott, who with Australia’s accession to the 2015 Paris Agreement set the stage for its continuations but now appears to be saying he’d terminate all subsidies forthwith. That approach is also favoured by the Lib Dems, One Nation, and the Australian Conservatives, (but not Bob Katter who’ll take any subsidy he can get).

It is five years before the scheduled Liddell closure which offers windows for policy change but if the nation is not to face almost irreparable harm to industry competitiveness early policy corrections are essential.
Catallaxy Files

About stopthesethings

We are a group of citizens concerned about the rapid spread of industrial wind power generation installations across Australia.

Comments

  1. Crispin Trist says:

    Interesting article in the Australian newspaper dated 3rd Jan. Alinta has purchased Loy Yang B brown coal fired power station in an effort to reduce retail electricity prices.

    And I quote.

    Exclusive

    Joe Kelly

    Electricity retailer Alinta says buying coal-fired power generation is central to its ability to offer price reductions for customers this year, drive greater competition and increase sales.

    The company, privately owned by Hong Kong’s Chow Tai Fook Enterprises, Is pledging to reduce average customer electricity tariffs in Victoria by 2.8 per cent from next year and deliver annual savings worth hundreds of dollars. The low-price strategy will be facilitated by Alinta’s mid-month acquisition of the 1000 megawatt brown coal Loy Yang B station in Victoria’s Latrobe Valley for just over $1 billion. The power plant has the ability to supply 1.5 million homes.

    The acquisition follows a warning from the competition watchdog last year about insufficient competition in generation and retail markets as well as concern from businesses about the difficulty of shopping around for cheaper energy deals.

    Alinta CEO Jeff Dimery said the promised price reduction meant Victorian customers could be between $180 and $220 better off a year when compared with the major retailers’ best advertised offers. “We understand … there’s CO2 that comes with a plant like this … (but) energy does need to be affordable … and this is one of the cheapest forms of energy available,” he said.

    Energy Minister Josh Frydenberg said Alinta’s move to reduce power prices was “consistent with the advice from the Australian Energy Market Commission that household power prices will come down over the next two years.

    “Alinta’s lead should be followed by other energy companies. Their purchase of Loy Yang B and entrance into the retail market as a serious fourth player is good news for customers as more competition helps lower prices.”

    Mr Dimery said acquisition of the Loy Yang B plant also underscored the importance of coal-fired generation as a transition fuel over coming decades that would allow
    the company to pump more investment into renewable power sources.

    Wednesday 3/01/18. The Australian newspaper.

    • Yes they want to pump more into unreliables: 1) there’s subsidies worth $3 billion a year up for grabs; 2) the chaos delivered by wind and sun allows them to extort super-profits from the market (see above).

  2. Peter Pronczak says:

    Just the hedging price formula for electricity is the same maths that put man on the moon, so ordinary consumers are held to ransom over the stupidity of the technology of the alternative energy market: Technology that no matter what colour it’s painted, was abandoned years ago because of its unreliability.

    For anyone who has read the People and the Planet report by The Royal Society (2012), understands that all the problems are very well known but the whole idea is to just keep fiddling around the edges to make it look like something is being done in the public interest, so that consumers can continue to be ripped off by the newer money making business in the so-called sustainable renewable energy market – the emphasis being on ‘market trading’ otherwise known as gambling; gambling only if you’re not controlling the market.

  3. Jackie Rovensky says:

    “…early policy corrections are essential.” How very true that statement is.
    But will we get such corrections and will those we do get be what are needed or some other farcical attempt by the PM to further his personal wishes.
    We need policy corrections. changes from every State Premier and the PM, it cannot work unless all agree and that is going to be a very big ask because they all want something but will never accept what the other proposes just to ‘save face’, to appear they are the movers and shakers.
    We the poor mugs having to pay for all their mistakes are forgotten, pushed aside and left flaying around trying to ensure the lifestyle we believed we were working for, the lifestyle we expected while they posture and bow to the renewable energy grubby kingdom building liars and thieves.
    These people have our so called Leaders in their hands, they manipulate and mould them to their wishes.
    Yet these people who are supposed to be working for us could stop the madness tomorrow by doing what they are paid to do and that is putting US the people first. They could tomorrow stop funding renewables and let them stand up and face their own destruction. Leaders could bring this about so easily and in the stroke of a pen stop the subsidies and stop the pampering and begin to assist those wanting to build reliable, efficient and clean energy production plants that will last for many years unlike these flaying blades.

  4. What I don’t get is that even if Australia somehow manage to lower their CO2 emissions to zero, it would make no difference to the global climate since Australia has only 25 million people. California has almost 40 million people. Looking around the internet it seems that Australia CO2 emissions account for about 1.2% of the world’s total. Who cares….

    Even if we accept that CO2 makes the climate warmer (which it doesn’t), anything that Australia does now or in the future will not have any impact. So why are Australians punishing their wallets with this insanity?

    With China, India and the rest of the developing world building coal power plants as fast as they can, or building nuclear plants or burning gas, do Australians really think that these developing nations are going to cease their future electricity needs for something that isn’t even happening? And even IF global warming is occurring, developing nations would be much off combating it by becoming more developed than by committing economic suicide by trying to create stable electricity with wind and solar.

    Australia can’t even create reliable and economic electricity with renewable sources, how is India supposed to do it????

    It’s absolutely stunning to watch what is happening today with this con job called renewable energy. It’s going to go down in history as one of the biggest mass group think tragedies ever.

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