Outing Nature’s ‘Outages’: Chaotic Wind Power Output Drives Rocketing Australian Power Prices

Australia’s Energy Minister, Josh Frydenberg has just bagged the Pinocchio Award for his continued line about falling power prices. Instead of retail relief, power consumers have been whacked by jumps of between 20 and 28% this year, on top of 20% increases, last year.

The reason for rocketing power prices is the ‘behaviour’ of generators, rather than retailers.

The subject matter of this post is the reason for that behaviour.

But first, we’ll hand over to The Australian reporting on a half-baked effort by Labor-funded ‘think’-tank, the Grattan Institute.

‘Gaming’ by generators pushing up power bills
The Australian
Richard Gluyan & Matt Chambers
2 July 2018

The federal government will call on the Australian Energy Market Commission to investigate allegations that electricity generators have been gaming the national electricity market.

A report by the Grattan Institute says generators bid higher prices when supply is tight, costing consumers $825 million last year.

“I will be writing to the AEMC in light of this report asking them to further investigate allegations of this behaviour, and that they recommend new rule changes as required,” Energy Minister Josh Frydenberg said. He noted that such bidding was unconscionable conduct, and the federal government had put pressure on Queensland to rein in the state’s generators, resulting in a 25 per cent fall in wholesale prices.

The AEMC had also introduced a rule requiring bids to be made in good faith. This had significantly reduced the practice of gaming the market.

The Grattan Institute report blames Queensland for $673m, or more than 80 per cent, of extreme price fluctuations caused by gaming, although the practice also exists in South Australia and there are signs of it in Victoria since the closure of the Hazelwood power station. “It could appear in NSW as supply tightens with the scheduled closure of the Liddell coal-fired power station in 2022,” the report says.

On average, wholesale electricity prices rose by 130 per cent between 2015-17.

The value of electricity traded in the national electricity market also more than doubled from $8 billion to $18bn, with household bills in some states spiking more than 20 per cent last year. About $6bn of the rise, or 60 per cent, resulted from the closure of two big, old, coal-fired power stations: Northern in South Australia in 2016 and ­Hazelwood.

The cost of key inputs, mainly gas but also black coal, also rose when the plants they fuelled were needed more often, pushing prices even higher.

Gaming accounted for about 4 per cent of the increase in value of traded electricity, the report said. It said higher electricity prices were here to stay, with wholesale prices unlikely to return to previous levels of about $50 per megawatt hour. New generators of any technology now cost more, and the historical oversupply is disappearing.

While subsidised, renewable supply could help push down prices, this would be “transitory” because of the intermittency of wind and solar energy.

The practice of gaming — where generators use their power in concentrated markets to create artificial scarcity of supply and force prices up — is prevalent because supply in all NEM states is concentrated.

A single outage, plant closure or transmission constraint can lead to a supplier having a high level of transient market power — which can temporarily force prices up, the report said.
The Australian

The Grattan Institute’s Tony Wood just can’t seem to put his finger on the real issue.

Tony, set out above, care of Aneroid Energy, is the output from every wind turbine connected to the Eastern Grid – with a combined notional capacity of 4,980 MW – during June.

Now what could it be that creates an “artificial scarcity of supply” and “forces prices up”?

Is it just a “single outage”, or, perhaps a series of them?

Do these “outages” involve collapses in the order of a 1,000 to 3,000 MW, that occur in less than an hour and sometimes over the space of a few minutes?

Is Mother Nature to blame?

Is it a fossil-fuelled conspiracy?

Questions, questions, so many questions.

When the answer is staring them right in the face….

STT has done the analysis numerous times:

South Australia’s Unbridled Wind Power Insanity: Wind Power Collapses see Spot Prices Rocket from $70 to $13,800 per MWh and The Cost of Wind Power: Killing Jobs

and

Crushing Families – SA’s Biggest Smelter Under Threat with 750 Jobs at Risk

Here’s David Bidstrup on the same trail. [STT has added a few graphics from Aneroid to help him make his point.]

Gaming the System
Catallaxy Files
David Bidstrup
3 July 2018

An article in “The Australian” (July 2 2018), reported on power price rises due to “gaming the system”.

Earlier this year I did an analysis of SA wholesale prices for January 2018 to look at price changes on 3 of the hot days using data from AEMO Price and Demand reports. If anyone has doubts about the horrendous “market” we have or the possibility that generators might “game the system” this might give some insight.

Each day was over 40 degrees and the details for each day are in the table below. The colours refer to the chart lines for each day. The number in parenthesis in the “average $/MWh” column shows the multiplier based on the average price on 6 January.

Date Max Temp Daily wholesale cost Max price $/MWh Average $/MWh over the day Total MWh consumed
6 Jan 43 $3,047,470 $113.69 $78.58(1) 38,784
18 Jan 43 $67,965,999 $14,166.50 $1,404.45(18) 48,393
19 Jan 44 $59,969,400 $13,408.28 $1,195.28(15) 50,172

 

The chart below shows load and price/MWh over the course of the day. The AEMO data is given in 30 minute intervals so the X axis shows forty eight 30 minute intervals from midnight to midnight. The load lines are in the lower part of the chart and are reasonably similar in shape although their peaks vary a bit.

The price/MWh for 6 January follows the X axis as the scale of prices is such that it barely makes it above the axis. The price/MWh for both 18 and 19 January do so until the afternoon “peak” hits when they go through the roof.

On 18 January the afternoon “peak” from 3 p.m. to 7.30 p.m. cost $63,343,640.00, ($4,723.00/MWh), which is 93% of the total daily cost. On 19 January the “peak” from 2.30 p.m. to 7.30 p.m. cost $53,103,892.00, ($3,772.00/MWh), or 88% of the total daily cost.

Wind power went AWOL due to a large high pressure system, a frequent occurrence in summer, and the system was on the edge. As you can see, the generators made a meal of it and the suckers paid the bill.

If the Port Augusta power station had not been sacrificed on the altar of climate change it would have been able to provide the shortfall from wind power and removed the opportunity for generators to wait until the last minute and then rape and pillage at will.

The last chart shows the comparison between Q1 2018 wholesale prices in the various states that make up the “National Electricity Market”.

I wonder why, if it is a “national market”, prices vary so much from state to state. (Numbers at base of the chart show % comparisons against the Q1 “average” over total supply and cost.)
Catallaxy Files

High wholesale power costs ‘the new normal: Grattan Institute
The Australian
Matt Chambers
2 July 2018

High east coast wholesale power costs are here to stay and will not be brought back to recent levels by Malcolm Turnbull’s Snowy Hydro expansion plans or by government acquisition of AGL Energy’s Liddell power station, a report by the Grattan Institute says.

The independent Melbourne think tank’s study says power costs, most of which went to generators as profit, rose by $10 billion, or 125 per cent, between 2015 and 2017, driven higher by coal plant closures, high gas costs and generators gaming the system.

But politicians need to admit that high prices are here to stay because of the cost of building any new sort of reliable power source.

“Politicians should be honest with consumers about the harsh truth: high wholesale electricity prices are the new normal,” Grattan’s Tony Wood and David Blowers said in the report, looking at Australia’s wholesale electricity market.

“If they want to reduce consumers’ electricity costs, they will need to focus on other parts of the supply chain.”

The report comes as a landmark review into electricity supply and pricing by the Australian Competition & Consumer Commission is due to be handed to Scott Morrison.

The Grattan report recommends the National Energy Guarantee be legislated to provide policy certainty and more supply to ensure prices don’t blow out. But after that, the focus should then turn to reducing network and retail costs, because new wholesale generation needs prices of $80 per megawatt hour or more to make a return. “Wholesale prices are very unlikely to return to previous levels of around $50 per megawatt hour,” the report said.

“Historic oversupply is disappearing, gas prices will stay higher than they were historically and new generators, of any technology, including coal, cost more.”

The report said that the potential for the NEG to provide policy stability was offset by the threat of government intervention through Snowy Hydro 2.0 and calls for compulsory acquisition of Liddell to keep it going beyond AGL’s slated 2022 closure date.

“Those calls should be rejected,” Mr Wood and Mr Bowers said.

“Even with a settled, national energy and climate-change policy, such as the Guarantee, further government intervention would continue to spook investors.”

The report found the value of electricity purchased on the National Electricity Market, or generators’ revenue, jumped from $8bn to $18bn between 2015 and 2017 as prices rose 130 per cent.

Prices in 2017 were around $100 per megawatt hour or more. While there has been some respite — with prices in NSW and Victoria back down to around $80 — the Grattan Institute says prices are unlikely to fall further.

Of the $10bn jump in revenue for power generators, $6bn was due to reduced supply after the closure of the Hazelwood coal power station in Victoria and the Northern coal station in South Australia. This money more or less flowed straight to the profits of the generators.

Most of the remaining $4bn was due to a jump in both gas and black coal prices, which generators had to pay for, while about $250 million was due to “gaming of the system”. This occurs when generators withhold electricity and use their market power to charge higher prices.

The report said more subsidised renewable supply could put some downward pressure on prices. But it would be short-lived, because of the costs of the intermittency of wind and solar energy sources.

Gaming of the system by generators was mostly seen in Queensland. It stopped when the Queensland government ordered its state-owned generators to change their practices.

“While ‘gaming’ accounts for less than 4 per cent of the total increase in the two years from 2015, such behaviour may add as much as $800m to the value of traded electricity in the NEM in some years,” the report said.

“It may become an increasing issue in the future if there is further tightening of supply and increased concentration.”

Energy Minister John Frydenberg said he would ask the energy markets regulator “to further investigate allegations of this behaviour and that they recommend new rule changes as required”.
The Australian

For a man that gives an outward impression of intelligence, Energy Minister, Josh Frydenberg never ceases to amaze.

With his Liberal and National colleagues ready to string him up, he still maintains the line that electricity prices will fall. He even pitches it in terms that electricity prices have already fallen (despite the obvious – see above).

His latest effort to quarantine himself from his un-backable promise is to claim that it’s the Energy Security Board (not him) that’s guaranteeing that prices will fall, on average, by $400 a year per household.

That claim – which Frydenberg is using to push his, already defeated, National Energy Guarantee – is utter nonsense.

Here’s Chris Kenny interviewing Alan Moran on just why that is so. While tipping a bucket on the Grattan Institute’s considered reluctance to tackle the elephant in the room, as well.

‘Just get used to the pain’ as sky-high energy prices look set to stay
2GB
Chris Kenny and Alan Moran
2 July 2018

Wholesale power prices will stay sky-high on the nation’s east coast and there’s no end in sight, a report from the Grattan Institue says.

The report suggests inflated electricity prices will be the new normal, with prices spiking 130% between 2015 and 2017.

“In other words, just get used to the pain,” says Chris Kenny.

What’s worse is policymakers can’t do much to force prices down, with the institute stating the wholesale market is “broken” and no “silver bullet” can fix it.

Electricity expert from Regulation Economics, Alan Moran, says “two decades of appalling government policy” has created the situation we’re in now.

“We were the cheapest electricity market in the world more or less. We’re now one of the dearest.

“It’s insanity that this has occurred in a market that is so well blessed with resources.”

Alan tells Chris it’s only a “matter of time” before our industry shuts up shop and heads elsewhere.
2GB

Transcript

Chris Kenny: Now, there is nothing this nation has ever done to itself as ludicrous or as damaging in my view as our national energy policy. We’ve turned our natural advantage of plentiful cheap energy … remember, we export energy to the world … into a huge handicap, making ourselves a high energy cost country. It hurts you, it hurts me, it especially hurts those on fixed incomes, the elderly and the poor, and it really hurts big business and industry, costing thousands of jobs. It’s so crazy that we have the public broadcaster, one of our two public broadcasters, SBS, running little spots telling us to turn off our heaters. Can you believe it? Turn off your heaters to save money and save the planet. How insulting and dangerous and absurd.

Now, today we’re being told that high electricity prices will be the new normal, that we all just have to get used to it. A report from the Grattan Institute admits that the current wholesale electricity market is “broken”, as prices have gone up 130% between 2015 and 2017, right across the East Coast, 130% increase in just two years. But get this, the report also says there aren’t any solutions to this problem. The report says, “Current prices are unprecedented, but they may become the new normal. There is no silver bullet that will drastically reduce the cost and price of generating and delivering electricity.”

In other words, just get used to the pain. The report also says that the energy industry is deliberately gaming the system by creating a fake lack of power supply to drive up prices. Now, this sounds criminal, but the report says gaming is completely within the market rules. It says gaming is extremely hard to identify, but that it adds around $800 million to the value of electricity being traded. The report recommends that the Energy Regulator change the rules to stop these “artificial price spikes”.

So what can our politicians do to help all this? Well, according to the Grattan Institute, not much. Tony Wood’s report declares that the reality is that policy makers can do little to force wholesale prices down significantly. So is this really the case? Do we really have to accept that high electricity prices are here to stay? I’m joined by Alan Moran, who’s the electricity expert for Regulation Economics. He joins me on the line now. Thanks for joining us, Alan.

Alan Moran: Hi, Chris.

Chris Kenny: I’ve spoken to you about electricity for many, many years. Is this what we have to accept, that we are a high-price nation?

Alan Moran: Well, this is what we’ve created for ourselves as a result of two decades of appalling government policy. The Grattan Institute actually says we should provide stable policy in the future, but that stable policy has eluded us now, and indeed, what we’ve done ever since, indeed, to his great discredit, Mr. Howard introduced renewable energy subsidies.

Chris Kenny: He was the first, of one or two percent or something, but boy oh boy, what a monster he unleashed.

Alan Moran: That’s right, and basically what these subsidies have done is drive out the low-cost, stable power, or much of it anyway, electricity, and therefore we’ve seen, as you said, the doubling and more of prices.

Chris Kenny: So what do you reckon, Alan, of this Grattan Institute Report? Do you reckon they’re being pessimistic, defeatist, or could we actually do something to fix this situation?

Alan Moran: Well, I mean, certainly we could do something about it. Grattan basically still recommends that we continue on with some of these subsidies, and they’re not talking about renewables subsidies now, they’re talking about the NEG, which is the same sort of subsidies but to everything. It recommends we should continue with those subsidies, the very policies that have driven up the price of electricity to what it is. Now, when they say oh well, any new electricity is going to cost 80, 100, or whatever dollars per megawatt hour, compared to the 40 or 50 that we once had.

Well you know, we built electricity stations only 10 years or so ago for much less than that, and when you look at what’s happened since then, there’s not much. I mean, some prices have gone up, labor’s gone up in price, but coal really hasn’t. The sort of coal that the electricity generators use in Australia is low-grade coal, it’s not the export-quality coal. It’s very, very abundant. The only thing that is making it dear, especially where I am here in Victoria, is the increasing taxes that governments are putting on coal. They call them royalties. So basically, there’s a major study was undertaken, commissioned by the Minerals Council, a firm called Saltus , who are very experienced. They looked at what the cost of new coal would be, and they came to a decision that it would something of the order of $50 a megawatt hour. In other words, not that much different from what it was in what are now called the legacy plants.

Chris Kenny: But Alan, I’m sitting here in Sydney, and all of Sydney Basin basically sits on top of this coal seam. The whole East Coast of New South Wales are chockablock with coal. We’re the biggest coal exporting nation on the planet. It’s fueling new coal-fired power stations right around the world, especially in North Asia. Now, I know there are a range of factors pushing electricity prices up, but surely it’s the climate policies that are the biggest part of that. The Renewable Energy Targets have pushed up this cheap base load power, pushed it out of the system, and added vast amounts of investment that we all need to pay for. They’ve also created huge fluctuations in supply and demand. So it sounds to me like what you’re saying is if we invested in coal, particularly in New South Wales where you’ve got that high-quality export-grade coal, that we could produce plentiful, cheap, and actually relatively clean coal-fired energy.

Alan Moran: Exactly. I mean, the thing is that until we started with this madness, coal was producing electricity at $40, not the 100, even the $130 that we’re producing it now. It could produce it again at 40 to $50 a megawatt hour, in other words, less than half the price that we have now. We were the cheapest electricity market in the world, more or less. We’re now one of the dearest. It’s insanity that this has occurred in a market which is so well blessed with resources, whether it’s in New South Wales, whether it’s Queensland, or whether it’s in Victoria. There’s a massive amount of coal, and it’s very clean coal, in other words it’s not got a great deal of impurities like sulphur dioxide, which needs to be cleaned out of it.

We can achieve the same sorts of level of competitiveness we once had if we get the government out of this market and we allow firms to invest and to develop the coal into cheap electricity that we once had, and we could have again.

Chris Kenny: This is what does my head in, and this is what absolutely infuriates me, and I’m certain must infuriate so many of our listeners, and that is, that if government had stayed out of this and just allowed electricity companies, whether they’re government-owned or private-owned, to go ahead and produce electricity in this country, we would still have some of the cheapest electricity in the world. The only thing that has stuffed this up for everyone is government sticking its nose in with its Renewable Energy Targets and its various other subsidies and all sorts of green energy schemes, all pretending that somehow Australia’s going to save the planet, all knowing that whatever Australia does cannot actually make any difference, because the rest of the world is still increasing their carbon dioxide emissions. So this whole thing is just a great gesture of futility, and we’re all paying for it with some of the world’s highest electricity prices.

Alan Moran: And one of the problems is, it creates vested interests. Obviously, the vested interests who get the subsidies, they are a very powerful voice. They love subsidies, and that’s those renewables, but in driving the price of electricity up, it creates other vested interests like AGL, like Origin Energy, like Energy Australia, all of whom are basically coal producers or coal electricity producers and have seen their prices more than double.

Chris Kenny: And they’re shifting into renewable energy, where they’ve got guaranteed subsidies.

Alan Moran: They think it’s terrific. They think oh, this is all great. I mean, why wouldn’t they? They’re obviously looking after their shareholders, and that’s the way things should be, but the government has created a situation whereby people who are producing things that are dearer than they should be are actually able to influence policy to ensure they stay much dearer than they should be.

Chris Kenny: But Alan, it is so distorted that we’ve created a situation where there are subsidies to companies, effectively, for not producing electricity. They’re making more money by producing less reliable electricity.

Alan Moran: Well, and that’s the tragedy of AGL, closing its Liddell Plant in New South Wales. They made more money because they closed the plant, and it ramps up the price generally for their other assets. But ramping up the price for AGL and for other electricity businesses is at the expense of the consumers, household and business consumers. I mean, we developed our industry in Australia on the basis of our competitive advantage with cheap power. We’ve thrown it away. We can regain it again, but we have thrown it away, and it’s only a matter of time before we see all of these industries which are the jewels of our crown, like the aluminium smelters, etc., they’ll all have to close, because the government has created a situation where they have to pay two or three times as much they should pay for their power.

Chris Kenny: Well, it makes me weep, but one final question before I let you go, Alan, and this is the problem to me. This is what really depresses me, and that is, this is such a mess now that if you had a government, say a Tony Abbott government came in tomorrow and just scrapped all these subsidies that he did nothing about, I must admit, while he was in power. But say someone came in and got rid of all the subsidies and renewable energy schemes, that still wouldn’t fix the system now, because it’s so messy that there’s no investor would actually have the confidence to come in and invest in a coal-fired power station or anything else, because they’d be so worried about the policies changing five minutes down the track.

Alan Moran: And this is partly true. I mean Abbott, to his credit, he did do some things and tried to do even more, but wasn’t able to do so.

Chris Kenny: He did reduce the RET a little bit, the Renewable Energy Target.

Alan Moran: He stopped the carbon tax and things like that. So he did do some things, and he said in office, if he was in office again, he would do even more. But you’re right, we have created this uncertainty, and anybody who is investing in coal now would have to have some guarantee that they weren’t going to be expropriated by subsequent government action. So I mean, that’s the situation we have arrived at. Now, there’s plenty of people who would invest in coal, in coal power stations … the Chinese, for example, certainly would … in Australia, but anybody doing so would have to have some sort of guarantee that the government wasn’t going to come and expropriate them, take them over, or force them out of business through subsidies to competitors over a period of 15 or 20 years into the future. That’s the only way you would get new investment now in what is our lowest cost energy supply.

Chris Kenny: Alan, thanks so much for joining us.

Alan Moran: You’re very welcome.
2GB

I’m not a puppet, I’m a REAL Energy Minister.

About stopthesethings

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

Comments

  1. I am currently watching the BBC Series Windfarm Wars. It was recently sent to me. You can read the Wikipedia entry below.

    https://en.m.wikipedia.org/wiki/Den_Brook_Wind_Farm

    Unfortunately I cannot find a link online for the actual program. This is a real shame as it would be extremely beneficial for the rural Australian communities currently fighting ‘greedy’ wind farm developers who are determined to destroy your rural tranquillity so as to profiteer at your expense.

    One of the points made, one of many, is that the future is obviously nuclear power. But the energy companies have found a way to make money by exploiting the system through the use of renewables. So they are having a flutter at our expense for as long as the subsides keep coming, and for as long as they can get away with it.

    My observations of the wind company RES in full flight are featured below. This was shot in 2012. The BBC series Windfarm Wars featured RES and had already been shown in the U.K. in 2011 prior to this meeting. RES recently stated that they would not go ahead with the Penshurst project. RES were setup by a very well known U.K. construction company who have also built nuclear power facilities as stated in the program.

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