An energy economist is calling for an independent inquiry into Queensland’s energy production following millions of households being told to conserve power for a second consecutive night due to generators reducing their output in response to a cap on prices.
The Australian Energy Market Operator (AEMO) ordered power generators to cover projected electricity supply shortfalls again last night, after a perfect storm of energy chaos in Queensland and New South Wales, including cold weather, offline generators and soaring power prices.
Victoria Energy Policy Center director Bruce Mountain said Australia was in an “absolute market crisis”.
Professor Mountain said generators are largely shielded from volatile spot prices (the market value for energy) and effectively holding production to drive up prices.
“Nothing like this has been experienced in Australia,” Professor Mountain said.
“What’s really going on, I suspect, is bullying by the coal and gas producers – they’re pointing to the spot prices.”
He said most generators secure their fuel through contracts with the price locked in months in advance.
“I suspect this is quite possibly a very serious case of market cornering,” Professor Mountain said.
“We need an independent inquiry 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 has set a fixed price cap for consumers at $300 a megawatt hour, some generators have with drawn supply from the market.
Green Energy Markets director of analysis, Tristan Edis, said the $300 a megawatt hour figure is below the cost of fuel for many gas power plants.
“They’ve said they don’t want to supply electricity because this price is not enough to cover our costs and so they’ve withdrawn their supply,” Mr Edis said.
“They’re effectively switching off … or saying: ‘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 kilometers 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 all this travel .
Gas prices also remain capped at $40 a gigajoule, so effectively, it is too expensive for some generators to come online.
Energy market analyst David Leitch said it takes around 10GJs of gas to produce 1MWh of electricity.
That meant it would cost gas generators $400 to produce 1MWh of electricity, plus running expenses.
“Your basic cost before you’ve even made a dollar is around $450,” Mr Leitch said.
Mr Leitch said they waited for the market operator to direct them to generate at a loss, entitling them to compensation.
“They covered their costs and made a reasonable profit,” Mr Leitch said.
Who will pick up the bill?
The short answer is: the consumer, eventually.
Professor Mountain said generators ordered to come online would make an application to the Australian Energy Market Commission to claw back their costs.
“It is essentially a compensation for the production costs plus a margin,” Professor Mountain said.
“It’s then up to those market participants to provide evidence they buy on the spot prices.”
The cost of intervention will end up on Queenslanders’ energy bills down the track.
“It’s paid by all consumers, much as they would pay if there was a price set by the market,” he said.
Which power generators are offline?
Five government-owned Queensland power generators offline for maintenance.
Queensland Energy Minister Mick de Brenni said that included one gas, one hydro and three coal-powered plants.
“They are going to start coming back on as early as Thursday … [others] will come back on 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.
Mr de Brenni said publicly owned generators, Stanwell, CS Energy and Clean Co have been “providing all the supply that they possibly can.”
Mr Leitch said recent flooding has also affected coal generation in Queensland and New South Wales.
“[Rain] flooded all the open pit coal mines and restricted supply,” he said.
How long will this continue?
An AEMO spokesperson could not provide a time frame on how long tight supply will last.
Spring could bring some relief, with less heating required and more solar generation.
Mr Edis said the risk factors could stay for years, with high gas and coal prices sticking around.
“I suppose the expectation would be that a number of coal generators will come back online and then that will to a large degree alleviate the risk of shortages,” he said.
“Unfortunately, it’s not going to alleviate the high prices we’re seeing at the moment.
“They’re going to be here for quite some time because unfortunately the invasion of Ukraine has led to elevated prices for gas which will be maintained for … at least a year to two years and probably the same for the international price of coal.
“That will flow through to electricity prices.”
What can be done long term?
Mr Leitch said Queensland has not built enough wind and solar, as coal-fired stations age.
“Queensland should be doing two or three times as much wind or solar that it’s doing every year for the next decade.”
Associate professor of energy economics at the University of Adelaide Liam Wagner said “a broad range of technologies” must be implemented onto the national market.
“Wind and solar … and hydrogen and pumped hydro to be able to get ourselves away from coal and relying on these very old coal-fired generators which need lots and lots of maintenance and they break down all the time,” he said.
Posted , updated