By Mike Foley
Power generators are exploiting the chaotic energy market by withdrawing power supply from the electricity grid, forcing the Australian Energy Market Operator (AEMO) to direct them to fire their plants back up and triggering profitable compensation payments.
There’s no law stopping power companies from withdrawing their electricity generation from the market, and in the past two days, they have reduced the volume available by 2 gigawatts in Victoria, 3 gigawatts in NSW and 1.5 gigawatts in Queensland.
A large amount of power generation has been withdrawn from the electricity grid, triggering compensation payments from the regulator to get it back on line. Credit: Louise Kennerley
The withdrawals were prompted by the AEMO’s decision to put a cap on spiralling prices that electricity generators are charging for wholesale power, which crimped the profit margin of some generators, which are battling coal prices that are soaring because of sanctions on Russian exports.
But the electricity market is tightly regulated and the AEMO has powers, designed to prevent blackouts, which enable it to force generators to fire up units and start supplying electricity to the grid. Whenever it does this, companies are awarded compensation.
The threatened power shortfall forced the AEMO to issue notices on Tuesday flagging potential blackouts in Victoria, Queensland, NSW and South Australia. But it said on Tuesday afternoon that about 2 gigawatts had been withheld in both Queensland and NSW and this could be directed to fire back up to supply the market, which would trigger compensation.
The AEMO was unusually forthright in a public statement when it said that directly after price caps were imposed on power companies, “available offers were reduced”.
These withdrawals represent more than 10 per cent of the east coast energy grid’s total generation capacity of 55 gigawatts and come on top of an energy crunch created by a series of breakdowns and maintenance outages that have forced about one-quarter of the east coast’s coal-fired power stations out of action.
Melbourne University energy expert Dylan McConnell said while power companies might have reduced their output for legitimate reasons, the scale of withdrawal across the industry raised concerns over its social licence.
“It’s not in good faith and fairly unconscionable conduct. Yes, there is some sort of justification for it, but it’s the wrong thing to do,” McConnell said.
Credit: Matt Golding
Asked on Tuesday if power companies were gaming the system, federal Energy Minister Chris Bowen said the compliance regulator was monitoring the situation “very, very closely”.
“The Australian Energy Regulator reminded [power companies] of their obligations of the law this morning,” Bowen said.
The market operator had reassured ministers that it believed there was still sufficient power available to the grid.
“I have been in contact with [the AEMO] and they are confident the situation can be and will be avoided in NSW and Victoria in particular in coming days,” Bowen said on Tuesday. “Nobody should turn off any power usage that they need for their comfort or their safety ... nobody is asking for that to happen.”
A spokesperson for the Australian Energy Council, which represents major power generators including AGL, EnergyAustralia and Origin, said its members were losing money selling power due to soaring costs of the coal and gas they burn.
“The price cap unintentionally means that some plants can’t recover their fuel costs. Participants are legitimately seeking ways to resolve the problem,” the spokesperson said.
NSW Treasurer and Energy Minister Matt Kean said he was in close contact with the market operator and had “every confidence” there was enough power available to avoid blackouts, and he identified compensation payments as a cause of shortfall warnings that had sparked concern.
“The reason that generators are waiting for the market operator to direct them, rather than taking a loss in the market is because they are eligible for some compensation from the Australian Energy Regulator,” Kean said.
Victorian Energy Minister Lily D’Ambrosio warned it was “unacceptable to see some businesses potentially gaming the system to increase their profits”.
“Any such behaviour will be investigated,” she said. “We will continue pushing for reforms that ensure the needs of Victorians are put ahead of big company profits.”
with Josh Gordon