Hazelwood shutdown drove power price surge, says Australian Energy Regulator
Shutdown of the Hazelwood plant caused record power prices in Victoria and had a “significant” national impact, a report says.
The abrupt closure of the Hazelwood brown coal-fired power station in Victoria last year caused record wholesale power prices and flipped the state from a power exporter to an importer, the Australian Energy Regulator says.
But, in a report to the COAG Energy Council, the energy watchdog found no evidence of opportunistic or anti-competitive behaviour from remaining generators, despite the reduced competition.
“The impact of the Hazelwood closure has been, and continues to be, significant right across the National Electricity Market,” AER chair Paula Conboy said.
“High wholesale prices in the NEM are not unprecedented and indeed have been higher in the past, but the 2017 increases were sustained over the year and occurred simultaneously across the NEM.”
Victorian wholesale prices were the highest on record and were up 85 per cent in 2017. New South Wales prices rose 63 per cent, Queensland was up 53 per cent and South Australia up 32 per cent.
“The replacement of Hazelwood’s low-cost brown coal generation by higher-cost black coal, gas and hydro generation — coinciding with rising black coal and gas fuel prices during the period — was found to be the underlying driver of the wholesale price increases,” Ms Conboy said.
From the middle of the year, Victoria became a net importer of electricity for the first time in nearly 10 years, with increased imports of gas generation from South Australia, and black coal generation from NSW and Queensland.
“Our analysis did not identify instances where bidding behaviour normally associated with the exercise of market power significantly affected average prices,” Ms Conboy said.
The report found price offers from remaining Victorian generators were largely unchanged, with some gas-fired generators moving capacity to lower price bands.
But the AER said it would need to monitor longer-term issues.
“Ownership in the South Australian and Victorian markets is concentrated, with a few, largely vertically integrated participants controlling a significant proportion of capacity in both regions,” the report said.
The AER said it was too early to tell if prices will stay high.
The report was commissioned by Scott Morrison and Energy Minister Josh Frydenberg to monitor the behaviour of generators in the wake of the rapid closure of Hazelwood, by France’s Engie, in March 2017, just four months after notice was given.
The Australian Energy Council, a lobby group representing major electricity and gas businesses, said the AER report supported the industry’s explanation for higher power prices.
“The AER did not find any abuse of market power, withholding of capacity or shift to offering higher prices for the same capacity,” AEC chief Matthew Warren said.
“Ultimately, higher-priced generation had to fill the supply gap and set the price more often, which is unsurprising when a large, cheap generator leaves the market.”