Generators blamed for power crisis

Miners blame Queensland and NSW coal-fired power generators for price hikes, criticising Anthony Albanese’s price caps as hitting the wrong target.

Energy stocks tumbled on Monday after the national cabinet’s sweeping market intervention

Miners have blamed Queensland and NSW coal-fired power generators for price hikes that triggered the mid-year national energy ­crisis, criticising Anthony Albanese’s coal and gas price caps as hitting the wrong target.

Analysis of national electricity market pricing issues and fuel costs reveals that generators ­exploited the crisis between May and July to increase their profits and used high gas prices to bid at steeper prices despite being locked into low fixed-supply contracts.

As energy stocks tumbled on Monday after the national cabinet’s sweeping market intervention, the Prime Minister faced pushback on coal and gas price caps from Opposition Leader Peter Dutton, industry leaders and mining companies.

The threat of price caps extending beyond 12 months triggered a plunge in energy shares, with gas producers Origin Energy and Cooper Energy falling more than 7 per cent, Beach Energy closing 2.4 per cent lower and coal miners Whitehaven and New Hope taking a hit.

The showdown with cashed-up gas and coal companies before parliament returns on Thursday to impose a $12-a-gigajoule cap on gas came as Mr Albanese edged closer to a deal with crossbenchers and the Greens to win support in the Senate.

Greens leader Adam Bandt and Jacqui Lambie were expected to support legislation to cap gas prices, despite concerns over consultation and separate compensation payments to coal producers.

A new report commissioned by the Minerals Council of Australia – representing coalmining giants – warned price caps would distort the market and cripple investment.

The research raised questions about using the mid-year energy crisis to justify price caps.

The Oakley Greenwood report, prepared earlier this month, blamed generators for stoking ­record high prices and triggering the Australian Energy Market Operator’s suspension of the east coast energy market.

The analysis showed that “high wholesale market prices ­reflected implied fuel costs that were much higher than the typical long-term contract coal prices”.

“Generator bids were opportunistically high given the market conditions. This conclusion is consistent with materially lower priced bids either side of the conditions of June and July 2022,” the report said.

“Fuel prices were not represented by typical long-term contract prices.

“Generator capacity factors for the year were low and reduced the opportunity for the generators to recover full fixed and variable costs pushing the coal generators up the merit order to such a degree that their bids were structured to be more like those of peaking generators.”

The report said “any intervention in the interests of customer prices should be directed at customer bill relief” and the “speed of changeover in generating technology and simplicity of market mechanisms will impact outcomes over the longer term”.

The Eraring and Gladstone coal-fired power stations in NSW and Queensland, which recorded price peaks of about $500/MWh and $555/MWh during the crisis, were singled out as “potentially key reasons for elevating spot ­prices”.

Mr Albanese on Monday ­defended the speed of the government’s pre-Christmas actions and said federal, state and territory governments “didn’t rush into this”.

He said it was “reasonable” that payments are made to coal producers on long-term fixed contracts when the cost of production was higher than the capped $125-a-tonne but denied that compensation would reach $500m.

“There is nothing in the legislation to provide any compensation. The legislation is very simple," he said.

Mr Dutton attacked the government for failing to deliver on its election promise to reduce ­energy bills by $275 and “not providing any guarantee that you’ll see a reduction in power prices or gas prices in what they’re doing”.

Senator Lambie, whose vote would be required with the Greens if independent ACT senator David Pocock doesn’t back the price cap, said the bill would likely “give relief to those who need it”.

“I’ve said that people need ­rebates to help them out. People are struggling to afford everyday groceries and they’ve got school fees hitting them at the start of next year. I’m not going to stand in the way of people getting the help they need,” she said.

Senator Pocock said the ­energy package was nothing but “a Band-Aid on a festering wound that has arisen from long-term failure on energy policy”.

Mr Bandt said the Greens would fight moves to compensate coal producers: “We shouldn’t be asking the public to subsidise them at a time where they’re making record profits. We don’t think there’s a case for using public money to subsidise coal and gas.”