Big firms get $50m in bid to keep lights on

Energy users paid $50 million to buy back power to keep the lights on in Victoria and South Australia.

Energy users paid $50 million in total to buy back power from major manufacturers so as to keep the lights on in Victoria and South Australia on two occasions in the past three months.

The Australian has learned that the Energy Market Operator was forced to activate its “reliability and emergency reserve trader” mechanism on November 30 and January 19 as supplies to retail customers came under threat.

The $50m price tag includes the cost of signing up businesses, standby fees and activation payments, Energy Minister Josh Frydenberg’s office confirmed.

The bill to households and businesses will rise if the RERT is activated again this summer.

Businesses had previously been placed on standby under the reserve trader mechanism, which has existed since 1998, but none had been required to surrender power prior to November 30 last year.

That event coincided with moderate temperatures — in the mid-30Cs — in SA and Victoria, but the contribution of wind to the energy grid that day fell to just 16 per cent of total capacity in Victoria.

On January 19, temperatures hit 41C in both Melbourne and South Australia.

Mr Frydenberg said the mechanism had been required because state governments in Victoria and SA had failed to ensure sufficient despatchable power in their grids.

“Their encouragement of the closure of the Hazelwood and Northern power stations, and the rapid uptake of wind and solar, particularly in South Australia … have contributed to their problems,” Mr Frydenberg said.

“It is in this context that the market operator has been left with no choice but to contract for reserve supplies, the cost of which is ultimately passed on to families and business.”

The Australian Energy Market Operator contracted 14 businesses to supply more than 1000 megawatts of reserve power during extreme peaks in 2017-18, by stopping or winding down ­operations, or switching on diesel generators.

Participating businesses include Alcoa Portland Aluminium, BlueScope Steel, Visy and Australian Paper.

TAUS PAGE 1 Power graphic

Power networks in Victoria and SA are also part of the scheme, agreeing to implement demand management measures when required.

The AEMO purchased a total of 32MW of electricity from contracted businesses on November 30. It said it was unable to report how much power was returned to the grid on January 19.

Neither event required the ­activation of generators, the AEMO said.

The incidents come as the Turnbull government tries to get agreement from the states and territories on its National Energy Guarantee, which ties energy ­security, price and environmental goals in a single plan.

Mr Frydenberg said the ­reliability and affordability issues experienced in Victoria were the types of problems that would be addressed by the NEG.

“It’s time Labor listened to the experts and got on board,” Mr Frydenberg said.

“Under the National Energy Guarantee, Australian households will not only have a more stable energy system than they do today, but be $300 a year ­better off.”

Labor energy spokesman Mark Butler said the government needed to end its “obsession with coal power”.

“Coal power stations are closing because they are old, increasingly unreliable and expensive to run,” he said. “We urge the Turnbull government to … deliver a credible energy policy that will support the investment in new renewable generation and storage we desperately need.”

Labor is promising to deliver 50 per cent renewable energy by 2030; the NEG is a technology-neutral plan.

SA and the ACT remain hostile to the National Energy Guarantee and are undertaking their own modelling of its effectiveness compared with other clean ­energy policies.

In September, the AEMO provided advice to the commonwealth that showed there was up to a 43 per cent chance of blackouts in Victoria and 33 per cent in SA this summer.

Victoria’s 1600MW Hazelwood power station was closed last March.

SA’s Northern power station provided 546MW into the grid until it closed last May.

The Minerals Council of Australia said the government should focus on policies that reduced ­energy costs instead of paying businesses to stop using power. “Asking large Australian companies to stop using energy every summer is not sustainable,” an MCA spokesman said.

“Over the past decade, Aus­tralia has moved from having some of the lowest to some of the highest energy costs in the developed world.”

He said a “technology-neutral ­approach should be adopted for all low-emissions ­energy sources where no one technology is favoured to the ­exclusion of ­others”.