Power shortages loom as controlled prices spread

A spokeswoman for Origin Energy said the company had a number of units across Queensland, NSW and Victoria that had responded to the call by AEMO to boost power supply.

“Under administered pricing, some power stations may not be bid into the market because it is uneconomic to run them due to fuel availability and elevated costs; however, these plants remain available to be called on by AEMO should they be required to support reliability of supply in the market,” she said.

“Generators that are directed on for reliability can apply for cost-based compensation.”

The AER’s Ms Savage took issue with generators seeking to avoid the compensation process that applies under a capped price situation in favour of AEMO’s compensation process that applies when the market operator directs plants to run, and which is understood to be more costly for consumers.

“As you know … market participants must not by any act or omission, whether intentionally or recklessly, cause or significantly contribute to the circumstances causing a direction to be issued, without reasonable cause,” she wrote.

After discussions with generators on Tuesday afternoon AEMO estimated that about 2000MW of generation was available in each of Queensland and NSW that has not bid into the market. It “continues to encourage” generators to bid capacity into the market given “level three” shortfalls in generation capacity – the most serious level – anticipated through all the regions of the NEM on Wednesday.

It narrowly averted a similar squeeze in Queensland on Monday.

Grattan Institute’s energy program director Tony Wood said the situation with controlled prices in four states showed the current National Electricity Market was “broken”.

“It’s meant to be a circuit-breaker – like a trading halt on the ASX – but it’s now the whole east coast of Australia,” Mr Wood told The Australian Financial Review.

“This is a real mess. If you can’t fix it, the market doesn’t work. You need to change the rules.”

Mr Wood said federal Energy and Climate Change Minister Chris Bowen had to intervene with the big gas companies and make them release gas into the market at a “fair and reasonable price”, like $10 or $12 a gigajoule, or they would be taxed at a certain price above that.

“The only way you can really solve this is to sit down with the companies and work out what’s happening. They are making windfall profits,” he said.

The Origin spokeswoman pointed to chief executive Frank Calabria’s call to get coal plants back online to take pressure off the system.

“As we have consistently said, the fastest way to stabilise east coast electricity markets is for as much coal plant capacity to come back online as quickly as possible, which includes supporting the supply of coal to power stations that need it,” she said.

AEMO estimated the maximum amount of load that could be “shed” at 1789MW at 6.30pm in Queensland, with shortfalls lasting from 4.30pm to midnight.

In NSW, a maximum of 1748MW could be “interrupted” at 9pm Tuesday but reaches as high as 3166MW at 8pm on Thursday.

“Hmmm … these are not small numbers of MW forecast to be load shed in QLD or in NSW on Tuesday evening 14th June 2022,” tweeted market watcher Paul McArdle of specialist firm Global-ROAM. “Let’s hope it works out like Monday evening did!”

However, Mr Bowen said he had been told by AEMO it had done enough to ensure there would be no load-shedding or blackouts in the next few days.

“AEMO is working pretty hard with the generators to ensure we can avoid the load-shedding and based on their advice I’m pretty confident we can,” Mr Bowen told Radio National earlier on Tuesday,

He said many generators were waiting to be instructed by AEMO before they bid into the market and then would be compensated, which he admitted wasn’t a “perfect system”.

“We have had an ill-managed transition, and we are paying the price for that now,” he said.

Controlled prices are imposed when the rolling total of five-minute trading intervals on the NEM over the past seven days in a particular region passes the set threshold of $1.3591 million.

That happened in Queensland on Sunday evening, in NSW about 6.30pm on Monday and in South Australia and Victoria later on Monday night.

Gaming the compensation regime

The University of Melbourne’s Dylan McConnell said that generating capacity was also withdrawn in NSW when the $300/MWh cap came in. “It definitely seems like some generators are gaming the compensation regime,” he said.

“The reality is, there’s capacity there and available – just waiting to be directed on.”

A similar squeeze was warned of on Monday but forced blackouts were averted after AEMO directed plants to operate and negotiated for emergency reserves, and Queensland transmission company Powerlink appealed to customers to cut back usage.

Josh Stabler, managing director of energy adviser Energy Edge, said the structure of the Cumulative Price Threshold made it more likely that the cap would be extended past the end of the week as generators withdrew capacity, driving up the “shadow” price for wholesale power that would apply if the limit was not in place.

“Generators are being dispatched at market outcomes below their fuel cost, so they are incentivised to extract their capacity, or bid unavailable, to avoid being dispatched,” he said.

“This results in higher shadow prices, which is included in the calculation of the CPT and therefore extending its duration.”

Meanwhile, the controlled cap of $40 a gigajoule for natural gas in the Sydney market due to rocketing prices will come to an end on Tuesday, while the Victorian price will remain capped at that level.

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