Essay by Eric Worrall
h/t observa; The Australian Energy Market Operator has replaced freedom with a regime of coercion and expropriation, in a desperate effort to stabilise Australia’s skyrocketing energy prices and supply shortfall.
Australian Energy Market Operator suspends spot market for wholesale electricity to ensure reliability and avoid blackouts
By political reporter Melissa Clarke and Nicholas McElroy
The Australian Energy Market Operator (AEMO) has taken the extraordinary step of suspending the spot market for wholesale electricity across the country.
Key points:
- The electricity sector has been dealing with soaring costs
- It forced AEMO to cap prices and compel generators to offer their services
- Now the spot market for wholesale electricity has been suspended to try and ensure reliability
The electricity sector has been dealing with soaring costs, forcing AEMO to cap prices and compel generators to offer their services.
…
AEMO chief executive Daniel Westerman says suspending the market will simplify operations of the electricity market.
We are seeing very challenging times,” Mr Westerman said.
“It was impossible to operate the system under current conditions while ensuring reliable, secure supply of electricity to Australian homes and businesses.
“Right now we see the market is not able to deal with all the factors thrown at it. Frankly, those factors are quite extreme, ranging from generators that are both planned and unplanned outages, very high demand. [There are] a confluence of factors at hand.”
He said the suspension created a more simple process to keep track of energy generators.
“We are creating a simple process where AEMO has true visibility of which generators are available and when in advance, rather than relying on last minute interventions,” Mr Westerman said.
…
Read more: https://www.abc.net.au/news/2022-06-15/aemo-suspends-energy-spot-market-amid-power-crisis/101154054
Why do I claim the Australian government has imposed a regime of expropriation?
Electricity providers claimed they refused to offer services under the government imposed price cap, because it would have meant running at a loss. Now they are being told they have no choice, they will be compelled to provide power at the price the government sets.
…
A spokesperson for the Australian Energy Council, which represents major power generators including AGL, EnergyAustralia and Origin, said its members faced a “complex issue” but were seeking solutions to the power crunch.
“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.
…
Read more: https://www.brisbanetimes.com.au/politics/federal/power-companies-accused-of-unconscionable-conduct-as-they-withdraw-from-grid-20220614-p5ath9.html
I have no doubt energy companies will comply, in the short term. I suspect directors will burn down their own companies to avoid being unjustly prosecuted, fined and possibly jailed. Who would not do the same in their place?
But what will be left when the smoke clears? What happens when generation companies have been forced to burn shareholder’s capital, to operate at a loss, for the political convenience of people who care nothing for their property rights or expectations of fair treatment?
The Australian fossil fuel electricity market was already a dangerous place to invest, given Australian government’s market distorting preference for renewables, and the bipartisan Aussie net zero target, which clearly leaves no place for fossil fuel generators.
My prediction, the threat of expropriation will be the final straw on the back of an already skittish industry.
In my opinion, after today, nobody in their right mind will spend a penny on power system maintenance or upgrades, now that everyone knows the government believes they have the right to expropriate. Except perhaps when directed to do so by the government, under threat of prosecution.
Worst case, competent managers will flee the industry, flee the risk of going to jail, perhaps even flee the country. Their replacements will in many cases be the kind of people you normally wouldn’t hire. The smart shareholders will sell fossil fuel generator assets, leaving companies in many cases in the hands of the inept or, perhaps worse, in the hands of corrupt political opportunists. In time these companies will collapse.
Welcome to Venezuela.
One more step closer to Nationalizing the energy sector for Aus. They think things are screwed up now, just wait.
The best thing that could happen.
Then, as the rates continue to climb, the voters can congratulate themselves on picking the “right” (left) politicians!
According to Eric, it was the (evil greens/socialists/insert your bogeyman here) responsible for the Oz shortfall, when it was actually generators holding back power. Now, in a world class exercise in creativity and about face, AEMO is somehow negligent in suspending the rules that led to generators holding back power.
Well sure, its all part of a Agenda 21. George Soros, Never Trumper (insert your bogeyman here) conspiracy.
I can’t understand why scientists don’t respond to articles on this site; Its so rational, evenhanded, objective, and consistent.
Come back and visit us after you finish remedial physics, chemistry, statistics, economics and mathematics.
He finished Socialism 101 and figured that was all he needed to know.
Solar doesn’t run on moonlight Tony and that just leaves wind with your net zero Utopia-
Wind Energy in Australia | May 2022 | Aneroid
The more astute got out with a spate of ship jumpers last year mate-
Architect of Integrated System Plan to leave AEMO as staff exodus continues | RenewEconomy
But they’re always on the lookout for enthusiastic people like yourself-
AEMO appoints new Chief People Officer – Energy Magazine
How dare those evil capitalists refuse to operate at a loss.
If you try to understand why the coal generators are holding back capacity you might see it is the renewable generators who started this and how. The coal generators are going to kick heads until someone brings the renewable generators into line. Start with an understanding a coal fired plant can’t ramp up or down to meet a 5min window and you will get what the renewable generators were doing.
The owners of the power stations also own W&S assets.
Australia has more exporting capacity for coal and gas than what is in excess to need internally. So Australian energy users are fully exposed to the global price for these inputs.
The situation for gas was identified back in 2016 when the Gladstone LNG export facility commenced. It has been downhill from there. Coal is now at the same point apart from the lignite in Victoria, which has no export facility but the useful idiots in government are trying to shut down this fuel source.
I am reasonably confident that Australian States have energy ministers who do not realise that electricity in has to match electricity out plus line losses on a second-by-second basis.
In fact none of the system modelling for addition of intermittent generators was based on second-by-second generation-demand matching. South Australia went black before ANYONE involved in the supply of electricity realised system inertia was important.
Socialist central planning and the price variations caused by supply and demand simply do not get along….
Well they’re going to have to-
Government ‘stepping in and taking over’ Australia’s energy system | The Courier Mail
That’s not going to go well at all. How many days into the new government and what have they done?
Central planning and a modern/productive society don’t go together.
Thus ever from tyrants. So, is anyone in Australia ready to embrace my anti-CAGW panic political party, yet? Kick the liberals and labor and greens to the curb. I think it’ll be a political winner and make a climate realist the PM for years to come? The so-called ‘conservative’ Liberal party will come crawling.
The only thing getting rid of the spot market does is to hide the true cost of electricity.
Which is of course, why it’s been shut down.
So sad. This is a classic example of how socialists create a problem and then raise taxes and people’s cost of living so that they, the inventors of the problem, solve it by creating a new and much worse problem.Australia, the U.K., Germany, France, Spain, the US, Canada and many other Western nations falling into the green black hole.
Mostly government tackles situations by acting to achieve the lowest common denominator: punish the good to prevent it from showing up the bad.
Price controls have never been anything other than disastrous and counterproductive.
This is the beginning of the end.
“The smart shareholders will sell fossil fuel generator assets” – Exactly what the alarmists want, isn’t it?
“In time these companies will collapse” – See above.
So the solution will be to forego all maintenance operations to cut cost and lay off all the maintenance crews. Bring the operations crews to skeleton status and wait for the plant to trip off or the remaining crew to strike. Then close the whole thing down.
What can’t continue, won’t!
There is another possibility. Remote perhaps but still a possibility, depending on who runs AEMO. One of the factors that gets suspended along with the spot market is the priveleged position enjoyed by renewables. Under the normal rules, if a renewable operator is producing, effectively the market has to buy their output not others’, and the others have to turn off and wait for the renewables to stop again. Under this temporary managed regime, the coal operators may be able to say that they will provide baseload 24/7 at a fair price as they were designed to do; that their facilities will inevitably break down if they have to keep on being turned on and off. That ‘inevitably’ is oerhaps the key word here – a utility cannot be forced to generate power if it has broken down, and lets face it, its operator is fairly well placed to control when it breaks down.
This still won’t fix the problem fully until (a) new reliable power stations are built, and (b) the rules are changed to favour reliable energy over unreliable. But it could keep the lights on and it could help to get the rules changed.
75% of the electricity generated isnt sold ‘through the AEMO’s market mechanism’
Its done by longer term contracts directly between generator and user , either large scale industry or corporate group or the everyday retailer that most homes and small businesses use.
That is not the situation in Australia. The coal generators will bid blocks of energy at high negative pricer to undercut the intermittents. This is so they can keep the plant hot and connected.
When there is ample dispatchable generation, the price often goes negative. It was negative 12% of the time in Q1 2022. The coal plants kept producing at their minimum controllable output and forced the wind and solar to curtail output.
Voluntary curtailment of W&S has been a regular feature of the NEM for the last three years.
Bidding in The Australian NEM is very complex. They bid down to 5 minute intervals and can have up to 10 blocks of energy all at different prices.
Coal are willing to run at a loss through the middle of the day in the knowledge that they will be scheduled in the evening peak if bidding just under the cost of gas. That means they recover the notional losses.
So they run at a loss to keep their facilities hot while subsidized wind and solar, or as I like to call them, unnecessary and non dispatchable electricity suppliers make money for otherwise useless “generation” capacity.
The disruption is due to duplicated excess capacity provided by wind and solar, not due to any fossil fuel generation capacity.
“Under the normal rules, if a renewable operator is producing, effectively the market has to buy their output not others”
Just untrue. There is mo such rule. Renewables win out because they have no marginal costs, and so can undercut those who have to pass on fuel costs. That is just an economic advantage, and would be present in any selling arrangement.
Renewables have no marginal costs? 🤣🤣🤣
Renewables are so heavily subsidised, they can bid negative prices and still be profitable.
Directors have a mandated responsibility to creditors, employees and shareholders/owners to forecast insolvency and have administrators appointed. Any generator producing with negative cash flow under the present price cap should simply call in administrators. The administrator’s advice would be to stop operating at negative cash flow until you can get more favourable terms.
Australians all, let us a pray for wind and sun. Or maybe Albo can just order the wind and solar farms to produce more. He is the one to blame, after all, he fixed Global Warming. I fear he has overshot and Australians are now suffering a dose of Global Cooling.
In the face of catastrophic Global Warming, who could have predicted that there would be no sun and no wind over Australia rendering all those expensive solar panels and wind turbines USELESS.
Lucky Australia has Twiggy Forrest to sort out this mess. In a few short years he will be producing enough green hydrogen to satisfy the world demand for gas.
Thats not happening , as the generators are making large profits
AGL the largest generator
‘AGL Energy Limited (AGL) has today updated its earnings guidance for the financial year ending 30 June 2022 (FY22) as follows:
A large power station under maintenance has affected that number – but of course it can divert the coal or gas ( mostly on longer term supply as well) to another of its plants that will be running longer
its the retailers who are most exposed by the spot market who can and do go bust. When you realise that 75% of electricity isnt sold in the daily spot market you will realise how little it affects the big profitable generators
Not all generators are like AGL. Generators using diesel fuel would be highly disadvantaged at $300/MWh with the present price cap.
In the last 30 days, diesel has supplied 28.7GW averaging $554/MWh. That would give them a small margin over the cost of fuel. A cap of $300/MWh would create negative cash flow.
There is already a reserve trader arrangement and they have been used before.
https://aemo.com.au/-/media/files/electricity/nem/emergency_management/rert/2021/rert-end-of-financial-year-report-2020-21.pdf?la=en
The average price for the times used in 2021 was $4524/MWh and $11,745/MWh.
If you have an emergency diesel generator that can provide reverse power flow then you are not going to be happy to send power out at a loss when there is already a mechanism in place to be reasonably compensated for the annoyance of turning it on and refuelling then having the additional servicing costs.
Some businesses offer reserve power capacity through on-site generating plants by curbing their normal production so they can help keep the lights on for the whole grid. That can come at a high business cost. Same thing for load shedding. Aluminium smelters would make money at $300/MWh for not taking electricity but if the pots freeze then the costs will be in the hundreds of millions so they cannot sustain being switched off or in “sleep” mode.
The current wholesale gas price is up around $40/GJ so OCGTs would not make money at $300/MWh. They have averaged $569/MWh over the past 30 days so their margin is not that good.
No power station buys quantity gas at the ‘daily wholesale price’ They would have longer supply contracts and only part at the spot price. Then theres hedging to cover if prices rise which also comes at a cost too.
The real problem is the loss of several large coal generators over the last few years and even the widespread solar usage cuts baseload during the day so the baseload stations are on a daily cycle they arent suited for
Duker says “The real problem is the loss of several large coal generators over the last few years and even the widespread solar usage cuts baseload during the day so the baseload stations are on a daily cycle they arent suited for.”
+42
Isn’t it curious how in the past there were only major outages when supply was disrupted by bushfires, cyclones, storms, etc. Now, we face major outages in perfectly normal weather. The only major changes have been introduction of large quantities of wind and solar, and removal of coal power stations. You don’t have to be a rocket scientist to work out what has gone wrong.
Remember: You can’t replace reliable energy with unreliable energy and still have reliable energy.
No one is asking the obvious question – how can a battery make money on price arbitrage when the price is fixed?
I wonder if all those rooftop solar panels with be getting the price cap for their export? Retailers paying $80/MWh for rooftop export are getting a bargain right now. Might keep them afloat.
They dont . They get paid for doing nothing as ‘standy by reserve ‘. Remember $300 isnt for all day every day its probably only a few hours at peak time , overnight it drops considerably
There seems to be an opinion from some sectors that if the energy producers won’t play ball then the Government should just step in and seize the means of energy production.
Ya! Screw you big industry!!!!
Except… having told every man and their dog that Solar = Good we now have many members of the public using their roof space to become energy producers.
Why – if we follow some of these arguments to their logical conclusion – are these roof top producers not being asked to produce more power to make up the shortfalls and if they cannot, what is to stop the government stepping in and seizing control of their homes?
Remember, there is no government created problem that cannot be made worse by adding more government.
Yes. They are woefully uninformed. But heh they will eventually wake up, like those people with solar panels and a big battery who thought they would outlast few days without power. It was gone after 1 day and even when the sun came out couldnt recharge from flat – only a grid supply would do that !
Acquisition by the Commonwealth of Australia and compensation.
The Federal Government can acquire the property of others under The Constitution Act section 51(xxxi), “The acquisition of property on just terms from any State or person for any purpose in respect of which the Parliament has power to make laws.”
This section does not mention compensation, merely
just terms” which in practise means that a big enough matter is likely to end up in a Court of Law with Judges determining the meaning on “just terms.”
We (a Joint Venture between Peko-Wallsend and EZ Industries) experienced compulsory acquisition without compensation when in the 1980s the Commonwealth rendered valueless a number of Mining Leases and Exploration Licences validly granted by the Commonwealth. By creating a national park and offering the United Nations a share of our sovereignty through the world heritage process, we were left with only a piece of law that prohibited all operations for the recovery on minerals in about 20,000 sq km of prime mineral land in the Top End of the Northern Territory.
The records of the day fail to show mention of compensation. It is feasible that Australia lost billions of $$$ of mining income by this act of bastardry.
Our High Court, the Full bench, heard some of our case and decided that it introduced fundamental matters of governance that were too deep to allow any judgement. Case closed.
………………………
Anyone here who imagines that the Commonwealth of Australia will not or cannot acquire the existing means of electricity generation without compensation needs to study history more closely.
Geoff S
The saddest part of this is that the Aussies just held an election, and they voted to give the greens more power, rather than cashiering them. Well, maybe next time, if there is a next time.
Coming to Europe in 3, 2, 1,…
This would not have happened when the power companies were vertically integrated. The amount of money being spent on consultants and systems to create these energy market structures never mind the cost of the renewables and all the grid reinforcements to handle them is mind boggling. It was obvious 15 years ago that this grand experiment would end in tears but no one listened, and here we are.
A well government regulated vertically integrated system that is publicly owned will operate efficiently and avoid duplication. If the government disallows costs to the extent that the stockholders can not make the returns expected on their investments, the regulators and politicians will feel their ire and the system will be very much like what is going on in Australia.
“… in the hands of corrupt political opportunists. In time these companies will collapse.”
That is the greenies goal,
This is truly appalling. Even Australian politicians cannot be *this* wrong about energy policy in good faith. I am choking with rage.