The crisis of confidence in Australia’s busted electricity market deepened on Tuesday into even more extraordinary scenes in which prices rocketed to market cap, an emergency intervention by the market operator and a sudden, massive withdrawal of capacity from large generators.
The fast-moving events were again triggered by the rising cost of coal and gas, and the ability of coal and gas generators to exploit the market to deliver maximum returns.
Wholesale electricity prices in Queensland rocketed Monday and Tuesday to the newly raised trigger point for an automatic price cap – an average of $1,398 million over the 2016 trading periods, or an average of $693/MWh over an entire week, or more than 10 times that. normal “average”.
The state most dependent on coal and with the least amount of renewables, Queensland is literally the canary in the coal mine of the market dysfunction caused by the rising cost of fossil fuels.
The Australian energy market operator was forced to intervene on Tuesday, activating its reserve trader mechanism and giving instructions to at least one market player, but the industry was stunned when 1.3 GW of capacity in Queensland was suddenly withdrawn on Tuesday morning.
“Well damn?” Tweeted energy analyst Dylan McConnell, noting that the sudden pullback came before the regulated price cap was activated, and despite pleas from market authorities for the generators to play fair and not hold the market to ransom, as they were accused in June.
To see: The day the fossil fuel industry lost all perspective and threw away its social license
At the time of publication, the price cap was expected to activate later on Tuesday as wholesale prices were expected to rise in the late afternoon and evening as the market operator juggled tight supply.
McConnell told RenewEconomy that there is no excuse for the producers not understanding their obligations in the market, given the repeated warnings from the various market authorities.
“It’s outrageous,” he said. But on Tuesday, it looked like the market was determined to tighten things up.
Meanwhile, Alinta Energy led an effort — supported by others — to lift the regulated price cap from $300/MWh to $600/MWh — to cover the high cost of fossil fuel generation.
Gas prices have pushed the cost of gas generation to $500/MWh or more, while the cost of coal generation – for those generators that must source coal from the open market – has risen to more than $300/MWh.
Alinta said it may be the only way to avoid another market suspension. “If the relevant underlying market settings are not changed, there is a real risk that we will see the same conditions again that led to the unprecedented dysfunction and suspension of the market,” it warned.
However, it is unclear how a price cap of $600/MWh could help when the average price of generation over a week is already more than that.
The long-term solution, of course, is more renewables and storage to replace increasingly expensive and unreliable fossil fuel generation, but the search for a short-term solution has brought everyone to a halt.
It was unclear early Tuesday afternoon what measures could or could be taken, or how quickly a doubling of the price cap could be introduced, barring ministerial intervention – particularly in Queensland, where most of the generation is state-owned. is.
Paul McArdle of Watt Clarity noted that the 1.3 GW of capacity withdrawn Tuesday morning in Queensland happened in just 10 minutes and accounted for 14 percent of the total available capacity at the time.
It also happened to at least five coal plants that failed to generate due to various problems and because the market operator signaled a supply shortage later in the day.
“This Energy Crisis of ‘2022”† still has a long way to go,” he wrote.
The more fundamental problem is the loss of confidence in the energy sector. Bad behavior could have been predicted from a fossil fuel industry now acutely aware of its own mortality and as used to making its own rules, as it has in Australia and elsewhere in the world for decades.
But the impact on consumers is huge. Labor is in a knot – celebrating record fossil fuel revenues as enthusiastic as the LNP’s right-wing opponents, while at the same time trying to express their concern and solutions for consumers who have been hit so hard by these super profits.
But consumers no longer believe the industry. Last month, Energy Consumers Australia wrote about loss of confidence — and a new survey coming out on Wednesday will be interesting to watch — and even the regulator recently noticed the loss of confidence and confidence in the industry.
This is an unfolding story, more to come
Also see: Alinta calls for urgent doubling of electricity price cap as fossil fuel costs rise
And: Price ceiling may return on Tuesday, as coal and gas prices rise again
Giles Parkinson is founder and editor of Renew economyand is also the founder of A step off the grid and founder/editor of the EV-focused the driven† Giles has been a journalist for 40 years and is a former business and deputy editor of the Australian Financial Review.
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