Days of power and fury: January 2019 electricity prices and outages

Compared with a National Market that had a turnover of less than $7.5 billion a year  four years ago, the turnover in just two days in January was over $1 billion.

It is impossible without all data on contracts to determine who the electricity industry’s winners and losers were from the January 2019 high priced events.

With the electricity there are multiple markets but it is best to think of them comprising just two markets. The first is the spot market which we see every five minutes; the price peaked in late January in some states at $14,500 dollars per megawatt hour (MWh).  The price, prior to outcome from governmental destabilisation of the market, was $30-40 per MWh.

The second is the contract market whereby sellers and buyers agree beforehand on the prices at which they will supply and demand electricity for all the various periods of time. This contract market really comprises probably 95% of the aggregate market and the prices are fixed in advance.

In other words, for the vast bulk of electricity produced any given five minute period the prices are set well in advance but any extra production that can be eked out is very valuable.  The price at $14,500 compares to the market price that used to average $38 four years ago and even with the effects of wind subsidies now evident still is only $90 per MWh. Contract prices are related to market prices, generally with a premium of about 10 per cent.  That premium is likely to increase with a higher price volatility.

Those making the gains from this month’s high priced events  are generators that are less than fully contracted.  The losers are retailers that are less than fully contracted. To the degree to which retailers are short, AEMO has disciplines that require cover in times of price stress and has not indicated that any retailers were at risk of non-performance. The blackouts would have helped in this regard.

In terms of winners and losers, on the days concerned is likely that they were relatively small.

  • Energy Australia had their Yallourn plant operating below potential but are likely to have contracted additional supplies beforehand
  • AGL had supply down in its Loy Yang A plant but other sources – gas and hydro were powered up
  • Origin energy is short generation in Victoria but for that reason was likely to have been very highly contracted and its gas facility was operating strongly.
  • Alinta owns the Loy Yang B plant which was previously fully contracted to the smelters but less so now and may have been able to make short term gains as a result.
  • Both Snowy and Tas hydro were generating strongly and may have had some uncontracted supply in which case they would have made money on the days concerned.

With regard to wind almost all of that capacity is fully contracted – it has to be in order for the wind generators to get bank financing. Banks abhor any suggestion of risk so the wind generators whether or not they were operating would not have made a great deal more money than they expected to make.

The big effects of the two days were

  • Businesses forced to shut down – usually with a compensatory payment made by the consumer
  • Forced outages but it should be noted that these are less than under the general standard set by the market management.

Above all the effect is a ramping up of the contract prices.  These closely follow the spot price and as a result the contract market will continue the rise we have seen since the renewables destroyed the previous low cost reliable market, especially following the closure of Hazelwood.  The Hazelwood closure was in March 2017 but was signalled in mid 2016 by the firm’s contract policy.

Killings have been made by all generators. Among them:

  •  AGL ‘s profit from electricity generation was $2217 million in 2018.  In 2015 with 10 per cent less output the profit was $426 million.
  • The Vales Point plant was sold by the NSW government for just $1 millionon the advice of Kerry Schott, who presently heads the Energy Security Board, is now worth over $800 million.

The latest high price events will further boost the contract prices on which these profits are largely based

The losers are consumers, household and business.

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22 Responses to Days of power and fury: January 2019 electricity prices and outages

  1. Confused Old Misfit

    God save us.
    Our politicians will not.

  2. stackja

    Follow the money. Some smarties are getting richer.

  3. Fang

    Ditch ret, and all subsidies over a three year period. Simplify and total disclosure. Offer contracts to build two hele power stations and let market forces dictate prices.

    We can only hope!

  4. bollux

    Bring back hanging. Nothing else is going to work on these greedy pricks.

  5. Genghis

    So take from the poor and give to the unidentified scammers. We need a Royal Commission!!

  6. Bruce of Newcastle

    I’m amazed that the politicians still believe wind turbines are the cheapest producers of electricity.
    All countries who have a high wind energy capacity have the highest retail electricity prices.
    A lie is still a lie even if the person telling it believes it.
    The wretched things should be dynamited and real power stations built.

  7. RobK

    Third time lucky. Cyberspace is eating my comment.
    Thanks Alan. Well put together. Evenually all those boards and panels will adjust the operations but I’m still betting the system costs will rise according to the OECD Report

    An OECD REPORT:
    The Costs of Decarbonisation: System Costs with High Shares of Nuclear and RenewablesA snippet from the OECD report referred to above (my bold added);

    What we have learned so far is that in the electricity systems of the future, all available low carbon generation options, nuclear energy, wind, solar photovoltaic (PV), hydroelectricity and, perhaps one day, fossil fuels with carbon capture, utilisation and sequestration, will need to work together in order to enable countries to meet their environmental goals in a costefficient manner. Plant-level costs do remain, of course important and we fully recognise the great strides that variable renewable energies (VRE), such as wind and solar PV, have achieved in this area in the recent past. If, according to our data, they are not yet fully competitive with nuclear power on that metric except in particularly favourable local circumstances, they soon might be. However, their intrinsic variability and, to a lesser degree, their unpredictability, imply that the costs of the overall system will continue to rise over and above the sum of plant level costs

    It’s what I’ve been trying to say all along. We should employ every source of electricity economically possible, without subsidies.

    …..the costs of the overall system will continue to rise over and above the sum of plant level costs.

  8. Roberto

    The losers are consumers, household and business.

    Why am I not surprised?

  9. Ƶĩppʯ (ȊꞪꞨV)

    let them eat electrickery cake

  10. This stupidity will end – it must end – but how? Please don’t say there’s more to come.

  11. Ditch ret, and all subsidies over a three year period. Simplify and total disclosure. Offer contracts to build two hele power stations and let market forces dictate prices. Asuransi Kesehatan

  12. Mark M

    All this chicanery, and still the climate changes …

    For decades it has been clear that a transition from fossil fuels to renewable energy is critical to protecting Australia from worsening extreme weather.

    https://www.theguardian.com/commentisfree/2017/dec/28/from-angry-summer-to-weird-winter-2017-was-riddled-with-extreme-weather

    Wake up Australia.

  13. Exit Stage Right

    What a sham this whole energy business is. I can’t believe any sane person could look at energy production and consider that wind and solar would ever come anywhere near producing enough for our needs.
    As I have said before, the finances of the politicians making these decisions should be investigated to determine who is profiting at the expense of the normal consumer. Follow the money trail!

  14. Eyrie

    “The wretched things should be dynamited and real power stations built.”
    A little thermite piled against one side of the steel support tower would do I think, Bruce.

  15. All this chicanery, and still the climate changes …

    Which is just such a stark departure from the previous 4 1/2 billion years of earth’s history.

  16. John A

    To the degree to which retailers are short, AEMO has disciplines that require cover in times of price stress and has not indicated that any retailers were at risk of non-performance. The blackouts would have helped in this regard.

    And pray tell, AEMO, what are blackouts? A failure to supply to a paying customer. Apparently, a new definition of non-performance by a retailer is now in force. Please inform the Macquarie Dictionary that they will have to withdraw all erroneous copies from circulation.

  17. Singleton Engineer

    I disagree partly with one sentence.
    “The price, prior to outcome from governmental destabilisation of the market, was $30-40 per MWh.”

    Whether privatisation of the whole electricity business, including poles and wires, generation and retailing destabilised the market is a matter for debate, starting with clarification of what the term “destabilised” means in this context, and what part privatisation played along the way.

    That privatisation of this industry has resulted in much higher tariffs is self-evidently beyond debate.

    Though, in general, I am in favour of private ownership of business, this is a textbook example of where breakup of a natural monopoly has resulted in much work for lawyers, additional layers of regulators and great additional cost to consumers.

    But I think that the destabilisation runs much deeper – rapidly changing legal frameworks, lopsided subsidies of parts of the industry has destroyed whatever remained of the level playing field, killed competition and disrupted business plans for maintenance and capital expenditure, such as led to construction of a fleet of 12 x 660 MW generators in NSW in the 1970’s to 1990’s, which effectively underpinned the $40/MWh wholesale price referred to in the article.

    “Ideologically driven debacle” might be a better fit than “destabilisation”.

    But it is too late now – the egg has been scrambled.

  18. Tel

    That privatisation of this industry has resulted in much higher tariffs is self-evidently beyond debate.

    Cobblers.

    Proof by you think so, therefore others should agree … well I don’t agree.

    Though, in general, I am in favour of private ownership of business, this is a textbook example of where breakup of a natural monopoly has resulted in much work for lawyers, additional layers of regulators and great additional cost to consumers.

    God I hate people using the words “natural monopoly” for something that is entirely a government creation and not in any way natural.

    The poles and wires are a monopoly (government created, not natural), and they made very good markup in government hands (go check the reports they are all public) as well as making good money in private hands (the whole lot is regulated up the whazoo so they are highly limited in what they can do). Government set up the independent-not-really-independent pricing authority to creatively come up with nothing remotely like market prices for retail. Government imposed the RET (remember that thing no one wants to talk about). Government jumped up and down insisting that solar and wind should be subsidized. Government forced AEMO (also a monopoly and not a natural business) to buy renewable energy always first without right of refusal. Government regulation is what makes it near impossible for any group of people to setup their own generators (which as others pointed out can easily be privately done way cheaper than current electricity and we know this because mines already do it … but the mines can dodge RET).

    But always blame some private operator somewhere, cos that’s the best way to distract from what happened.

  19. Alan Moran

    Singleton Engineer
    It is clear from examoining the data on prices in the National Market the prices were low, perhaps unsustainably so, until the renewable scam kicked in. Prices at the $30-40 per MWh were caused by the oversupply resulting from efficiences in privatisation bringing a great lift in oputput, as well as some new investments.

  20. mem

    But it is too late now – the egg has been scrambled.

    In other words you are saying back off and accept it. Whilst old people go to bed early to keep warm in winter and suburbs are blacked out in summer and many people and businesses are suffering because of what was a totally predictable outcome, no one should accept it. Fix it yes. The quickest way would be to get rid of the RET, build at least two new coal fired stations and get out of the Paris agreement. Every country that has installed substantial wind and solar is experiencing massive increases in it power costs. So it is not about privatization at all. That’s just a red herring.

  21. Sam

    I totally agree with comments re coal fired stns do the job. Renewable’s just cant bear the load and costs rise – get rid of RET that started off the increasing cost of energy. John Stone told John Howard to get out of UN back in 2001. He should have had the guts but being called racist in late 80’s did for him. Still best pollie for a long while. Renewable’s cant do the job – not for base load in a ever increasing populated world. SA proof of that surely but no off they go following the tree huggers who follow UN and its plan to govern the world once they got the chaos they planned. Like refugees who wont ever assimilate and are burdening the economies of all western nations to point – well lets not even go there. Same as Nuclear unless want be dumping ground for the world’s waste. Wont fix prices. Coal is the only one that will and proven. So get rid of RET. Build coal fired power stns. And back only politicians who think not follow as in for the gravy train’s monetary gains rather than serving the people of Australia. Coal is so much cleaner today and more can be done for sure. It put Australia on the map and will bring it back from the brink.

  22. Rayvic

    “It is impossible without all data on contracts to determine who the electricity industry’s winners and losers were from the January 2019 high priced events.”

    It would be surprising if AGL were not a major winner. It would be surprising if AGL did not make the most of the $14.5K per MWh that it was ‘allowed’ to charge during the power shortage.

    If a researcher wanted to do a PhD on the fine art of conflict of interest, the present electricity industry would have to be on the short list.

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