At 12 PM on 19 January the electricity market manager, AEMO, to its own and everybody’s great relief announced “VIC AND SA ENERGY SUPPLY REMAINS SECURE”.
It had been a knife edged couple of days with hot weather bringing high electricity demand (even though much of Australian industry remained on vacation). As often occurs on hot days, wind velocity was low and this, the fabled modern source of electricity, was feeding in less than half its capacity. On the spot market, prices reached $14,000, once, as often happens during periods of excess strain on generators, one of the Loy Yang B generating units had to close down. Here is a graphic of the prices.
The January 18/19 prices averaged over $1,000 per megawatt hour compared to the regular price of under $50 in the days before government subsidies forced the closure of two major power stations, Hazelwood in Victoria and the Northern in South Australia. In the past, the loss of one generator unit, as occurred with Loy Yang B, would have opened the way for another but we are now at the bottom of the barrel. Even on hot January days, if the closed the coal generators were still operating, prices would likely have averaged less than $100 per megawatt hour. (Jo Nova saw this coming, had been tracking the summer peak electricity prices as they hit the peak, asked what the cost of the hot spikes would be,and explains why a few coal failures are not to blame. She discusses the fallout on industry in SA, and calculates that this is a loss of about $45 per head in Victoria, and $70 each in SA. All in two days!)
Paul Miskelly and Tom Quirk (with the encouragement of Jo Nova) produced the following table estimating the market costs ($387 million) resulting from the heat wave.
In addition, the market manager, AEMO, on behalf of customers contracted stand-by power (mainly ancient gas and diesel generators) and, as in Third World countries, paid some major users to shut down to suppress demand. The Market Manager claims this additional support totals some 2,000 MW (ostensibly an increase of 4.5 per cent) across the National Electricity Market
The $387 million extra energy payments on 18 and 19 January, and whatever costs the market manager has incurred in suppressing demand and contracting for reserve power from ancient generators, fall onto customers. They will be reflected in higher future bills, unless governments step in to cap prices. Such interventionary measures may well prove irresistible to politicians especially when the flip-side of the price surge, becomes evident in company profits.
But they will simply bring further distortions of the sort that is all too common. Each new measure that the government brings in – the latest being batteries and Snowy storage to combat the ill-effects of the renewable energy subsidies have forced upon us – only exacerbates the problem.
The only solution is to abandon immediately all subsidies to wind and solar and expedite approval mechanisms for new coal and gas capacity. But only the Australian Conservatives, One Nation and the minority Coalition politicians supporting Tony Abbott are ready to accept this.