‘Considerable cause’ for review into gentailer conduct in SA

Pelican Point Power Station
Pelican Point Power Station

South Australia’s power companies made more than $178 million in net margin during the July high price events, a new Climate Council report has found.

The report, which reveals for the first time the financial returns the power companies made during the price spikes, finds the gas powered “gentailers” appeared on the evidence to engage in deliberately unpredictable bidding behaviour to inflate the price of electricity on the wholesale spot markets. These increases have since flowed into future hedge contract prices.

Removal of the Heywood Interconnector during the winter peak, combined with AGL making some of its Torrens Island capacity unavailable and Engie “mothballing” Pelican Point, created what the Climate Council termed the “the perfect storm” – putting gas gentailers in a powerful position to raise prices.

The analysis also found:

  • There is considerable cause for regulators to review how gentailers exercised their market power in South Australia – particularly the removal of the Torrens Island capacity and the bidding activities – to determine whether any steps should be taken in respect of such conduct.
  • There should also be a review of why the electricity market operator and regulators allowed the planned Heywood Interconnector outage to take place at the same time AEMO’s own long term forecasts showed it was needed for peak winter demand.
  • If the net margin made by gentailers’ high prices in July, is passed through in contract and tariff increases, it could cost South Australians triple the state’s share of the Heywood Interconnector expansion capital cost, (which will reduce exposure to future high power prices).

“This analysis demonstrates why increasing reliance on high-priced gas is not a viable solution to reduce power prices or tackle climate change,” the report’s author Andrew Stock said.

“Reducing South Australia’s exposure to price spikes would be best achieved through more low cost renewable energy from a diverse range of sources and by adding a third interstate link to New South Wales.

“More renewable energy, increased interconnection and in-state fast response energy storage in South Australia will reduce the market power of the gentailers as well as achieving the transition away from fossil fuels required to tackle climate change

“South Australia needs more competition from more supply sources, not less, to put downward pressure on power prices.”

More gas generation will only continue higher electricity prices and higher volatility in South Australia, and undermine the state’s global leadership on renewables and tackling climate change, Climate Council CEO Amanda McKenzie said.

“Increasing reliance on gas will also increase greenhouse emissions, and increase risks of fugitive methane emissions – a potent greenhouse gas. Both are contrary to national greenhouse gas reduction commitments,” she said.

“The electricity sector is the nation’s biggest producer of greenhouse gas. It‘s biggest transformation in a century is underway to a future focussed on renewables. We need to ensure this delivery reinforces the nation’s greenhouse reduction targets as well as secure electricity supply for consumers.”