Grattan: Generator gaming remains a concern

generator gaming

In the wake of the Australian Energy Market Commission’s (AEMC) assessment on generator gaming in the national electricity market, Grattan Institute has said it is still concerned the incentives and rules in place lead to bidding behaviour that is inconsistent with a truly competitive market.

In July this year, Grattan released the report Mostly Working: Australia’s wholesale electricity market, which raised a concern that the current market rules allow generators in certain circumstances to make and change their bids in the market in a way that delivers highly favourable outcomes for them but not to the benefit of the market. Grattan described this behaviour as “gaming” and recommended that the rules be changed or tightened to restrict or ideally eliminate such bidding.

The AEMC’s assessment of generator rebidding in the national electricity market stated that rebidding is contributing to the delivery of efficient market outcomes. The assessment proposed that no rule changes were required and the focus should be on policies that reduce market concentration.While Grattan said it welcomed the AEMC’s report and agreed with the AEMC that market concentration can contribute to higher prices, the action by the Queensland Government doesn’t solve underlying problems.

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“… we also noted that concerns around bidding behaviour had led to a rule change in July 2016 to replace a requirement that generators bid ‘in good faith’ to one that prohibits making false and misleading offers,” Grattan Institute said in a statement.

“There was no reduction in price spikes due to this change and the only improvement occurred in mid-2017 when the Queensland Government directed the government-owned generators to ‘reduce volatility and put downward pressure on wholesale prices’.

“We remain concerned that the incentives and rules in place lead to bidding behaviour that is inconsistent with a truly competitive market, i.e. lowest prices for consumers.

“Market power can arise and be exercised in relatively transient circumstances, such as a combination of high demand and outages of local generation or interstate transmission.

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Grattan said the action by the Queensland Government does not solve the underlying problem, warning it could emerge in other states if transient market power opportunities emerge as the structure of the generation sector changes to include an increasing share of wind and solar power and greater dependence on transmission.

“Finally, we note the Commonwealth’s support for the recommendation from the ACCC’s recent report on electricity affordability to give the Australian Energy Regulator powers to identify and remedy market manipulating behaviour,” the Grattan statement said. “We are optimistic that our concerns will be addressed through the creation and exercise of these powers.”