The Australian Energy Council (AEC) has responded to claims that opportunistic behaviour of coal-fired power plants in Queensland and New South Wales are to be blamed for higher prices in the National Electricity Market (NEM).
AEC’s Chief Executive, Sarah McNamara, said, “Blame-shifting to generators for high prices flies in the face of clear findings from the Australian Energy Market Operator (AEMO). It also does not reflect how the NEM is designed to work.”
Ms McNamara said AEMO undertook a review of the June supply shortfall and found plant outages, coal supply constraints as well as higher fuel costs were major drivers of high wholesale electricity prices, alongside unexpectedly high demand.
“Generators with limited fuel supply repriced their offers to save precious fuel. That’s how the NEM is designed to work: to enable other generators, which have more fuel supplies, to be dispatched first. This saves the fuel for when it is really needed to keep the lights on.
“Consider, for example, a hydro generator during a drought. The water behind its dam is very precious despite falling from the sky for free. The generator reflects this opportunity value by putting a high price on its offers. The same applies to a coal fired generator when its fuel is scarce,” Ms McNamara said.
Ms McNamara noted that in its report AEMO found “These changes in direct and opportunity costs of fuel were a principal driver of the observed changes in bidding behaviour from thermal generators in the NEM (emphasis added), which then directly impacted the level of wholesale electricity prices.”
Coal supply issues in News South Wales also led to the unprecedented introduction of emergency powers by the State Government so it could direct coal supplies if required.
“It’s worth noting that in circumstances where generators reprice to save fuel they may incur losses. This is because their electricity sales are forward contracted to customers at lower prices than those occurring in the electricity spot market. Because they had insufficient fuel, they were effectively buying at the high spot price to deliver on these contracts.” Ms McNamara said.
“The market operator said it was satisfied with the overall timeliness and adequacy of participant responses and acknowledged the close collaboration with generators and others to keep the lights on for households and businesses.”
