Electricity price manipulation by generators highlighted
A study conducted by the Energy Users Association of Australia has criticized the practice of ‘gaming’, where electricity generators withhold generation supply during peak periods to create supply-side wholesale price increases.
The author of the study has stated that prices during the hot, dry period of 2007-2011 were double what they should have been. The difference between actual price and predicted price was to due to market manipulation conducted by generators. The practice is not illegal and a response by AGL went some way indicating the loophole in legislation around the practice, “AGL has conducted its wholesale electricity business in accordance with the law”.
AGL owns the 1,280MW gas-fired Torrens Island power station in SA. Gas-fired generation is known as peaking generation because of its high generation costs. Meaning that many gas-fired plants only operate in peak periods to capitalize on higher wholesale prices. While it is a common practice to increase generation in peak periods, in recent times of an over supplied market and low wholesale prices there have been moves to decrease generation. In October, Queensland's largest power station, Tarong Power Station announced that it would scale back production during summer with two 350MW units going offline in October and December 2012. Tarong Power Station is owned by the Stanwell Corporation that has an additional generation capacity of 3,500MW from coal, gas and hydro assets.
The report focused mainly on SA where efforts have been made by the State Government to control the amount allowed to be charged for wholesale electricity. In October, Premier Jay Weatherill advised energy retailers that they must adjust their prices to reflect reductions in the wholesale price of electricity purchased off the spot market. The rate had previously been set by the Essential Services Commission of South Australia (ESCOSA) to allow retailers to build a pass-through wholesale cost of $90 MWh into their prices. As the wholesale price of electricity reduced, the Premier called for prices to be adjusted to reflect this and he advised ESCOSA to reduce the wholesale price of electricity by $27.20 per MWh. In response AGL stated that is would halt capital investment in new infrastructure in the state.
Criticism has been directed at the Australian Energy Market Commission (AEMC), the body that governs the National Electricity Market (NEM), for failing to interdict such practices having observed their occurrence in June of this year.