Date: January 18, 2014 Brian Robins Sydney Morning Herald (Business)
As a result of the steady increase in electricity charges over the past five years, several industrial and commercial consumers have decided to pay the ‘spot’ price for electricity. Photo: Quentin Jones
Supply problems in South Australia affect wholesale electricity prices nationally.
Large users of electricity faced their first serious brush with supply shortages this summer as the prolonged heatwave across southern Australia over the past week pushed power demand to record levels, with widespread blackouts averted only narrowly.
Some blackouts did occur, but they were localised and due to pressure on the distribution network as a result of the extreme weather, rather than demand outrunning supply. That would have forced blackouts in a bid to ration available power supplies.
Large industrial and commercial clients of some power retailers such as ERM Power or specialist advisers like Energy Action reduced power consumption, opting either to avoid surging prices altogether or to turn to standby power generators.
That helped to reduce some demand in the network, and avoided triggering interruptibility clauses that allow supplies to some of the largest power consumers in the southern states, such as the Portland aluminium smelter in western Victoria, to be cut for a time. The clause is the reason it has access to such cheap electricity, for example.
Mechanical failures at some power generators, such as units operated by AGL in South Australia (Torrens) and at Loy Yang, in the Latrobe Valley, as demand surged with the temperature topping 40 degrees, resulted in warnings of possible cuts to power supplies as safety margins declined.
At Loy Yang, after losing output from one of its generators for a while on Wednesday, the generator was progressively brought back into operation on Thursday and Friday.
Reflecting concerns over supply disruptions and possible blackouts, spot electricity prices traded in the wholesale national electricity market, which operates across the eastern states and South Australia, surged several times to near the price cap of $13,100.
Even though this price surge is not reflected immediately on the consumer’s power bill, it does drive up average market prices, which flows through to bills over time.
The Australian Energy Markets Commission is reviewing the level of the price cap as part of a review of reliability standards. From $10,000 in 2010, the cap has been raised to $13,100.
A consultant’s report finds that reducing the cap to $9000 could reduce electricity bills by about 5 per cent.
At issue is the very occasional supply problem in South Australia, which affects national prices traded through the wholesale electricity market.
”To me, the strong issue is whether NSW, Queensland and Victoria (which are 90 per cent of the market) should pay a premium because of the risk that South Australia (which is 10 per cent of the market) might exceed [fail to meet] the reliability standard,” says David Headberry of the Major Energy Users group.
Additionally, some of the participants in the electricity market argue that the higher the price cap, the greater the volatility of prices in the national electricity market, which then pushes up prices paid by all electricity consumers.
Since the price cap was raised in 2010 from $10,000 there has been an increase in price volatility, which is keeping upward pressure on power prices. This is at a time when electricity bills have been rising due to heavy spending to upgrade the distribution network, which has sparked charges of so-called ”gold plating”.
As a result of the steady increase in electricity charges over the past five years, several industrial and commercial consumers have decided to pay the ”spot” price for electricity, taking the view that at times of price surges they would prefer to shut down operations or turn to their own standby generation to supply their power needs.
They reason that cutting output is more economic than paying through the nose for their electricity needs.
South Australia has the lowest level of peak demand and the lowest consumption levels of all mainland states in the national electricity market.
As a result it would appear counter-productive to apply settings to all regions just so the liability standard for South Australia could be met, Mr Headberry says.
”To put this another way, it would be bizarre that to achieve the reliability standard in the South Australian region, consumers in all other regions [of the national electricity market] had to pay more than is necessary for their supplies.”
Setting a weighted market price cap in proportion to national electricity demand would result in a price cap set at about $5000, Mr Headberry says.