The country’s main energy rule maker has once again delayed a decision on the so-called 5-minute rule – a critical change that could help reduce electricity prices and encourage new technologies such as battery storage – after facing intense new opposition from incumbent utilities fearful of losing their pricing power.
The Australian Energy Market Commission says it needs more time to work through the complaints from the incumbent generators, who either want the proposed change delayed or scrapped altogether, claiming the costs will outweigh the benefits.
There has been a bitter battle fought over the proposed rule change since zinc refiner Sun Metals first proposed it nearly two years ago in response to the bidding patterns which it says – and many other studies agree – are leading to market manipulation and pushing up prices unfairly and un-necessarily.
The AEMC, despite admitting that prices were being distorted, appeared set to drop the idea after intense pressure from the fossil fuel generators, but announced a more detailed study.
In April it gave its tentative support in a draft ruling, suggesting a three-year transition for what many believe will be a fundamental change in the way markets operate, and a shift from old, lumbering technologies to new smarter and faster controls.
It is seen as a critical move to “level the playing field” and encourage battery storage, which so far finds itself excluded because while the market “bids” every five minutes, the actual financial settlement only occurs every 30 minutes.
One high bid in a single 5-minute period – often caused by the deliberate withdrawal of capacity – can guarantee high prices for the whole 30 minute settlement, often sparking an unseeming rush of new capacity suddenly “available” to cash in on the goodies. (see graph above).
The AEMC says it received more than 40 new submissions (many opposed), and needed time to consider the matters raised by stakeholders, including impacts on hedge markets. “In order to do so adequately, the Commission has extended the time for publication by two months,” it said.
The proposal to align the bidding and the settlement – as occurs almost everywhere else – has gotten the overwhelming support of the battery storage industry and other new technologies, and importantly the Australian Energy Market Operator and many government authorities and consumer groups.
In a new submission, AEMO reinforced its position that the change was important, because it would improve market efficiency by providing improved price signals, and facilitate new technologies such as storage and demand based resources.
The South Australia government also supported it, outlining the huge amount of battery storage it expected to come into the market, including its tender for 100MW/MWh of battery storage, several large-scale solar projects like Bungala and Tailem Bend that are “battery storage ready”, and behind the meter battery storage.
NSW energy minister Don Harwin last week described it as a “classic example of a rule made to suit existing technologies.” He said he supports the change so consumers can benefit from new technologies such as batteries.
The submissions to the AEMC since its preliminary decision show an extraordinary amount of push-back from the incumbent utilities, but the most vociferous opponents were the Queensland government-owned entities, the grid owner Queensland Energy, and the owner of the biggest coal-fired generators, Stanwell Corp.
“We are strongly opposed to the rule change proposal submitted by Sun Metals Corporation Pty Ltd (Sun Metals). Of primary concern is the lack of a quantifiable, independent cost-benefit analysis,” Queensland Energy said.
“Stanwell has also yet to see any evidence to support the Commission’s expectation that the benefits are likely to outweigh the cost of such a change,” Stanwell said.
It’s a stunningly brazen comment from a company that had to be instructed by its own minister to change its bidding practices last month to think about consumers rather than its own profits.
Since that edict was made, Queensland prices – having trailed only South Australia in costs this past two years – have fallen heavily, lending credence to the view of networks and smaller retailers like Enova that are blaming the “greed” of fossil fuel generators for the big jump in prices.
The Australian Energy Council, which represents most fossil fuel generators, said the proposed three-year transition period would be “manifestly inadequate” for the unbudgeted IT system changes, warned of security risks because gas peaking plants will exit the market, and said battery owners may exploit pricing in the same way that fossil fuel generators did.
It commissioned a study by Russ Skelton – the former CEO of Macquarie Generation, the former owner of the two biggest coal generators in NSW, which said that a positive cost-benefit result is “not proven”.
On it went: Arrow Energy opposed it, saying strategic late rebidding has been “addressed”, Tasmania’s Aurora Energy said that no case had been made that the benefits would outweigh the costs, and Snowy Hydro suggested it would lead to price increases, rather than price falls.
Even the Major Energy Users, a lobby group for large companies, questioned if it would result in greater competition in the market, and wind farm operator Infigen Energy – which like fossil fuel generators benefits from high wholesale prices – called for a 12-month delay.
The big three played for my time, although they agreed a change was “inevitable”. AGL wanted to be sure that it was introduces efficiently, and Origin Energy was along the same lines, wanting more time, as did Energy Australia, which wanted a 5 year transition commencing only after it was clear what the response would be to the Finkel Review.
In the meantime, companies are finding their own solutions to soaring wholesale and retail prices: Sun Metals is building a 116MW solar farm, Telstra is following suit, Nectar Farms is going 100 per cent renewable with wind and storage with what will be Australia’s largest glasshouse for growing vegetables, a $560 million project; and the GMA-garnet mine in Western Australia is also going down the renewables path, with wind, solar and storage.
Giles Parkinson is a journalist of 30 years experience, a former Business Editor and Deputy Editor of the Financial Review, a columnist for The Bulletin magazine and The Australian, and the former editor of Climate Spectator.