Energy wars: Networks attack gentailers over reliability, pricing

Energy wars: Networks attack gentailers over reliability, pricing

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Electricity network owner attacks major energy retailers over reliability of their gas plants, the manipulation of prices and high retail fees. It says it wants rapid transition to renewables, but incumbents and market rules getting in the way.

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One of the country’s biggest owners of electricity networks has launched an extraordinary attack against Australia’s biggest energy generators and retailers (so-called gen-tailers), saying their gas-plants are unreliable and accusing them of deliberately withholding capacity to push up prices.

The submission to the Finkel Review by Spark Infrastructure highlights the deepening divide between network operators and gen-tailers, over energy policy and markets in Australia.

Spark say the generators are proving unable to deliver reliable power at times of peak demand, and accused them of charging excessive prices for both their retail operations and their generators.

“It currently appears that generators are increasingly unable to deliver their full generation capacity when it is needed most,” Spark Infrastructure wrote.

It cited the failures of Snowy Hydro’s Colongra and Energy Australia’s Tallawarra gas fired generators in the midst of a heatwave in NSW on February 10, “just as energy demand reached its highest levels that day.”

It also cited fires that put Adelaide’s Torrens Island power station operated by AGL “out of action for weeks” – and also took out the Pelican Point generator. “We would recommend that the Review Panel take a closer look at the maintenance practices and market pricing decisions of energy generators.”

It slammed those market trading practices, accused the fossil fuel generators of “trading in scarcity” – effectively withdrawing capacity to manipulate markets. It said many generators were operating “far below their capacity, only offering electricity to the market for a very high cost.”

These practices are apparently legal in Australia – although not allowed in other countries – and have been highlighted in recent reports by the Australian Energy Regulator into the series of price spikes cross the grid this last summer.

The ACCC has celebrated these high pricing events as evidence of a market at work. Others have a very different view.

It prompted the likes of Jay Weatherill, the premier of South Australia who feels his grid is being held to ransom by the generators, of putting “profits before people”. He has announced plans to build emergency back up capacity to deal with the situation.

The extraordinary comments by Spark highlight the deep tensions between networks owners and the vertically integrated generators and retailers as they fight over the spoils and impact of a rapidly changing energy market.

While the fossil fuel generators have been seeking to protect their territory, Spark argues that “the future dominance of renewable energy is inevitable and irreversible” and it says government policy “needs to align with and support the transition to renewable energy.”

The networks are pushing for a rapid change in rules and market structure to cope with new technologies, the plunging cost of wind and solar and battery storage, and the shift to distributed generation, where up to half of all supply may come from households, businesses and community installations.

leaving grid


It sees this as inevitable and unstoppable. And in a report issued with the CSIRO last year, pointed out that unless market rules and policies are rapidly adapted to the changing technologies, then frustrated customers could simply choose to leave the grid – up to one third of them.

It says a rapidly decarboned and properly managed grid could save $100 billion off the cost of business as usual – mostly through fuel costs. But fuel costs are the main currency of the fossil fuel generators.

The networks feel that the gen-tailers are stalling because the two elements of the energy ecosystem most under threat from these changes are centralised generation and retailing – and the incumbent are seeking to protect their turf for as long as they can.

Spark took the example of the push by many fossil fuel generators for a form of capacity pricing, effectively a new subsidy to ensure that capacity remains in the market.

“Such an outcome would be a retrograde step completely at odds with the prevailing national policy approach that has for some time sought to promote transparent and competitive market dynamics,” it says.
Spark, and other network owners see themselves locked out of much of the transition because of “ring fencing” rules that prevent them from competing in areas such as battery storage and offering network security services such as voltage.
Spark says the networks could provide much of the grid stability currently provided by fossil fuel generators – including by installing battery storage – but are prevented from doing so. It says that this will push up costs to consumers.

Spark’s says that there is little or no chance of any new coal fired generation, and even new gas plants would be under question, given the likelihood of some sort of carbon pricing within the 50 year useful life of a new generator.

“As a result, Spark Infrastructure believes that over a relatively short period, generation in the NEM will become dominated by renewable generation as the existing coal fired plants are retired. This will require significant changes to the operation and management of the grid.”

It cites the recent experience in South Australia, involving a statewide blackout and two load shedding events dating from September 2016 through to January 2017 have illustrated the vulnerability of the system to disruption.

“While this cannot, in large part, be attributed to renewable generation, it has highlighted the need for a greater emphasis on grid security and on the need for investment in the grid and ancillary services to ensure supply reliability and system stability.”

Despite network costs accounting for nearly half of the average bill in most states, Spark complains that Wholesale prices and retail margins are higher than necessary, and that the biggest rises in recent years have come from “deregulated” retail and wholesale markets, while network costs have been kept at bay.

It says profit margins for Tier 1 providers are very high levels compared to global peers, and the lack of focus of network options (new interconnections) has allowed gentailers to extract high prices in wholesale markets and further boost their profits. Consumers have been the loser.

“It would also appear to create a perverse market incentive for those participants whom under current regulations may have contributed to the problem,” it writes.

It also accused retailers hiding behind the network businesses’ service to property charge in order to significantly inflate their own fixed charges.

“What customers are not told, is that only a small part of the fixed charge goes to the network businesses, which is the same for everyone within the network, and the rest goes to retailers even though they may already charge you extra for posting a bill, processing your payment and any other ‘additional service’ they provide to keep your account open”, ” it wrote.

“As recent experience in South Australia has demonstrated, the lack of interconnectivity into that part of the country provides the potential opportunity for generators, particularly gas fired operators, to legally exploit any supply imbalances that may arise by constricting supply and inflating prices.

“This represents an example of significant market failure and entails a material cost to consumers of energy.”

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  1. humanitarian solar 4 years ago

    Wow. Bang.

  2. solarguy 4 years ago

    Bingo, there blows the whistle.

  3. Tom 4 years ago

    That’s awesome.

    Speaking of “awesome” – it’s the one-week anniversary of Jai Weatherill hooking into Josh Freydenberg. I was hearing that Freydenberg prick mouthing off at least every second day for weeks before that – I haven’t heard a peep from him since.

    Weatherill has ruined him.

  4. john 4 years ago

    At least a company in the industry just may be taken notice of.
    A person outside the industry may be judged differently, however this is painting the bidding picture exactly how it is a rip off.

  5. Cooma Doug 4 years ago

    There is a thing called “market certainty”. It is the front line and most important courner stone of change. The transition is being kicked off and the only thing certain is the uncertainty. This article indicates to me the main cause.

  6. Nicko 4 years ago

    The depth of Turnbull and Frydenberg’s deceit on this by hiding the unreliability of the generators and their corporate bastardry is as deep as that of Abbott and Hunt on the carbon ‘tax’ and the network ‘goldplating’.

  7. Nicko 4 years ago

    The depth of Turnbull and Frydenberg’s deceit on this by hiding the unreliability of the generators and their corporate bastardry is as deep as that of Abbott and Hunt on the carbon ‘tax’ and the network ‘goldplating’.

    • Rob 4 years ago

      Yes. I agree 100%.

  8. KD 4 years ago

    Spark’s transmission arm could build an interconnector whenever it wanted and arbitrage between different regional prices. Why don’t they? Because they don’t want to take the risks of being in the market. They’d rather force consumers to pay them over 40 years regardless of whether the interconnector ends up being useful for all that time. Generators can be outbid every 5 minutes, you can change your retailer if you’re not happy but Spark’s network businesses earn money off their regulated asset base day in day out, year in year out…you can have the spark view of the world where the consumer takes all the risk and everyone in the supply chain gets a steady but fixed or capped return for the services they provide – just don’t be so sure it’ll be any cheaper for you.

  9. phred01 4 years ago

    The best thing to happen is mass desertions

  10. Adrian Merrick 4 years ago

    So many people know this happens and it’s utterly staggering the ACCC turns a blind eye year after year

  11. solarguy 4 years ago

    A government sanctioned rip off. The bastards think we have an unlimited capacity to pay….. the list is long, stamp duty, insurance.

  12. Steve Jordan 4 years ago

    The people drafting the legislation governing the behaviour in this area ought to have known about the gaming possible here. After all, that was what Enron did in the US 15 years ago.
    Can’t we learn from history in this area as well??

  13. frostyoz 4 years ago

    A bit rich of Spark to complain about the fires at Torrens Island as evidence of generator unreliability.
    According to the ABC, ElectraNet has admitted that the fire started in its network switchyard, not in the generators’ plants, and destroyed the connection point infrastructure in the network switchyard.
    It’s hard to generate when your network connection point is still smoking.

  14. James Ray 4 years ago

    Centralization is the main root cause of most of the issues facing the provision of electricity today. Gentailers get market dominance and gamify the market, the government has inadequate regulation (and should really repurchase electricity grids), and network operators are not able to keep up with the pace of change, for a variety of reasons, such as because they have little incentive (from regulation) to do so.
    Have a look at this petition:

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