Regulator puts power, gas suppliers on notice
The Australian Energy Regulator has put both traditional electricity and gas suppliers and renewables generators on notice that they are risking heavy penalties for actions that risk undermining the stability of the fast-transitioning energy sector.
The warning signals that behaviour across the industry will be under heavy scrutiny in the coming financial year, including among retailers dealing with household customers under financial strain because of the COVID-19 pandemic.
It comes as wholesale power and gas prices have surged higher in what is usually a subdued time of year in the energy market on generator outages in Queensland and Victoria, a disruption at the east coast’s largest domestic gas supplier and a tighter global LNG market.
AER chairwoman Clare Savage sounded the alarm in particular on “concerning behaviour” in the frequency control market, telling generators they must be able to provide those services when called on if they have offered them to the market operator in return for payment.
Queensland government-owned CS Energy was fined $200,000 in February after being unable to provide the frequency control services it had offered. It also had to refund the $1.13 million to the Australian Energy Market Operator that it had been paid.
“It’s really critical that generators can do what they say they can do so that we can keep the lights on,” Ms Savage said, putting compliance in that area among the regulator’s top five enforcement priorities in 2021-22.
The penalties able to be imposed by the AER were increased earlier this year to improve compliance and protect consumers. The regulator can now seek penalties of up to $10 million – or more for large companies – for breaches in energy laws.
Ms Savage also warned solar and wind power generators they must not reduce their output when they are instructed by AEMO to generate electricity, given the increasing dependence on their plants in the generation mix.
That relates to a tendency for weather-dependent wind and solar farms to switch off when wholesale prices drop below zero, even if they had advised they would generate power.
On the gas side, the AER advised it would be checking to make sure that gas pipeline owners comply with requirements to disclose financial information so as not to undermine the effective regulation of pipelines.
It also pointed out issues with the “timeliness and accuracy” of reporting in the system to auction spare pipeline capacity.
The advice came as data is emerging showing a sharp increase in wholesale power prices this June quarter compared to last year, helped by the outages at CS Energy’s Callide generator in central Queensland and EnergyAustralia’s flood-stricken Yallourn plant in Victoria.
“Second quarter prices are shaping up to be some of the highest on record, certainly for NSW and Queensland,” said Dylan McConnell at The University of Melbourne’s Climate & Energy College.
Queensland’s volume weighted price for the June quarter to June 18 topped $150 a megawatt-hour, about four times higher than the same quarter last year, while NSW’s average was over $130/MWh compared to less than $50 in the year-earlier quarter.
“It’s definitely more related to Callide (and NSW pricing dynamics) than Yallourn – but Yallourn certainly wouldn’t have helped,” Mr McConnell said.
The outages have contributed to frequent spikes in prices during the morning and evening peaks, with prices reaching almost $2400/MWh in Queensland early Monday evening.
An AEMO spokesman said the effect on the market of typical winter energy use with morning and evening spikes was being compounded by the impact of reduced supply as a result of the unit outages, which has increased gas-fired power generation across the eastern states.
The increase in power prices should take some pressure off large generators such as AGL Energy and Origin Energy, which have both downgraded earnings this year partly because of the collapse.
CS Energy resumed production on Tuesday at its B2 unit at the Callide plant, which was hit by an explosion last month. Output came online at the first of four units on June 16, while a third is due back on July 2. The damaged C4 unit may require 12 months to repair.
EnergyAustralia had also been expected to restart a second unit on Tuesday at Yallourn, which has been running at minimum levels at one unit since flooding earlier this month. But the company signalled production would continue to be limited to one unit.
“So far we have been able to secure modest amounts of coal by selectively mining parts of our fields where it was safe to do so and within areas away from the area of concern,” energy executive Liz Westcott said.
“This has meant we’ve been able to maintain minimum generation on one unit and meet the evening energy peak.”
Two other units at the 1480-megawatt plant, which typically supplies about a fifth of Victoria’s power demand, are ready to generate “subject to coal availability,” a spokesman said.