From the AFR over the weekend:
The National Electricity Market of the future will be vastly different to the one that serves the eastern states today.
It will include more high-voltage interstate “interconnectors”, and more wind, solar and gas power. It will have more technology to manage the flow and wind and solar, less coal power, and it will have utility-scale batteries to better match supply and demand.
It will also depart from the “energy only” market model to include a “capacity market” – payments to fossil fuel generators to stand by to fill gaps in supply when wind and solar energy can’t meet demand.
Before any of this can happen the rules of the NEM need to be rewritten. “The issue now is about the design of the market,” says Bruce Mountain, director of energy consultancy CME.
This week Energy Minister Josh Frydenberg put the NEM on the agenda for next month’s energy ministers’ meeting.
The sale of gas and electricity; the operation of natural gas and electricity distributuion systems and natural gas transmission pipelines; the extraction and sale of LPG; investments in gas industries (including overseas); and the realisation of property.
It’s certainly a good idea to address the NEM. The existing market has been distorted by the destruction of the carbon price and use of the piecemeal renewable energy target instead. Perhaps moving to a “capacity market” that pays gas-fired generators to be ready with power when needed is the way to go. Perhaps not.
But Mr Frydengas cannot start there. He must first address the price of gas itself. The idea that we should pay gas generators to do nothing, some of whom are the same vertically integrated cartel that is already gouging manufacturing and households as they chuck profitless gas at Asia, is obnoxious economics.
Last week alone the gas cartel gouged you at $8.20GJ versus dumping the very same gas (that is, yours) at $7.55GJ in Japan at no profit:
And because gas sets the marginal cost of electricity in the NEM, you paid $68/Mwh (if you’re in NSW) for electricity, roughly double what you paid last year (in June you paid triple!):
Upping payments to the bloke that’s already gouging you, especially to do nothing, does not make much sense to me. We’ll simply be embedding higher gas and electricity prices permanently on the east coast.
So, what’s the answer? Here’s some:
- install domestic gas reservation onto the east coast cartel;
- force more east coast fraccing. I suggest a government corporation to reassure communities of high safety standards vis water tables and to ensure mandated pricing to force the cartel to heal. Otherwise you may still need domestic gas reservation;
- government buys one of the gas carteliers and uses it to force efficient market pricing;
- install LNG regasification terminals in eastern cities and buy US gas, or, buy our own gas back from Asia. After all, they have a glut of it. When Japan breaks the destination clauses in supply contracts later this year it will be very easy to divert a cargo from Gladstone to Sydney. Floating LNG regasification terminals are only $200-300 million each versus $1 billion for onshore. I’d suggest the former because once installed they won’t be used anyway. By rendering the local gas market contestable, the cartel will drop its prices to compete and undercut the imports.
There is no wondrous solution here without the heavy hand of regulation.
