ACCC gets a chance to redeeem itself on energy

Chris Bowen is buying time:

“This is the system working. We have some way to go on; there’s no complacency. We’re very alive to the risks that remain in the system,” he said.

“That we have we stood at a situation where load shedding was indeed looking likely, that blackouts were possible and we’ve managed to avoid all the above and there has been no impact on the reliability for consumers – it’s a very good thing.”

…“The Energy Security Board is today underlining the size of the task we have to undertake as a nation. That’s a task the Albanese government is up to and up for, working with our state and territory colleagues,” Bowen said.

The ESB is working on long-term stuff that is irrelevant to today’s crisis. It’s like arranging to buy a new car when you’re going head-on under a semi-trailer.

The causes of the crisis are NOT:

  • coal turbine breakdowns;
  • capacity problems;
  • decarbonisation, nor
  • the weather.

It is the price of gas and coal for Australian power producers that are being inflated by war-profiteers exploiting the Ukraine conflict. This is all that matters to both short-term energy prices and the long-term.

If the price of gas and coal is brought down then there will no problems with any of the above. We will have abundant fuel, abundant renewables investment and competitive prices.

The right answer is in the offing, if the ACCC redeems itself:

The competition regulator will probe energy companies’ profits and margins as part of an investigation into soaring electricity and gas bills with power prices trading five times higher than a year ago.

After receiving a letter from Federal Treasurer Jim Chalmers to investigate prices, the Australian Competition and Consumer Commission said on Monday that it would launch the probe and also assess any need for regulatory change to ensure electricity and gas markets are functioning properly.

“Under direction from the Federal Government, we will use our full information gathering powers to provide greater transparency around the factors influencing electricity and gas prices, including profits and margins from a wide range of energy companies,” ACCC chair Gina Cass-Gottlieb said.

“In line with the Treasurer’s request, we will also assess and bring to the government’s attention any need for regulatory change to ensure electricity and gas markets function properly for the benefit of all Australian consumers.”

The ACCC also plans to report back to the nation’s energy ministers by July on the current state of the market which saw wholesale spot power prices rise five-fold in the first two weeks of June from the first quarter of 2021.

“There is no doubt that international factors such as the war in Ukraine have heavily impacted the global gas supply and prices. A cold start to winter and a reliance on ageing coal-fired power stations amplified challenges already facing the Australian energy market,” Ms Cass-Gottlieb said.

“We are acutely aware of the pressures that rapidly rising energy prices are placing on Australian households and businesses. We are working closely with our colleagues at the Australian Energy Regulator to monitor the market and to take action against conduct harming competition or consumers and to preserve the competitiveness of our energy markets.”

The holy trinity of energy: low emissions, reliability and cheap prices is only a matter of disconnecting local fuel prices from global using domestic reservation and/or export levies on coal and gas.

The ACCC has been horribly guilty of making the energy crisis worse over a decade:

  • it waved through the various purchases of gas reserves by the cartel;
  • it constantly belittled reservation as solution only flip-flopping after I personally attacked Rod Sims;
  • it failed to be tough enough when commissioned to track the great gas gouge.

Here is your chance, ACCC. Do not return to the economic laboratory test tube of studied efficiencies that are meaningless in a failed market run by the energy cartels.

Give the Albanese Government cover to break the gas and coal export cartels with domestic reservation and or export levies.

The nation needs you.

Houses and Holes
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  1. LOL I was having an argument with some CEO on Linkedin how he said reservation is not efficient use of resources.

    I had to point out to him that every net exporting energy producing nation has some sort of domestic reserve like WA’a and someone how they are not hammered to global price fluctuations.

    The idea that the market is the most efficient means is bogus when their is direct market failure. These people are supposed to be the smartest among us.

    • kannigetMEMBER

      Remember, Adam Smith described an “invisible hand” that moves the market because he knew the market was not efficient, pure or logical but wanted to relate a deity to the effect without actually using a deity.

      This allowed him to attempt to ignore Sociology and psychology from most of his theory. The implication is that the invisible hand can be trusted because its a Deity like entity.

      But the reality this “invisible hand” cannot be trusted when its allowed to near the open cookie jar.

  2. Could Bowen be Labor’s fatso Hockey?
    You know, the one who brought down Howard’s government with Workchoices, then Abbott’s government with that infamous budget.
    So far he’s tracking well, first by losing the unlosable election in 2019 (due to his negative gearing, franking dividends reform..),
    now threatening to bring down Albo’s government early…

  3. I’m probably bound to be disappointed but I actually see this as a positive – the government wants to have the ACCC be the shield against the attacks from the gas lobby if they do bring in a domestic reservation scheme.

    They are probably talking to the ACCC to give them a case to reserve – although who knows if the ACCC will be willing to stick their neck out that far given their next job will probably be lobbying for the gas industry.

    • Yup. Smart politics from labour. ACCC told us to do it. Or actually, USE these govt funded agencies to do what they are meant to do – their fkn job.
      If a certain monopolistic market is price gouging customers for an essential need, isn’t it ACCCs job to step in? So Chris Bowen poking them to wake the f up and start earning their pay check is on point entirely.
      Give labour the reason to pull the trigger that doesn’t exist today. God that was always the answer.
      Certainly not one that LNP would have even dared to trip over for another decade.

  4. Can someone just bloody hurry up and manufacture a politik for reserving our own reserves for our own use first?

    And hurry up and super-tax the cartels.

    We all know the market is awfully broken – just fix it. The Australian voters are with you.

    • Oh Totes where art thouMEMBER

      Yes. They need to hurry up. Time is not on their side. The Australian people will only wait so long until they start to give back in to the MSM relentless shilling for the LNP. Labor does not need a dragged out conflict. It needs a quick decisive win. Domestic gas reservation now.

  5. What in the history of the ACCC decisions on this makes you think they will do the right thing rather than once again the wrong thing? Especially since they never admit any previous decision was incorrect.

    • Pretty sure like every other time, this time also they will have been passed notes under the door from the govt to say what should be said.
      Difference is, previously it was coal mates LNP doing so, now it is Labour who actually seem to be getting on with the job.

  6. Stephen Morris

    Without denying the significance of other causes, I still think there is a case to be made that the abandonment of capacity pricing is a significant contributor.

    This is how it was supposed to work (based on the original UK design for spot pricing designed in 1988):

    It was felt that the economic efficiency objective would be best met if the decision to produce energy in any half hour [later reduced to five minutes] were entirely divorced from the need to recover capital costs.

    Accordingly, the approach adopted in the [England and Wales] Pool was for the regulator to set a maximum value for electricity: the Value of Lost Load (“VOLL”). All available generators, whether or not they were actually called upon to generate, received a fraction of this value based on the probability that there would be insufficient capacity to meet demand. This fraction is known as the Loss of Load Probability (“LOLP”). (VOLL was originally set at £2.00 per kWh [$5.00 per kWh in Australia.] . This compares with a marginal cost of producing energy of only a few pence per kWh and illustrates the vast difference in cost between producing energy and power.)

    The price of electricity in each half hour therefore comprised:

    • an “energy component” to cover the marginal cost of producing the required electrical energy; and

    • a “capacity component” based on the VOLL/LOLP calculations.

    The energy component was calculated according to the principle of a market clearing price. All generators scheduled to
    generate were paid the price offered by the most expensive set scheduled (whether for generation or reserve) to meet demand. This price is known as the System Marginal Price (“SMP”).

    Leaving aside complexities relating to ancillary services, payment to generators was based on the pool purchase price (“PPP”) defined as:

    PPP = {Energy Component} “plus” {Capacity Component}

    = {SMP} “plus” {LOLP (VOLL – SMP)}

    PPP was defined in such a way that if the Loss of Load Probability rose to 1.0 (meaning that load was about to be lost) then PPP would be equal to VOLL. Similarly, if SMP rose to be equal to VOLL then PPP would also equal VOLL. (In theory the offer price of the set required to meet forecast demand would exceed VOLL, but under Pool rules SMP was limited to VOLL.) The formula thus reflects the intention that PPP should never exceed the cost of not meeting demand.

    Plant scheduled to run was paid PPP applied to actual output rather than forecast output.

    Plant scheduled for reserve was paid PPP less the incremental offer price for generating applied to the time the set was actually available for reserve.

    Plant available but not scheduled was paid LOLP (VOLL – Offer Price) applied to declared availability. Offer Price was the average price at which the set would provide electricity if operated at declared availability based on its offer.

    For some reason this was abandoned in Australia. I suspect it was to allow low cost ENERGY producers to make more profit from supplying CAPACITY. After all, in a split market even high-cost energy suppliers (simple cycle gas turbines, for example) get paid the full amount for capacity even though they may be sheduled only for a few minutes during peak demand.

    NEM has now recognised its mistake:

    ‘A capacity mechanism – which pays providers to have capacity available during certain periods – will help reduce the risk of a disorderly transition,’ Ms Collyer said. ‘It will provide a more direct and certain way to ensure we have the right amount of capacity and right mix of capacity available when and where we need it.’.

    This is not a new concept – most markets in the world already operate markets that explicitly value capacity – but it is a big change for the NEM. So we are encouraging all stakeholders to participate in the design process so we can deliver a considered and collaborative design that is fit for the future.’

    Which raises the question: Why did they abandon it in the early 1990s???

    p.s. The chart of capacity vs demand presented in yesterday’s article is misleading because it does identify despatchable demand. Solar capacity, for example, is not available for despatch at the mid-evening peak demand period.

  7. I suspect that by the time the ACCC gets its report completed the energy crisis will be several years old and after unnecessary suffering by Australians there will be more renewables and gas/ coal supply will exceed local demand. No superprofits tax revenue will be collected and there will be no need for a gas reservation policy.

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