With temperatures dropping along the seaboard in Australia, demand for electricity surged. This placed pressure on electricity suppliers, most of whom run coal-fired power stations. In the normal course of events, the coal supply would be provided on long-term contracts.
With the increased demand for electricity, came increased demand for coal. Most of the available coal is sold overseas so immediate demand has to be purchased on the spot market where prices are subject to fluctuations in demand. The war in Ukraine has made the spot price for coal extremely volatile so meeting the supplier demands has become very expensive.
The electricity providers took the economically rational decision to stop supplying electricity to the grid thereby threatening to deny a significant proportion of the Australian population power supply during a very cold early winter period. No lights, no heating, no way of preparing food.
That is the ultimate meaning of privatising the electricity generating and delivery system in Australia.
Thank you, Jeff Kennett and Alan Stockdale.
However, the Australian Energy Market Operator (AEMO) took the dramatic step: suspending the entire market from trading power generation until further notice.
This is how it worked
An S at the end of the arrowhead means the variables move in the same direction, an O means a move in the opposite direction. You can work your way around the causal diagram and see the impact of the intervention of the regulator. The dynamics change as you go around the second time.
The situation is complex because the impact of the war in Ukraine has meant worldwide shortages of energy, particularly coal.
Australian energy companies have not maintained sufficient stockpiles to avoid purchasing coal on the spot market. This has had a devastating effect on their profitability. Hence their decision to withdraw from the market and not supply electricity to the grid and the Australian population. They were, of course, quite happy to reap windfall profits available to them from the surge in electricity prices as a result of increased demand as result of the cold snap. But when it lasted longer than expected and they had to buy coal at prices that made their operations of viable, they decided to withhold supply.
From THE AGE According to the Grattan Institute’s energy program director, Tony Wood, uncertainty dated back to Tony Abbott’s decision to scrap the former Labor government’s carbon tax in 2013, and then Scott Morrison’s decision to axe Malcolm Turnbull’s National Energy Guarantee in 2018.
Remember when Tony Abbott said that electricity prices are going to come down?
Well, this is the reality.
Since the last determination by the Australian Energy Regulator, a year ago, wholesale electricity costs for retailers, who supply us all with our power, had surged by 41.4 per cent in NSW, 49.5 per cent in Queensland, and 11.8 per cent in South Australia, due to power plant shutdowns, higher coal and gas prices and slowing of investment in new capacity, among other things.