Electricity grid chaos to charge up power bills

Extra price pain is coming to households and businesses after weeks of chaos in the electricity grid, with special payments made by the market operator to prop up power companies set to flow through to electricity bills.

Rolling blackout warnings were issued from Monday last week when power generators said the rising cost of gas and coal had made it unprofitable for them to run their plants.

Consumers will end up footing the bill for the emergency intervention into the energy grid.Credit:Mark Piovesan

Grattan Institute energy director Tony Wood said the market intervention by the Australian Energy Market Operator (AEMO) would generate significant extra costs that will eventually be borne by households and businesses.

“There are two hard issues to address here. One is how much compensation was paid to power companies? The second is that while consumers will pay for the compensation, how much will it cost and when is that going to be?” Wood said.

The grid was plunged into chaos from the start of last week when companies withdrew offers to supply massive slabs of power – up to one-fifth of typical electricity demand – supply across the grid.

To avoid blackouts the operator exercised rarely used powers to override the companies’ withdrawals and directed them to fire up their generators to ensure the lights stayed on across the eastern seaboard.

But this process, which has never been used on such a big scale in the two decades of the energy market’s history, triggered compensation payments to the energy companies.

AEMO’s last significant market intervention was in the summer of 2017-18, which cost $50 million in compensation payments.

The costs were calculated by the Australian Energy Market Commission and recouped from electricity retailers – which then passed the cost on to the bills of households and businesses.

Given the unprecedented scale of last week’s intervention, it is unclear how long it will take for the costs to be counted, but experts anticipate the bill will be larger than in 2017-18.

Power bills had already been driven up by the global energy crunch and Lisa Zembrodt of Schneider Electric, one of Australia’s largest corporate energy advisers, said there was “no easing in sight” for fossil fuel prices.

“The forward curves for coal and gas prices are still elevated,” Zembrodt said.

“The global market, and Europe in particular, is suffering from new issues with their fossil fuel supplies. Yes we are in their refill season there but in just a few months they will draw down more on supply heading into autumn.”

So-called “default market offers” – price caps on what retailers can charge households and businesses that do not take up special deals or bundle utilities bills – will rise in all states across the east-coast electricity grid.

From July 1, default offers will jump by 14 per cent, or $227, in NSW. In Victoria, where the state’s Essential Services Commission determines its own default offer, the price cap for households will rise by 5 per cent, or $61, a year.

AEMO lifted its suspension of the electricity market on Friday afternoon.

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