Finance Finance News Government gas plant sat idle despite soaring electricity prices

Government gas plant sat idle despite soaring electricity prices

Gas comes under fire in Senate estimates
Snowy executives didn't switch on their gas plant even when prices soared. Photo: TND
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Fresh questions have emerged about whether Australia needs a new $600 million gas-fired power station after it was revealed an existing government-owned plant was not used during a recent spike in prices.

In an extraordinary Senate estimates hearing on Tuesday, executives at government-owned Snowy Hydro admitted they allowed New South Wales’ largest gas power plant to sit idle last week because they weren’t prepared to offer its services below the maximum legal price of $15,000 per megawatt hour.

Energy market data shows the 667MW Colongra gas plant didn’t supply the market when prices spiked to over $5000/MWH last Monday, even as local aluminum smelter Tomago shut down to avoid the high prices.

Energy Minister Angus Taylor has used the shutdowns to justify the taxpayer investment in a new gas plant, to be owned by Snowy.

Mr Taylor has argued a lack of power generation caused the spikes, but experts disputed that, with some pointing to Snowy’s Colongra plant failing to switch on during recent price peaks.

On Tuesday Labor senator Jenny McAllister asked Snowy executives why they failed to supply Colongra’s existing power during these spikes.

Snowy chief operating officer Roger Whitby said the company did respond to an Australian Energy Market Operator (AEMO) forecast about the price spike earlier on Monday.

“Our plant and a variety of other plants were offered in the marketplace at $15,000,” he said.

But the AEMO decided not to use the plant as other generators offered cheaper power.

“If there was a critical supply shortage that would have been dispatched, but as it turned out in the midst of all that uncertainty it wasn’t, on the occasion, required,” Mr Whitby said.

Senator McAllister said that  admission showed there was capacity in the market, contrary to government claims, if Snowy had been prepared to offer the plant’s power at a lower price.

“Your evidence here is that there was in fact capacity in the market that day, it’s just that you as a government owned business enterprise were choosing to bid into that market at the maximum possible price that is permitted in that market,” Senator McAllister said.

Mr Whitby defended not offering the electricity for less, saying Snowy had a “variety of issues” to manage in a “very risky marketplace” and that its “direct financial obligations” to its customers had to be met.

“We have to make sure that we preserve and manage our financial position. Quite frankly we’re not in the business of managing somebody else’s customers’ financial business,” Mr Whitby said.

Mr Whitby was earlier called to order for providing long-winded answers to straightforward questions about Snowy’s market tactics and was accused by Senator McAllister of “filibustering” the hearing.

“The witness may not hold the Senate hostage by insisting the only answer they’re able to provide is a half-an-hour answer,” she said.

Snowy executives initially said they would take questions about their pricing strategy on notice after saying there had been “misinformation” circulating about the operation of the Colongra plant last week.

Snowy chief executive Paul Broad said the plant did eventually run for five hours on Thursday and Friday, but energy market data showed the largest price peaks were on Monday and Tuesday evening.

The admissions blow open Mr Taylor’s claims that existing power plants are unable to generate enough firming capacity to ensure electricity prices don’t spike when intermittent renewables generation drops off.

Those claims were key in justifying a $600 million taxpayer investment in a new gas power plant at Kurri Kurri in NSW’s Hunter Valley.

A spokesperson for Mr Taylor said Snowy Hydro plays a “critical role” in the National Electricity Market, contributing generation and back-up.

“More flexible capacity in the system through the Hunter Power Project will help contain prices at peak and ensure that our manufacturers can keep operating,” the spokesperson said in a statement on Tuesday.

“That is why the project has been deemed “absolutely essential” by NSW’s largest energy user, Tomago.”

Mr Broad later confirmed when asked that the government-owned company would operate the new Hunter plant, which is expected to be operational by 2023-24, under the same commercial principles as existing plants, including Colongra.

Labor is concerned that will mean neither plant will step in, even when prices skyrocket.

“We will operate to meet the market conditions, which are about to dramatically change,” said Mr Broad, referencing the planned shutdown of coal-fired power stations over the next two decades.

Energy retailers wrote to the ACCC last week requesting a a probe into potential “market gaming” in NSW after Snowy failed to turn on the Colongra peaking plant last week.

The ACCC said on Tuesday it’s now reviewing those complaints.

“Where market conduct concerns arise, the AER [Australian Energy Regulator] and/or the ACCC will investigate further,” a spokesperson said in a statement.

Mr Broad said he has not heard from the ACCC and only became aware of the complaint on Tuesday.

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