Electricity price spike caused by generator closure: Independent report

The independent energy regulator has found that recent sharp increases in electricity prices were caused by the closure of the Hazelwood power station last year.

An independent review of the wholesale electricity market by the Australian Energy Regulator found that the withdrawal of 1600MW of generation in Victoria had a number of knock on effects which increased wholesale prices in Victoria, NSW and SA.

Australian Energy Council Chief Executive Matthew Warren said the AER’s report supported the explanation given by the industry over the past year.

“The AER placed the response of generators under the microscope following the loss of a major low-cost power station.

“A key finding of that monitoring of wholesale prices before and after the closure of Hazelwood was that the recent rises were driven by the need to replace the lowest cost dispatchable plant with higher cost black coal and gas generation.

“The offers generators made to the market before and after the closure of Hazelwood were largely unchanged, with some gas-fired plants actually offering capacity at lower prices than they had previously.

“The AER did not find any abuse of market power, withholding of capacity or shift to offering higher prices for the same capacity.

“Ultimately, higher priced generation had to fill the supply gap and set the price more often, which is unsurprising when a large, cheap generator leaves the market.”

About the Australian Energy Council

The Council represents 21 major electricity and downstream natural gas businesses operating in competitive wholesale and retail energy markets. These businesses collectively generate the overwhelming majority of electricity in Australia and sell gas and electricity to over 10 million homes and businesses.