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High electricity prices explained or why you pay $5,000 for a $1 apple?

By Craig Marschall, Managing Director

26/08/2022

 

Apart from the high natural gas and coal prices resulting from the Ukraine war, perhaps the main factor influencing Australia’s east coast electricity prices is the electricity generator bidding process. My thanks to Giles Parkinson for publishing the following on 23 August 2022. It explains how the market price can be ‘gamed’ by electricity generators and why prices are so high.

 

Imagine going to the local fruit market to buy a dozen apples to make some crumbles for your dinner guests, only to find the sole vendor has just 10 on display at a price of $1 each.


Fair enough, but you really, really need 12 apples to cater for all the guests. The vendor reaches into a secret compartment and says you can buy two more, but they will cost $5,000 each. Worse, if you want the whole dozen, each apple will then cost $5,000. That will be $60,000 in total. We do have Eftpos.



Most buyers will deliver some choice words and decide on a Plan B, such as a pear compote, or a pavlova. In the electricity market, because it is an essential service, there is little room to move, yet this is exactly what happens on a regular basis, and the regulators say it is all perfectly legal, as long as it doesn’t happen too often.


The latest reports from the Australian Energy Regulator make for some grim reading about the state of the markets, both for the industry and for the consumer.


They look at 11 occasions when the wholesale price of electricity soared above $5,000/MWh in Queensland and NSW – the country’s most coal dependent states – between April 20 and May 15, in the lead up to the crisis that  resulted in the market operator suspending the whole market for the first time.

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