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Speaker 1: The Energy regulators quarterly report is out and it shows

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Speaker 1: energy prices have risen with the wind dropping through August

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Speaker 1: and September that has forced the electricity industry the power

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Speaker 1: industry to rely on gas, hydro and battery use. While

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Speaker 1: wholesale prices are down about a quarter compared with the

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Speaker 1: June quarter, in September they rose sharply because of the

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Speaker 1: increased reliance on gas, hydro and batteries. Average price in

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Speaker 1: South Australia two hundred and one dot's per megawat hour

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Speaker 1: two hundred and one the biggest price rises well all

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Speaker 1: over the place. Tasmania are up two hundred and ninety percent,

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Speaker 1: Victoria one hundred and fourteen percent. Here in South Australia

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Speaker 1: up seventy six percent, so at least lower than them,

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Speaker 1: but still up seventy six percent. It is compared to

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Speaker 1: due We had a thirty five percent quarter on quarter

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Speaker 1: rise in September, so not great. And on top of

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Speaker 1: that is the call for gas to be imported Woodside

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Speaker 1: saying it's the only choice to make sure we don't

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Speaker 1: run out of gas. Having a domestic gas crisis this decade.

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Speaker 1: As old production fields in Bastrait rapidly dry up and

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Speaker 1: scant new supplies to replace them. So how ridiculous is this?

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Speaker 1: We float on gas, we export it because we have

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Speaker 1: contracts to do that, and we don't have enough for ourselves.

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Speaker 1: Just absolute madness energy policies right across the board. Professor

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Speaker 1: Bruce Mountain, Director of the Victorian Energy Policy Center. I

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Speaker 1: don't know where to start with this, Bruce, good morning

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Speaker 1: to you. But okay, let's look at prices first. So

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Speaker 1: the renewables just aren't delivering, it.

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Speaker 2: Seems, yes, hi. So we certainly went through what seems

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Speaker 2: to have been a much calmer winter, which had extended

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Speaker 2: periods of calm than we have seen in previous winters.

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Speaker 2: And what that means is a dispatchalle resource needs to

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Speaker 2: take its place. When you get a combination of low

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Speaker 2: wind and low sun that then brings on more gas

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Speaker 2: and coal and hydro. So the answer is to expand

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Speaker 2: some of that wind to reduce the extent of the decrease.

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Speaker 2: But I think also particularly to look into the exercise

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Speaker 2: of market power by the gas, hydro and coal operators,

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Speaker 2: In particular the hydro operators. I've been analyzing the existing

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Speaker 2: operation of pump hydro and that generation can operate far

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Speaker 2: more than it does the concentration of peaking power generation

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Speaker 2: in the form of hydro and gases by the Commonwealth Corporation. Basically,

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Speaker 2: they're able to withhold production essentially from their pumped hydro

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Speaker 2: and driver license and I think this explains a fair

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Speaker 2: bit of what we are seeing, at least as regards

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Speaker 2: the effect of the wind lulls in bringing in hydro

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Speaker 2: and gas in the evening.

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Speaker 1: Okay, I read in this report Tazzy had a drought

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Speaker 1: so they couldn't access hydro and that led to their

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Speaker 1: huge jump in power prices.

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Speaker 2: Yes, Tazzi had drier conditions than they normally do. They

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Speaker 2: ran their gas fire generator very heavily towards the end,

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Speaker 2: but I'm not convinced that there was a lack of

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Speaker 2: water that actually occasioned that use of gas. I think

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Speaker 2: it's likely that Tezzy Hydro had a take or pay

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Speaker 2: gas contract and as a consequence, the gas was already

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Speaker 2: paid for, so they could generate with it and they

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Speaker 2: could actually sustain much higher prices when that gas was operating.

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Speaker 2: So when you look into these conditions, when you have

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Speaker 2: relatively constrained generation conditions, when you don't have much wind

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Speaker 2: in the sun. It gives an opportunity for the remaining

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Speaker 2: generators to make hay and I think the evidence is

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Speaker 2: that we are seeing that, in particular by the hydro operators.

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Speaker 2: They drive up the prices, they gain from it, everyone

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Speaker 2: gains from it, accepting the customer. So I think there's

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Speaker 2: a favorit of this going on, and I think the

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Speaker 2: Australian Energy Regulator and the Age of the c need

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Speaker 2: to dig into it. We've written a paper on it

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Speaker 2: which we're going to publish soon. We think there's good

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Speaker 2: evidence to suggest that they're not operating their generation in

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Speaker 2: public interests.

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Speaker 1: M all right, that's interesting. Now Berry's text it in.

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Speaker 1: He says, don't worry about wholesale. We pay retail and

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Speaker 1: have some of the highest prices in the world. But

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Speaker 1: and you can explain this, wholesale factors into this because

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Speaker 1: of the default market offer. Doesn't it that the wholesale

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Speaker 1: prices are taken into account and used to predict what

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Speaker 1: the retail prices are finally going to be in the

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Speaker 1: following year.

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Speaker 3: Yes, I think that is roughly right. So the prices

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Speaker 3: that the AI.

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Speaker 2: Have written about averages over time or spot market prices,

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Speaker 2: and the spot market price is a five minute price.

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Speaker 2: The way the market operates, all production essentially that's large

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Speaker 2: needs to be sold into the spot market. But retailers

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Speaker 2: hedge the spot market by entering into contracts, which swaps

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Speaker 2: the variable five minute price for a fixed price. But

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Speaker 2: by changing those spot prices, they can actually condition the

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Speaker 2: contract market prices in the same way that in the

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Speaker 2: petrol market changes in the prompt market, the short term

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Speaker 2: market petrol effect the way market participants might enter into

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Speaker 2: contracts to hedge the spot pricense, and so by exercising

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Speaker 2: market power in the dispatch of generation in the spot market,

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Speaker 2: it impacts and we see this all the time. When

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Speaker 2: the spot market goes up, the contract markets go up,

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Speaker 2: so that then flows into the contract market. When the

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Speaker 2: regulators set the default offers, they have regard to the

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Speaker 2: contract market also to some degree, the spot market. But

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Speaker 2: it's not just through the default offer it's also through

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Speaker 2: the retailers and cells in the contracts that they voluntarily

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Speaker 2: enter into to hedge their sales or indeed to sell electricity,

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Speaker 2: because those hedges are sold generally by market players who

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Speaker 2: own the generation, and so they can drive up the

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Speaker 2: price that they effectively get through the contracts that they

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Speaker 2: sell by driving up the spot market prices.

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Speaker 1: In the meantime, Bruce, we've got Woodside saying, well, to

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Speaker 1: avoid a gas shortage, domestic gas shortage, we may need

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Speaker 1: to import gas. And that's the most ridiculous thing ever.

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Speaker 2: Yeah, it's utterly absurd. I mean, just think about physically

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Speaker 2: what's happening here. We're getting gas in a gaseous fall.

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Speaker 2: We turn it into a liquid, which requires enormous amounts

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Speaker 2: of energy and equipment which needs to be paid for.

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Speaker 2: We put it on a ship at minus one hundred

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Speaker 2: and seventy three degrees, which takes a whole lot of

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Speaker 2: equipment and cost to maintain at that temperature. We then

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Speaker 2: you know that that ship is going to leave harbor.

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Speaker 2: It's most likely going to sail south done use South Wales,

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Speaker 2: or if they put a terminal in Victoria and it'll

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Speaker 2: turn it will then be imported onto the shore turned

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Speaker 2: back into a gas, so enormous waste of capital and

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Speaker 2: money to and it'll effectively be buying our own gas.

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Speaker 2: And it might well be that actually the ship that

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Speaker 2: moves south to Regas, that goes from Queensland on to

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Speaker 2: Victoria or South Well it turns out to be a

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Speaker 2: Aussie ship. And so this is a consequence of, as

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Speaker 2: you pointed out, a massive policy failure. The gas has

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Speaker 2: been contracted to the export market. The government is not

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Speaker 2: willing to touch those contracts, so it's been sold off.

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Speaker 2: It goes at a price. That scarcity in the market

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Speaker 2: is shown in a short term of gas supply, and

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Speaker 2: you've got companies like Woodside who have these contracts for

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Speaker 2: the sale of gas abroad saying well, no, we need

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Speaker 2: to import it so that we can meet out our

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Speaker 2: own load. So it's it's it's almost a criminal policy failure.

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Speaker 1: I have to say, oh, absolutely, this is you know,

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Speaker 1: the country floats on the stuff. Why aren't we exploring

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Speaker 1: and looking for more.

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Speaker 2: Well, we have done lots of exploration, and I think

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Speaker 2: there's a pretty good picture of both the on shore

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Speaker 2: and offshore conventional gases, as well as of the coal

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Speaker 2: seam meat and gases. The coal see methane, which is

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Speaker 2: the Queensland gases essentially are nowhere near as abundant as

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Speaker 2: they built and so when you aggregate up that gas

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Speaker 2: production as well as the on shore in the offshore

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Speaker 2: conventional gas. We just don't get a huge, huge result.

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Speaker 2: There is a prospect of coal seine gas in Victoria,

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Speaker 2: but the government has said following extensive landholder protests over time,

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Speaker 2: both left and right of the government's both left government

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Speaker 2: and right government over time, and so they aren't going

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Speaker 2: to allow for the exploration of gas from those coal

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Speaker 2: seine beds, and so that essentially the existing gas well.

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Speaker 2: And I'm afraid the long and short is there's no

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Speaker 2: evidence that Victoria or some Australia or Queensland has all

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Speaker 2: our New South Wales has an abundant existing gas results.

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Speaker 2: And I don't think anyone's claiming that there's the exploration.

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Speaker 3: For failure that actually revealed the new gas.

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Speaker 1: All right, So there it is. Well, it is just

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Speaker 1: a mess, just an absolute mess. And energy policy in

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Speaker 1: this country is tying itself up in knots going down

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Speaker 1: the renewables path, which, okay, renewables have their place, but

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Speaker 1: we're told a trillion dollars and the Deputy PM refused

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Speaker 1: to say it couldn't be more than that yet nuclear

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Speaker 1: is too expensive, apparently, could it be more than a trillion?

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Speaker 1: Maybe it would, who knows, But renewables doesn't seem to

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Speaker 1: be working out the way it should long term.

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Speaker 3: I think the energy challenge is a difficult challenge. But

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Speaker 3: the point I I keep making when I've ever given

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Speaker 3: the chance, is to stress that we just can't know

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Speaker 3: quite what the future beyond really three years ahead will be.

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Speaker 3: Technology is changing so very rapidly, and the mistake that

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Speaker 3: our politicians have made again and again and again and

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Speaker 3: again is to focus on the distant mountains instead of

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Speaker 3: climbing the foothills. We haven't had our feet on the

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Speaker 3: ground in our energy policy, and as a consequence, we've

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Speaker 3: missed many fantastic opportunities to get cheaper supply cost effectively

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Speaker 3: for you know, for the end customer. And let those

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Speaker 3: big distant, capital intensive problems, whether it's large amounts of storage,

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Speaker 3: whether it's come tydro whether it's nuclear, Let that evolve

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Speaker 3: over time, let us learn more.

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Speaker 2: Don't tie us into those.

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Speaker 3: Big, very distant capital decisions.

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Speaker 2: That and the massive transmission line, the interconnections which are

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Speaker 2: as we can see, and as we say it, we're

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Speaker 2: going to be very problematic and as a consequence of

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Speaker 2: gummed up the system.

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Speaker 1: Bruce, appreciate your insights. Thank you. Okay, Bruce Mountain from

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Speaker 1: the Victorian Energy Policy Center