The Australian Energy Market Operator (AEMO) announced a temporary suspension of the wholesale spot market, following a tumultuous time in the energy sector.
“It has become impossible to continue operating the spot market while ensuring a secure and reliable supply of electricity for consumers in accordance with the National Energy Rules,” the AEMO said in a statement on 15 June.
The spot market details the changeable wholesale price of electricity at any given time. Through the AEMO suspension, a new fixed price will replace the changeable price.
The spot price is generally most expensive when households and businesses are using the most power, but changes throughout the day.
AEMO CEO, Daniel Westerman, said the market operator was forced to direct five gigawatts of generation through direct interventions on 14 June, and it was no longer possible to reliably operate the spot market or the power system this way.
“In the current situation suspending the market is the best way to ensure a reliable supply of electricity for Australian homes and businesses,” Mr Westerman said.
“The situation in recent days has posed challenges to the entire energy industry, and suspending the market would simplify operations during the significant outages across the energy supply chain.”
The AEMO said the market suspension is temporary, and will be reviewed daily for each NEM region. When conditions change, and AEMO is able to resume operating the market under normal rules, it will do so as soon as practical.
Mr Westerman said price caps coupled with significant unplanned outages and supply chain challenges for coal and gas, were leading to generators removing capacity from the market.
He said this was understandable, but with the high number of units that were out of service and the early onset of winter, the reliance on directions has made it impossible to continue normal operation.
The Federal view
Federal Minister for Climate Change and Energy, Chris Bowen, welcomed the AEMO’s decision and said the action will “help the NEM alleviate the unplanned withdrawal of generators from the wholesale market”.
“This is the best way to make sure the lights stay on and AEMO has the Government’s full support in taking this action,” Mr Bowen said.
“This is a tool that was available to AEMO under existing rules – suspending the pricing mechanism temporarily in the market was deemed the best way for AEMO to simplify the operation of the NEM and ensure visibility of actual supply while these challenges are dealt with.
“It will continue until AEMO and other agencies can be confident the NEM wholesale market will work as intended and ensure reliable power to all NEM regions.”
Mr Bowen said the situation highlighted the “importance and urgency of new investment in renewables, storage and the transmission that is needed to ensure affordable and reliable energy supply”.
Industry speaks up
The AEC’s Chief Executive, Sarah McNamara, said, “It is quite clear that in these unprecedented circumstances and following the application of the Administered Price Cap the power system was becoming unmanageable.
“We hope the conditions improve in this new phase and we can soon return to an uncapped market.
“But the reality is that power is becoming more expensive to make because coal and gas are becoming more expensive to buy.”
The Australian Energy Market Commission (AEMC) said it was committed to processing compensation claims for losses during the administered pricing periods which ended on Wednesday 15 June.
“We will continue to work collaboratively with market bodies, industry representatives, and governments during this time,” the AEMC said in a statement.
The previous energy shortfalls led to the AEMO announcing price caps to Queensland, New South Wales, Victoria and South Australia after the state’s energy reached a cumulative high price threshold of $1,359,100 (accumulated over seven days).
This triggered an administered price cap of $300/MWh in accordance with the National Electricity Rules.
Mr Bowen called the situation a “crisis driven by and large by unexpected outages in coal fired power stations because the fleet has been aging.
“There hasn’t been that investment in new technology, in new transmission, in new storage to come forward because the previous government just played around with it for nine years and had 23 different energy policies.”
Mr Bowen has been vocal in explaining the collaboration between the AEMO, the State and Territories Energy Ministers and the energy corporations to ensure the stabilisation of the sector and ensure the threats of blackouts don’t become actualised.
The AEMO CEO said he was confident the actions on the spot market “will deliver the best outcomes for Australian consumers”.
“As we return to normal conditions, the market based system will once again deliver value to homes and businesses,” Mr Westerman said.