Compensation framework released for energy market

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The Australian Energy Market Commission (AEMC) has published a draft rule, outlining a new compensation framework that would be applied during market suspension events, which have occurred twice in the history of the national electricity market.

The Australian Energy Market Operator (AEMO) suspends the spot market when the market cannot operate as normal, for example, if there is no electricity supply due to a ‘black system event’.

When the market is suspended, spot and ancillary service prices can either be set using the normal central dispatch and pricing process, or by the Market Suspension Pricing Schedule (MSPS), which is a schedule of prices based on prices in the preceding four weeks.

The compensation framework set out in the draft rule would apply during periods when the MSPS is in operation. Its aim is to allow participants who incur losses during such periods to recover their direct costs, while also managing the impact on consumers who ultimately bear the cost of compensation payments.

Compensation would be automatically payable to a generator where estimated costs incurred exceed MSPS revenue earned. Estimated costs would be determined by AEMO based on the average short run marginal cost of each class of generator in each region. This would be supplemented by a ten per cent premium to account for divergences between estimated and actual costs.

Where automatic compensation is insufficient to cover direct costs, an eligible party would be able to seek additional compensation by lodging a claim with AEMO.

In this way, the new compensation framework seeks to encourage participants to work collaboratively with AEMO to restore or maintain supply, rather than wait for a direction from AEMO and then recover any losses through the directions compensation process.

Stakeholder submissions on the new compensation framework are due by 4 October 2018.

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