The Australian Energy Regulator (AER) has identified causes for a spike in electricity prices in South Australia on 22 January 2021 in a new report.

The AER published the report, Prices above $5,000/MWh, after a spot price exceeding the $5,000/MWh threshold triggered reporting.

There can be many reasons a high spot price occurs, including outages that adversely affect supply-demand conditions in the wholesale market.

During the 4am trading interval on 22 January 2021, the spot price for electricity exceeded $5,000/MWh in SA.

The AER’s analysis found the following factors contributed to the high prices:

  • Pelican Point power station tripped, meaning around 240MW of capacity priced below $100/MWh, was no longer available
  • Following the trip at Pelican Point, imports from Victoria were reduced by 240MW. Imports were reduced to protect the power system in South Australia in case the Heywood interconnector also tripped

Given the loss of supply from Pelican Point and reduced imports from neighbouring regions, around 450MW of capacity had to be sourced locally. This could only be met by capacity priced at the cap for two dispatch intervals.

More in-depth analysis of these events can be found in the AER’s 22 January 2021 report.

Most customers are not directly exposed to wholesale electricity prices. Energy retailers are the main purchasers in the wholesale electricity market. 

Retailers bundle electricity with network services for sale to their residential, commercial and industrial customers. Generators and retailers can manage their exposure to wholesale market price variations by entering hedge contracts that lock in prices for the electricity they intend to produce or buy and these instruments would have affected overall financial outcomes on the day.

The AER’s role in monitoring wholesale energy markets and reporting on high price events helps to enhance market transparency and compliance. 

The AER’s analysis provides a foundation to detect non-compliance, market irregularities, inefficiencies and consumer harm. The AER draws on this work to advise stakeholders and market bodies on wholesale market issues.

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