AEMO Suspends the Market

Below is the media release from AEMO after it suspended the National Electricity market at 14:05 today.

AEMO today announced that it has suspended the spot market in all regions of the National Electricity Market (NEM) from 14:05 AEST, under the National Electricity Rules (NER).

AEMO has taken this step because 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 NER.

The market operator will apply a pre-determined suspension pricing schedule for each NEM region. A compensation regime applies for eligible generators who bid into the market during suspension price periods.

In making the announcement AEMO CEO, Daniel Westerman, said the market operator was forced to direct five gigawatts of generation through direct interventions yesterday, 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,” he 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.”

Edge wish to reiterate, this is not a physical supply issue. AEMO directed 5GWhs of physical generation into the market. If generators can operate when under direction, they do not have a physical reason to not generate (such as maintenance, overhaul etc), so the reduced availability we are seeing has to be a commercial trading decision to either price volume into higher price bands or to remove availability in the maximum availability bands of their bids. The availability is there, the generators are just not offering it via the spot market.

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 current energy challenge in eastern Australia is the result of several factors – across the interconnected gas and electricity markets. In recent weeks in the electricity market, we have seen:

  • A large number of generation units out of action for planned maintenance – a typical situation in the shoulder seasons.
  • Planned transmission outages.
  • Periods of low wind and solar output.
  • Around 3000 MW of coal fired generation out of action through unplanned events.
  • An early onset of winter – increasing demand for both electricity and gas.

“We are confident today’s actions will deliver the best outcomes for Australian consumers, and as we return to normal conditions, the market based system will once again deliver value to homes and businesses,” he said.

What does it mean for generators and end users.

  • Bidding and dispatch will continue as usual under the market rules.
  • Dispatch instructions will be issued electronically via the automatic generation control system as usual
  • If required AEMO may issue dispatch instructions in any other form that is practical in the circumstances.
  • Spot prices and FCAS prices in a suspended region continue to be set in accordance with NEM rules or under the Market Suspension Pricing Schedule.

The Market Suspension Pricing Schedule is published weekly by AEMO and contains prices 14 days ahead.

The market will continue to operate under the Market Suspension Pricing Schedule until the Market operator determines the market is able to return to normal conditions and the suspension is revoked.

Article by Alex Driscoll, Senior Manager – Markets, Trading, and Advisory

Drivers behind potential load shedding

In the energy market, probably not unlike most complex markets / industries, we never let the truth stand in the way of a good mainstream news story. So much so, at Edge we struggle to watch mainstream news!

Yesterday Edge highlighted that a tight supply balance was not the key driver for the unprecedented high prices occurring in the spot and contract markets.

As previously outlined, generators bidding behaviour is playing a pivotal role, lifting the average price in the spot market as their spot traders shift volume into higher price bands. This pushed spot prices so high that on Sunday the market reached the cumulative price threshold (CPT). This means that the sum of spot prices in a seven-day period hit a level which caused AEMO to intervene and cap prices until the market returns below this threshold.

As has been widely discussed on Sunday evening, AEMO stepped in and controlled the spot price once the sum of the previous 2,016 (7 days) trading intervals equalled the cumulative total of $1,359,000. The cumulative CPT is equivalent to an average price of $674.16/MWh for the seven-day period.

During market intervention, spot prices in the relevant region are capped at $300/MWh.  This commenced at 6.55pm on Sunday night in Queensland and will continue until the 7-day average drops below the CPT. Once this is achieved the CPT remains on foot until at least 04:00 the next trading day.

Since Queensland hit the cap on Sunday, we have now seen every mainland region in the National Electricity Market (NEM) also hit the CPT. As at publication, intervention pricing is currently enacted in all of these regions (QLD, NSW, VIC, and SA). Tasmania is currently under threat also.

During market intervention the maximum spot price can only reach $300/MWh (there is also a floor of -$300/MWh). $300/MWh is currently lower than the short run marginal cost (SRMC) of many gas generators when priced against the current gas price, which is also currently capped by AEMO (at $40/GJ).

A consequence of capping these markets is higher priced generation withdraws from the electricity market, as an example gas generator have a Short Run Marginal Cost (SRMC) of generation of roughly $400/MWh based on a fuel cost of $40/GJ, but with a cap of $300/MWh on the electricity generated it results in generators removing their availability from the market which in turn results in regional availability dropping. Hence subsequent threats of power outages and the potential requirement for load shedding.  It’s a case of the market being more under threat from commercial drivers than physical drivers.

The commercial dynamics of the current market create a perceived lack of availability in the market and leads to generators looking to other (non-capped) revenue streams for their generation stack. This is precisely what occurred over Monday with 607MW of availability being removed from QLD available generation, and 930MW removed from NSW. The drop in dispatchable generation resulted in AEMO publishing a Lack of Reserve (LOR) forecast and requests by AEMO for a market response. Rather than this call being answered, generators held firm and did not place generation back into the traditional bid stacks.  Across Monday the LOR dropped further as more generation disappeared into the ancillary market and as we approached the evening peak AEMO called an LOR3, which resulted in AEMO also calling on Reliability and Emergency Reserve Trader (RERT) providers to fill the availability gap.

Overnight AEMO’s action on calling RERT prevented load shedding, however this may not be the case in NSW tonight where 590MW of load is forecast to be interrupted at 19:00. If there is insufficient support under RERT to compensate for this supply shortage, we could see load shedding.

With all mainland NEM regions currently operating under the CPT we expect to see more market intervention, and those generators exposed to a capped gas price removing volume out of the market as electricity prices are capped at levels below their SRMC. This is likely to see AEMO needing to intervene in other regions, invoking RERT to source additional availability, or failing that load shedding.

Article by Alex Driscoll and Stacey Vacher.