Post: Volatile markets result in blackout risks for Australia

Volatile markets result in blackout risks for Australia

The Australian Energy Market Operator (AEMO) has imposed an administered price cap to halt surging wholesale power prices in parts of Australia, but the move has resulted in supply concerns.

Across the eastern seaboard, wholesale power and gas prices are surging as a burst of cold weather has pushed up demand for heating combined with a series of coal-fired power station outages which have forced gas-fired generators to fill the gap. Meanwhile, international prices for coal and natural gas remain high as Western utilities race to find alternatives to Russian energy imports, intensifying competition for supplies.

On 13 June AEMO began administering a cap on Queensland’s wholesale power prices at $300/MWh. on 12 June electricity prices in Queensland reached a cumulative high price threshold of $1,359,100 (accumulated over seven days), triggering the administered price cap under the National Electricity Law and the National Electricity Rules.

An administered price period (APP) is triggered for a given interval and market in a region when:

• the sum of the regional reference prices (spot prices) in the energy market for the previous 2,016 trading intervals (equivalent to seven days) exceeds the cumulative price threshold (CPT); or
• the sum of the ancillary service prices for a market ancillary service in the previous 2,016 trading intervals (equivalent to seven days) exceeds the CPT.

The sum of prices over the previous seven days is calculated as if any APP conditions did not apply. The CPT between 1 October 2021 and 30 June 2022 is $1,359,100, which is equivalent to an average spot price of $674.16/MWh over the previous seven days.

But the move reduced the profit margin for some generators and resulted in them offering less power for sale in the market. Across Queensland, 1454MW of demand could be interrupted and in New South Wales, about 409MW are expected to be interrupted. AEMO has issued Lack of Reserve (LOR) notices in both Queensland and New South Wales, signalling a reduction in pre-determined electricity reserve levels. To maintain power system security and reliability, AEMO is using its powers under the National Electricity Rules, including to direct generators, to alleviate lack of reserve conditions.