AEMC may fast-track request to double administered price cap after coal plant warning

The Australian Energy Market Commission (AEMC) is considering whether to fast-track a proposed doubling of the administrated price cap in electricity markets after thermal generators warned of a repeat of recent electricity market crises.

The AEMC says it will publish a consultation paper on the proposed rule change in early August, seeking industry feedback to inform whether it should be covered by an “expedited process”.

A request for a doubling of the administered price cap – from $300 per MWh to $600 per MWh – was submitted by Alinta Energy, one of Australia’s largest operators of thermal generators.

In its request, Alinta argued to the AEMC that without the change, there was a “real risk” of the return of the kind of energy market disruption that led to the Australian Energy Market Operator to suspend the National Electricity Market.

“While the NEM has returned to regular operations for now, the threat to the ongoing effective operation and administration of the wholesale electricity market remains,” Alinta told the AEMC.

“If the relevant underlying market settings are not changed, there is a real risk that we will again see the same conditions that led to the unprecedented dysfunction and suspension of the market. Left unaddressed, these impacts will not deliver outcomes in the long-term interests of consumers.”

Alinta operates the 1,070MW Loy Yang B in Victoria, the 502MW Braemar-1 power station in Victoria, and a significant portfolio of gas generators in Western Australia.

The administrated price cap is imposed on electricity generators during prolonged periods of high wholesale electricity prices. AEMO is able to trigger the cap when wholesale prices average more than $675 per MWh over a full seven-day period.

Once triggered, the administrated price cap – currently $300 per MWh – applies to all electricity traded through the National Electricity Market to protect consumers from a potentially higher surge in electricity costs.

But several coal and gas generators have complained that the current level of the cap is insufficient to cover the cost of purchasing supplies of coal and gas fuel, particularly during the current global energy crisis.

The cap was imposed across all regions within the National Electricity Market in June, and some generators withheld otherwise available generation capacity in a bid to secure eligibility for more lucrative compensation payments that become available if AEMO is forced to direct generators to supply power.

This situation led AEMO to conclude that the market had become “impossible to operate”, due to the appearance of significant potential electricity supply shortfalls and resulted in the unprecedented decision to suspend the operation of the entire National Electricity Market.

Alinta says a doubling of the administrated price cap could help avoid the recurrence of a similar situation in the future, but it would potentially expose consumers to much higher electricity prices.