Price cap now imposed on four states as Queensland dodges forced outages for now

The Australian Energy Market Operator has announced it has imposed a price cap on the three other mainland states of the country’s main grid – New South Wales, South Australia and Victoria – as price spikes of more than $10,000/MWh pushed their markets over the cumulative price cap.

NSW became the second market – after Queensland a day earlier – to have a price cap of $300/MWh imposed because the average price over the previous seven days averaged more than $675/MWh.

But by the end of the evening, the two other mainland states in the National Electricity Market – Victoria and South Australia – had also surpassed the cumulative price cap of $1.359 million over the previous seven days.

The first two states to have the price cap imposed – NSW and Queensland – are the two states with the greatest dependence on coal generation, and the lowest shares of renewables. But the contagion quickly spread to other states because of the growing scarcity of supply and the soaring cost of gas generation.

However, the imposition of the $300/MWh price cap is likely to force more generators to withdraw capacity because they cannot cover their costs at that level.

They need a price of around $400/MWh, which means they will wait until they are directed by AEMO to supply power to the grid, extending an extraordinary game of brinksmanship that very nearly resulted in forced outages in Queensland on Monday, but which were ultimately avoided.

The issue is not a lack of capacity. It is the lack of generators willing to generate under the price cap.

In Queensland more than 2GW of capacity suddenly disappearing from the market after the cap was introduced, creating a potential shortfall of nearly 1.5GW at one stage – before AEMO stepped in and instructed the generators to supply power.

This, combined with voluntary and paid reductions in power consumption, avoided any forced outages in Queensland on Monday, although the problem is likely to be repeated for the rest of the week.

The last notice from AEMO forecast a potential shortfall of around 400MW for the NSW region on Tuesday evening, but this is before it issued any instruction for generators to start up.

NSW is already suffering with multiple outages at its coal generator – with units down at Bayswater and Liddell and with the biggest coal unit Eraring running at reduced capacity because it can’t get enough coal.