AEMO to restore market trading as 4,000MW returns to operation

The Australian Energy Market Operator (AEMO) will restore the operation of the National Electricity Market on Thursday morning, saying it has observed a clear improvement in market conditions.

Last week, AEMO was forced to suspend the operation of the entire National Electricity Market, which covers Australia’s eastern states, after generators began withdrawing bids from the electricity spot market and made the market “impossible to operate”.

By suspending the market, AEMO was able to take greater hands-on control of the dispatch of generators, providing it with greater visibility of which generators were available to meet a spike in electricity demand as households were buffeted by an early winter cold snap.

AEMO said the return of 4,000MW of generation capacity back into operation – with several large thermal generators previously offline due to outages – had contributed to a significant easing of pressure on the electricity market.

“I’ve said that we will not keep this market suspended for a minute longer than is needed, and today, I can confirm that we are activating a staged approach to lift the suspension of the national electricity market,”  CEO Daniel Westerman said.

“The first step will take place at the end of trading day to day – that is 4am tomorrow morning – when will allow the market to set the price again. The second step will happen 24 hours after that, when we will be able to formally lift the market suspension.”

The market suspension was triggered after several generators withheld otherwise available capacity from the electricity spot market following the introduction of an administrated price cap which came into force after a wild surge in wholesale  electricity prices.

Westerman says AEMO will continue to monitor the operation of the electricity market, to ensure it is able to operate sustainably and without the need for AEMO to intervene and direct generators to supply power.

“After taking that first step, I’d expect to see three things; first, the system that we use to schedule generation into the grid at the lowest cost to consumers – the dispatch engine – will be working without failure,” he said.

“Second, that AEMO will be able to reduce the number of directions that we’re giving to generators. And third, we’d expect to see a reduction in the forecast shortfalls of energy or low reserves as generators respond to those market signals.

“By removing these conditions, we hope that the market will return to a normal bidding and dispatch situation, allowing the market to operate without major AEMO interventions and manual management of generation,” Westerman added.

The restoration of normal trading in the electricity market will follow an intense period of disruption for both domestic and international energy markets, which has sent the price of coal, gas and oil to extreme highs.

These higher fossil fuel prices have flowed through to electricity costs, sending the electricity spot price to very high levels for unprecedented periods of time as generators try to recover inflated fuel costs.

The situation has contributed to the demise of several independent electricity retailers – unable to sufficiently hedge against the higher prices – the most recent being Enova Energy.

Speaking in Sydney on Wednesday, federal energy minister Chris Bowen said it was disappointing to see the smaller generators struggling in the current market conditions, and he continued to liaise with market regulators and the ACCC to monitor impacts on consumers.

“I know that Enova Energy entered very difficult circumstances over the last 24 hours, which is disappointing for them and for all their customers,” Bowen said.

“They’re a good company. We continue to monitor the situation very, very carefully and closely.”

Bowen stopped short of commenting on the behaviour of generators amid growing accusations that they had gamed the electricity market by withholding otherwise available capacity – but said the federal government supported the Australian Energy Regulator to take whatever action it deemed appropriate.

“I’ve spoken this morning to the Australian Energy Regulator, Claire Savage, who will continue her very close activity and monitoring of the behaviour of generators and ensure, again, that consumer’s interests are put first,” Bowen said.

“The Australian Energy Regulator has the full support of the federal government, as we go through this period, for any action that she deems necessary to take.”

“I’m not here to comment on the particular activities of any particular generator other than to reinforce the federal government’s expectation that all generators – and I’m sure I’m joined by all my state and territory colleagues – that generators bid into the market, as they are required to do as a matter of law.”