AEMO warns of tight electricity supplies in NSW, after seizing control of market

The head of the Australian Energy Market Operator has warned New South Wales faces a situation of tight electricity supplies, urging consumers to cut consumption “where safe to do so” after suspending the National Electricity Market.

In a press conference from Adelaide, AEMO CEO Daniel Westerman said the electricity supply-demand balance in New South Wales would be tight going into Wednesday evening, adding that he would “urge customers in NSW to conserve energy, if it is safe to do so.”

“There is a variety of factors affecting the Australian electricity system at the moment and supply and demand is tight,” he said.

The warning comes after AEMO suspended the operation of the National Electricity Market across all-five participating regions – covering the entire Australian east coast.

Westerman said the unprecedented intervention was necessary to provide the electricity market operator with better visibility of available generation capacity and had become necessary after generators withdrew bids from the market when wholesale price caps were imposed.

“What we are creating today is a secure electricity system where we are able to manage supply and demand in real-time and have visibility on any gaps in between supply and demand, for the foreseeable future,” Westerman said.

“That is the best way for Australian homes and businesses to be sure that the lights will go on when they flick the switch.”

Westerman stopped short of suggesting what action may be taken by regulators against generators found to be withholding generation capacity from the market without justification, saying it would be a matter for the Australian Energy Regulator as to whether legal action is commenced.

AEMO says it has forecast a potential supply shortfall in New South Wales of almost 1,900MW on Wednesday evening – which primarily reflects a situation where generators have withdrawn otherwise available capacity from the market until they are directed by AEMO to produce power – in an effort to avoid current price caps.

Westerman said AEMO has already issued more than 5000MW of directions to generators, representing around one-fifth of the overall electricity demand and that it was unsustainable for the market to operate in this way.

“We are operating under that condition now where the prices and generators are withdrawing availability and requiring AEMO to issue directions,” he said.

“That operation is not sustainable for us, and we have taken the decision to suspend the market so we can have one clear place for generators to put their availability and for us to dispatch them in a clear and methodical way.

“These actions today, we are confident, will deliver the best outcome for Australian consumers.”

The intervention to suspend the wholesale spot market for electricity allows AEMO to take a greater hands-on role in managing the dispatch of generators, and avoids the need for AEMO to activate emergency mechanisms to compel generators to supply power to the grid – as has been necessary over the last few days.

Earlier on Wednesday afternoon, New South Wales energy minister welcomed the intervention from AEMO and called energy companies to “do the right thing by their customers and the country.”

“This action by AEMO is to secure energy supply in National Electricity Market (NEM) states, including here in NSW,” Kean said.

“This decision will help prevent energy companies from putting energy reliability at risk by unnecessarily withdrawing supply.

“This comes after the Australian Energy Regulator yesterday reminded generators of their obligations under the National Electricity Rules. I expect power companies to do the right thing by their customers and the country.”

In comments made before the electricity market suspension was announced, federal energy minister Chris Bowen said the federal government backed the actions being taken by AEMO to manage the current situation.

“I’ve made clear to AEMO that the Government supports any action they choose to take to effectively manage the situation in the best interests of Australian consumers, whether they be big industrial consumers or residential consumers,” Bowen said.

“AEMO, as the market operator, has this government’s full support.”