Alinta calls for urgent doubling of electricity price cap, as fossil fuel costs soar

Major Australian gen-tailer Alinta Energy has called for an urgent doubling of the administered electricity price cap, from $300/MWh to $600/MWh, to avoid further market suspensions and reduce the risk of a “systemic financial collapse” of the industry.

In a rule change request submitted to Australian Energy Market Commission on July 01, Alinta calls on the market rule maker to increase the Administered Price Cap (APC) to a level reflective of fuel input costs.

The request comes after the Australian Energy Market Operator, in mid June, imposed a $300/MWh price cap on all of the mainland states of the country’s National Electricity Market (NEM) as price spikes of more than $10,000/MWh pushed them over the cumulative price cap.

As RenewEconomy has reported, this had the unintended consequence of prompting gas generators to withdraw capacity because they could not cover their fuel input costs at that level – a situation that ultimately led AEMO to take the unprecedented step of suspending the entire NEM.

In its submission to the AEMC, Alinta said that while the NEM had since returned to regular operations, the threat to the ongoing effective operation and administration of the wholesale market remained.

“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,” the letter says.

“Left unaddressed, these impacts will not deliver outcomes in the long-term interests of consumers.”

Alinta, which has also made the case for a capacity market mechanism for coal plants, says it wants “an expedited rule process to increase the Administered Price Cap (APC) to a cost reflective level for today’s fuel input costs.”

It puts this at $600/MWh, up from the current price cap of $300/MWh.

This, the gen-tailer argues, will “materially reduce the risk of a repeat of the circumstances behind the market suspension,” help ensure normal market operation and settlement, and “mitigate the risk of a systemic financial collapse of the electricity industry during an extreme market event.”

Alinta says that having a sufficiently high administered price will incentivise market participants to supply electricity during administered price events, while also minimising compensation payments that could come at a cost to consumers.

And it submits the rule change proposal under section 91 of the National Electricity Law, with a request that the AEMC consider it as an urgent rule under section 96(1)(c).

The call for the fast-tracked rule change comes as Australia’s electricity markets look increasingly likely to be capped again – as early as Tuesday this week – as the soaring cost of fossil fuels and plant outages once again cause electricity prices to spike, and amid another sudden withdrawal of capacity.

The market focus is on Queensland – the state with the heaviest dependence on coal generation and the smallest share of renewables – and where prices have risen the most in the past week.

The average price over the past week – calculated over 2016 successive pricing intervals – has soared to more than $1.2 billion, and is poised to breach the (newly raised) automatic trigger level of $1.398 million.