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Australian Energy Market Operator says electricity spot market across the eastern states suspended

The national electricity market has been suspended for the first time after AEMO said it was ‘impossible to operate’ and urged NSW residents to conserve energy.

Daniel Westerman: 'The suspension of the market is temporary and will be reviewed daily'

The Australian Energy Market Operator has made the unprecedented move to suspend the entire National Electricity Market which had become “impossible to operate’’, but has warned that despite the drastic measure, electricity supply on the east coast of the nation remains finely balanced.

AEMO chief executive Daniel Westerman asked that households in New South Wales conserve energy in coming days “where it is safe to do so’’, after the market operator stepped in to suspend the spot market for eletricity.

An almost perfect storm of conditions has combined over the past week to throw the NEM into chaos, with AEMO saying the factors included a large number of generation units being out of action for planned maintenance, planned transmission outages, periods of low wind and solar output, about 3000 megawatts (MW) of unplanned outages in the coal fired power sector, and the early onset of winter causing a spike in demand for electricity and gas.

“What we’re seeing is very challenging times,’’ Mr Westerman said on Wednesday.

“And right now, it would seem that the market is not able to deal with all of the factors that are thrown at it.

“But frankly, those factors are quite extreme.’’

The spot price of power has been capped recently at 300MWh, down from the usual spot price cap of $15,000MWh, after it hit the “cumulative price threshold” of $1.359m in each region.

While the lower cap is designed to protect customers, it is below the break-even price for peaking gas power plants, which are also facing higher costs as a result of surging gas prices, linked to the war in Ukraine.

The market suspension will allow AEMO to have greater visibility of the amount of generating capacity which is available to the market as a whole, which can then be directed to feed into the market.

Australian Energy Market Operator chief executive Daniel Westerman. Picture: NCA NewsWire / Nicki Connolly
Australian Energy Market Operator chief executive Daniel Westerman. Picture: NCA NewsWire / Nicki Connolly

This is in contrast to the usual reactive approach in which power generators decide whether or not to bid into the market depending on the price, and then AEMO can then direct more generation to come in if there is a shortfall.

“We’re creating a simple process where AEMO has true visibility of which generators are available and when, in advance, rather than relying on last minute interventions,’’ Mr Westerman said on Wednesday.

“That visibility will help us to manage the system in real-time, as well as to understand the balance of supply and demand in the periods ahead.

“Despite this, conditions remain tight in the coming days in particular in New South Wales, where we would urge consumers to conserve energy where it is safe to do so.’’

Mr Westerman said the intervention was a temporary measure, but would not speculate on how long it would remain in place.

“This suspension in the market is a temporary measure and will be reviewed daily,’’ he said.

“We will return the market to its normal state once AEMO is confident that we can operate the market again and not see generators withdraw their availability.

“Practically, this means we’re creating one single place where generators can put their availability be dispatched in a methodical way and have a simple, clear process for them to recover their costs.’’

Sources said the suspension was likely to be in place for several weeks.

Mr Westerman said prior to suspending the market, AEMO had issued 5000MW of directions for generators to enter the market.

“That’s roughly 20 per cent of demand, and it is simply not possible to continue to operate the market in this way,’’ he said.

Mr Westerman said a large number of generators had withdrawn from the market for various reasons including higher costs and since the $300 price cap was put in place.

When asked whether the lights were likely to stay on across the grid, which stretches from Port Douglas in Queensland to Port Lincoln in SA, Mr Westerman said that despite AEMO taking control of the system “we are facing tight periods’’.

While the suspension is in place, generators will be paid under a predetermined pricing schedule for a suspended market, which takes into account the prevailing energy price over the past four weeks.

“If generators believe that their costs are in excess of that price, they have the ability to make a submission to AEMO and we will establish those on the basis of the facts that they provide,’’ Mr Westerman said.

The New South Wales network was under particular pressure on Wednesday and Thursday, Mr Westerman said.

“Let me be really clear - I’m only urging consumers in New South Wales to conserve their energy ... if it is safe to do so,’’ he said.

Multiple forecast lack of reserve notices for east coast states were issued for Wednesday night, meaning there was a deficit in the supply and demand balance with power cuts potentially required as a last resort.

The entire NEM has never been suspended since it was created in 1998, however there have been occasions, such as during the statewide blackout in South Australia in 2016, where it has been suspended for a region.

The NSW and Queensland governments have backed the suspension, with NSW Energy Minister Matt Kean saying the decision will help prevent energy companies from putting energy reliability at risk by unnecessarily withdrawing supply.

“I expect power companies to do the right thing by their customers and the country,” Mr Kean said.

“We will continue to work closely with the federal government and other states as well as the independent market operator to navigate the situation in the NEM.”

Queensland, which like NSW has faced several days of blackout threats, said the decision means household power will stay on.

“This decision further reduces the risk of supply shortfalls and unplanned outages,” Queensland energy minister Mick de Brenni said.

“I can assure Queenslanders there is surplus supply to meet demands in our state and a further generating unit is scheduled to return to service later this week. Queenslanders can also be assured their public ownership of energy assets ensures these assets will continue to operate for Queenslanders.”

Originally published as Australian Energy Market Operator says electricity spot market across the eastern states suspended

Original URL: https://www.couriermail.com.au/business/australian-energy-market-operator-says-electricity-spot-market-across-the-eastern-states-suspended/news-story/7d13e60e8162aa872657da2c922c1133