Generators on notice, no end in sight for energy market seizure

AEMO says it needs confidence that power generators ‘aren’t going to withdraw’ from the market before it relinquishes control of pricing and supply.

The Eraring Power Station in NSW has a number of units down, causing some of the havoc in the energy market in the last month. Picture: Nick Cubbin

Energy generators have been warned a lockdown of the electricity market won’t be lifted until they improve their behaviour, as tensions emerge between the sector and the government over whether producers are gaming the electricity system.

The Australian Energy Market Operator – which intervened this week to take control of the wholesale power market this week – said the suspension would only be lifted once the industry’s energy suppliers had shown they were prepared to offer electricity generation to the market.

“We need confidence that generators aren’t going to withdraw out of the market and leave it in the same condition we had just before we suspended and where we are not needing to do so many manual inspections,” AEMO chief executive Daniel Westerman said in an interview.

Prior to the market suspension, a $300 per megawatt hour cap had been put in place in an attempt to restore order following a prolonged period of unusually high wholesale prices. However, that $300MWh price was seen as too low to cover costs for many companies which meant generators withheld up to 5 gigawatts of generation to avoid running at a loss.

AEMO began forcing generators to supply the market through daily interventions to avoid blackouts, creating a chaotic market and triggering the shutdown.

Anthony Albanese accused generators of essentially “gaming the system” on Friday while Australian Energy Regulator chair Clare Savage suggested some generators were withholding supply in order to access higher payments when they were then directed to return to the market by AEMO.

The AEMO chief said behaviour had improved but there was still some way to go before a suspension would be lifted.

“We are still intervening in the market and we are still making directions. And my aspiration would be that we make less and less and less,” Mr Westerman said.

“We’re seeing that but we’re still making quite a few,” he added.

“So once we get those things and we get all bids into the dispatch engine and the market is functioning properly, we will lift the suspension as soon as we possibly can. But the ultimate test is that we are confident that it’s possible to operate the market and not revert back to the situation that we had before we suspended it.”

Asked if he was concerned about gaming the system or bidding behaviour more broadly, Mr Westerman said it was for the AER as the regulator to probe any issues. “What we are getting from generators now is more visibility, more transparency and we‘re working quite closely on things like their fuel supply constraints. That relationship is transparent and clear,” he said.

The Australian Energy Council, which represents big energy retailers and generators in the market, hit back at insinuations the industry was behaving poorly and said claims of power generators seeking to profiteer from recent conditions were wrong.

“When the cap was applied generators and large-scale batteries were faced with difficult decisions on how to operate. Some withdrew their capacity from the normal dispatch process but remained available to be directed back into the market by AEMO,” AEC chief executive Sarah McNamara said.

“There is a widespread view that this withdrawal is related to generator profiteering around different forms of available compensation. The AEC rejects that view,” Ms McNamara said.

The AEC said that generation with limited fuel or water stocks and large-scale batteries with limited energy reserves were being dispatched in a way that stocks or energy reserves would quickly exhaust. “If this were allowed to continue, a more serious issue for the power system would develop in time,” Ms McNamara said.

“ Following the market suspension, AEMO is effectively managing these limited fuel stocks, and we understand generators are progressively re-presenting their availability into the normal systems which will assist AEMO’s oversight of the grid. After a period of re-stabilisation, the AEC expects the market to be able to successfully restart without the price cap in place.”

Mr Westerman said it had been a challenging week both for AEMO and the market and said changes would need to be considered in the aftermath.

“The last week has been extremely challenging for everyone at AEMO and I would also say many people in the industry as well as policymakers. I think as Australia goes through this energy transition, I think this is a bit of a catalyst for recognising the things that need to change.”

“The capacity mechanism work that the ESB are doing and all the market reforms that the Energy Security Board and AEMO is involved in has the aim of evolving the market so we don’t see these hiccups. So I’m confident that we’re putting in place the right benefits. The question is, are we moving fast enough.”