From 2.05pm AEST, AEMO announced it would suspend the spot market in New South Wales, Queensland, South Australia, Tasmania and Victoria.
The drastic moves comes after weeks of soaring prices which reached a climax on Monday and Tuesday after price caps came into effect and generators withdrew massive amounts of capacity, plunging the national grid into mayhem.
It is the first time such a measure has been deployed across the national market. The decision came after a crisis meeting between energy ministers, companies and regulators earlier today.
Publishing its market notice announcement at 2.01pm, AEMO said it had “determined that it is necessary to suspend the spot market in all regions… because it has become impossible to operate the spot market in accordance with the provisions of the [National Electricity] Rules.”
The suspension will be reviewed daily for each region.
In terms of the economics of what happens now, AEMO says generators will be offered a pre-determined pricing schedule for each region. This amounts to one compensation scheme and it is expected to simplify things after the operator was forced into the more chaotic market direction mode this week.
In making the announcement AEMO’s CEO, Daniel Westerman, said the market operator was forced to direct 5 GW of generation through direct interventions yesterday, and it was no longer possible to reliably operate the spot market or the power system this way.
“In the current situation suspending the market is the best way to ensure a reliable supply of electricity for Australian homes and businesses,” he said.
“The situation in recent days has posed challenges to the entire energy industry, and suspending the market would simplify operations during the significant outages across the energy supply chain.”
WHAT THE FUCK IS GOING ON WITH THE ELECTRICITY – IN THE SIMPLEST LANGUAGE POSSIBLE?
(A thread 🧵)
Today AEMO suspended the National Electricity Market (NEM). This sounds scary. and is in fact a huge deal, but we aren't about to be cast back to the stone age. pic.twitter.com/gxAc2z4vAA
— Tim Baxter (@timinclimate) June 15, 2022
The energy crisis that has descended across Australia’s east is the result of a number of events which have compounded one another. Firstly, fossil fuel prices have been soaring globally, pushing up the cost of generation. Likewise, a number of Australia’s ageing fossil fleets have recently failed and are now out of action.
The onset of winter has also seen a cold snap descend on the country, driving up demand and driving down solar and wind output.
Furthermore, fossil generators, which still today very much dominate Australia’s electricity system, have benefitted from the disparity between supply and demand as it has driven up prices. It has led a number of analysts, including Victoria Energy Policy Centre director Bruce Mountain, to the belief that generators have widely been ‘gaming’ the system, withholding much needed capacity to fetch even higher prices.
The reached new peaks this week on Monday and Tuesday as price caps, another extreme measure introduced by AEMO recently, saw a mass exodus of capacity which has brought us to the situation today where the spot market has been entirely suspended by the operator.
New South Wales energy minister Matt Kean and Queensland’s Mick De Brenni both welcomed the move from AEMO this afternoon.
“This decision will help prevent energy companies from putting energy reliability at risk by unnecessarily withdrawing supply,” Kean said.
“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,” Kean added.
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Matt Kean says: “I expect power companies to do the right thing by their customers and the country,”
The CEO’s primary responsibility is not to their customers and to the country. Their job is to maximise value to shareholders, not to bail out government for policy failure. As stewards of their shareholder’s investment, we should expect no less from them than to “game the system” to the best of their ability. That is how it is set up.
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