AEMO suspends electricity market

“AEMO taking this action will help the NEM alleviate the unplanned withdrawal of generation from the wholesale market,” he said.

“This is the best way to make sure the lights stay on and AEMO has the government’s full support in taking this action.”

The market suspension – which will be reviewed daily – has allowed AEMO to completely take over the NEM to ensure the lights do not go out for businesses and households.

It will set administered prices for wholesale power in all regions it operates, and will take control of all generation plants to ensure the lights do not go out for businesses and households. It can then use power stations at will to meet power demand. Generators have to make capacity available at all times.

Situation was unworkable

Generators will get paid prices to be set by AEMO in each region, which will be different in each area but are understood to be not far from the controlled price of $300/MWh that has been in place for the past two days.

Mr Westerman said the market operator had no choice but to suspend the spot market to ensure a secure and reliable supply of electricity.

He said AEMO had to direct 5 gigawatts of generation through direct interventions on Tuesday, saying 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.”

The AEMO boss said the market would stay closed until he was confident it can operate properly and all generators bid into the market when needed.

AEMO will set a pricing schedule for each NEM region. A compensation regime applies for eligible generators who bid into the market during suspension price periods.

A suspension of the NEM across the whole market has never happened before, although AEMO has taken that step for individual states in particular circumstances, including in South Australia and Tasmania last year for cybersecurity reasons.

The move has been backed by the state energy ministers, including NSW’s Matt Kean and Queensland’s Mick de Brenni.

“This decision will help prevent energy companies from putting energy reliability at risk by unnecessarily withdrawing supply,” Mr Kean said.

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

Mr de Brenni said AEMO’s decision would further reduce the risk of supply shortfalls and unplanned outages.

“Importantly, this means your power will stay on,” he 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.”

Mr Kean said AEMO told him the NSW market would be tight between 5.30pm and 8.30pm on Wednesday night because several coal-fired generators had not come on-line.

Origin Energy, AGL and EnergyAustralia said they would work with AEMO to ensure the continuity of supply.

But Origin Energy’s head of energy supply and operations Greg Jarvis said they wanted to sort through how the suspension will work, “particularly given challenges around fuel availability and cost”.

“We believe there needs to be an urgent focus on how to bring as much power capacity back into the market as quickly as possible, including addressing coal supply and transport constraints to a number of plant, so that we can start to bring some stability back to the NEM,” he said.

Australian Energy Council chief executive Sarah McNamara – who represents 20 electricity and gas businesses – said they supported AEMO’s decision to temporarily suspend the wholesale market.

“In these unprecedented circumstances, and following the application of the Administered Price Cap, the power system was becoming unmanageable. We hope conditions soon improve,” she said.

Australian Industry Group chief executive Innes Willox said the market suspension showed the national energy crisis was intensifying, with huge amount of coal generation out of action and gas prices soaring.

“Worried energy users need confidence as the situation develops so they know what they will pay, [that] the prices are not being manipulated, and whether the lights will go out,” he said.

“But ultimately the costs of operating the system fall on energy users.”

Opposition leader Peter Dutton took a swipe at the Albanese Labor government saying the new administration was scaring business by moving too quickly to renewable energy.

“For me, it seems Chris Bowen doesn’t know where to turn. This is a problem of Chris Bowen’s making and he needs to fix it,” he said.

Josh Stabler, managing director of energy adviser Energy Edge, said there had never been a suspension of the whole NEM before.

“I would put this decision in the same way as suspending the equity markets,” he said.

He said it was likely the spot electricity market would remain suspended until June 23 to allow for the completion of the cumulative price threshold.

“AEMO might hold the suspension beyond that date, but I don’t see a path to normal market behaviour before Thursday next week,” he said.

“Once the market has been allowed to reset [via suspension], the generators with costs above $300/MWh would be able to recover their costs.”

AEMO had been calling on generators in Queensland, NSW, Victoria and South Australia to put more capacity into the market all week to avoid potential blackouts.

AEMO said the electricity shortfalls on the east coast were primarily due to generators restricting their market availability in response to administered wholesale price caps. There were also generation units offline for maintenance as well as high commodity prices driven by the war in Ukraine, it said.

Federal Energy Minister Chris Bowen said he backed AEMO’s suspension of the electricity market. Janie Barrett

AEMO will pay compensation to generators for putting more supply into the grid and will then recoup the money through higher charges on retailers, who will ultimately pass on the costs to consumers.

Generators that are operating at a loss under the price cap can also receive compensation, as can those contracted under the Reliability and Emergency Reserve Trader (RERT) scheme initiated on Tuesday.

Generators reluctant to bid

The National Electricity Market has been in unprecedented territory this week, with a cumulative price threshold in four states which has capped electricity at $300 a megawatt hour.

Many generators, especially coal- and gas-fired power stations, have been reluctant to bid into the market at the loss-making prices, which has magnified existing shortfalls in supply amid a cold start to winter.

Some energy experts, such as Grattan Institute’s energy program director Tony Wood, said this week’s events showed the market was “broken”.

Prime Minister Anthony Albanese and Mr Bowen will meet with industry, manufacturing representatives and unions in Canberra on Thursday to discuss the energy crisis and its implications for business.

AEMO said the price cap would remain in place until cumulative wholesale electricity prices fell below the seven-day cumulative price threshold.

There is also a $40 a gigajoule price cap in Victoria after gas prices soared.

AEMO will not disclose how much compensation is paid to generators to increase their supply until well after the event.

Australian Energy Market Commission chairwoman Anna Collyer said companies who apply for compensation under the administered price cap would be “protected from losses”.

”These arrangements are designed to ensure generators continue to bid into the market, and provide protection for generators so they will not face losses through this process,” she said.

“This is a process run independently by the AEMC.”

Under this process, participants can claim their direct and opportunity costs. This differs from compensation paid from the AEMO directions process, which provides compensation based only on direct costs.

“The AEMC is committed to processing compensation claims for losses during administered pricing periods as fast as possible,” Ms Collyer said.

The market operator will be relieved that some coal-fired generation capacity is coming back on-line in Queensland later this week.

State-owned generator CS Energy said Callide coal-fired power station’s C3 unit (420 megawatts), which had been undergoing scheduled maintenance, would rejoin the grid on Thursday morning.

Gladstone power station’s fourth unit, which has a capacity of 280 megawatts, will come back on-line on Friday. With Simon Evans