AEMO suspends NEM wholesale market

Lightbulb in front of graph (Mojo Power)

Australian Energy Market Operator (AEMO) yesterday suspended the spot market in all regions of the National Electricity Market (NEM) under the National Electricity Rules (NER), saying it had become “impossible” to continue operating while ensuring secure and reliable supply of electricity.

AEMO said it would apply a pre-determined suspension pricing schedule for each NEM region. A compensation regime applies for eligible generators who bid into the market during suspension price periods.

In making the announcement, AEMO CEO Daniel Westerman said the market operator was forced to direct 5GW of generation through direct interventions yesterday, and it was no longer possible to reliably operate the spot market or the power system this way.

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“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 market suspension is temporary, and will be reviewed daily for each NEM region. When conditions change, and AEMO is able to resume operating the market under normal rules, it will do so as soon as practical.

Westerman said price caps coupled with significant unplanned outages and supply chain challenges for coal and gas, were leading to generators removing capacity from the market.

He said this was understandable, but with the high number of units that were out of service and the early onset of winter, the reliance on directions has made it impossible to continue normal operation.

The current energy challenge in eastern Australia is the result of several factors—across the interconnected gas and electricity markets. In recent weeks in the electricity market, we have seen:

  • A large number of generation units out of action for planned maintenance—a typical situation in the shoulder seasons.
  • Planned transmission outages.
  • Periods of low wind and solar output.
  • Around 3000MW of coal fired generation out of action through unplanned events.
  • An early onset of winter—increasing demand for both electricity and gas.

“We are confident today’s actions will deliver the best outcomes for Australian consumers, and as we return to normal conditions, the market based system will once again deliver value to homes and businesses,” Westerman said.

Monash Energy Institute director Professor Ariel Liebman said, “The confluence of events starting from unexpectedly long outages (both planned and unplanned), unexpectedly long extended cold periods is already quite problematic and leads to risk of sustained power uncertainties. 

“The complete laissez faire approach to both our natural resources (LNG) and market frameworks that assume all actors are rational and the market will sort it out have clearly failed us this week. 

“A different approach is required with more direct investment from the government. We need to go back to strong regulation like we had in 1998 before the state electricity generators, gas infrastructure and grids were corporatised and partially privatised. That was supposed to increase efficiency and decrease costs to consumers. We got the exact opposite.

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“The current situation could have been avoided if there was a consistent climate-energy policy for the last 10 years (including a proper price on carbon or similar regulations) that would have incentivised the investment in infrastructure such as storage and transmission to both underpin a faster transition to renewables and fortify the grid against external shocks. 

“Combined with the shortage of natural gas on the global market triggered by sanctions against Russia this has caused a set of never before seen challenges for the Australian grid and electricity market frameworks. This could have been avoided if sufficient volumes of Australian natural gas were always available for domestic use in a way that decouples us from the international market which is now so tight there is essentially no limit to the price being asked by uncontracted sellers.”