The Australian Energy Market Commission (AEMC) has provided its assessment of generator rebidding in the national electricity market, finding that rebidding is contributing to the delivery of efficient market outcomes.
The AEMC’s analysis was requested by former Federal Energy Minister Josh Frydenberg to consider claims made in a recent Grattan Institute report on ‘gaming’ practices in the wholesale electricity market.
The AEMC’s report used detailed data provided by the Australian Energy Regulator (AER) on high price events in which rebidding was the primary cause.
The AER monitors and investigates rebidding behaviour and also instances where the actual wholesale price is significantly different to the forecast price.
Wholesale price spikes can be caused by a range of factors, including higher than expected demand, a generator fault, network constraints and other changes in market conditions. Sometimes generators will rebid in response to these changed conditions.
The Australian Energy Council’s chief executive Sarah McNamara says that detailed analysis by the AEMC has confirmed that price volatility and rebidding in the wholesale market had been incorrectly labelled as gaming.
“It does not support claims that generators have misused their market power to force up wholesale prices,” she says.
“This should provide confidence, in addition to earlier regulatory reviews of bidding practices, that the market continues to work as it is designed to.
“The AEMC found that the cost of price spikes for which rebidding was a cause has actually fallen since 2015.
“The report found that where price volatility increased between 2015 and 2017, it was driven by factors unrelated to rebidding such as incorrect demand forecasts and a generator tripping which leads to a lower power supply.”
The assessment highlights generator rebidding can be a problem when there are high levels of market concentration or lack of competition between generators, permitting dominating generators to set wholesale prices.
The AEMC noted this issue is best addressed by policies that reduce market concentration, lowers barriers to entry, and promote efficient new investment.
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What is rebidding?
Generators offer to supply a certain amount of power at a particular price up to a day and a half before the power is needed. If there is an unexpected need for more or less supply as the dispatch time is nearer, generators can offer a new bid, a rebid.
What is gaming?
Gaming is when a generator rebids its supply at a higher price just before dispatch without legitimate justification, or knows in advance that it intends to rebid but delays the rebid until the last possible moment.
Generators are required to keep records of the reasons for late rebids so these can be scrutinised by the Australian Energy Regulator.