On 15 June the Australian Energy Market Operator (AEMO) made the decision to suspend the east-coast National Electricity Market (NEM). This was triggered by sustained high wholesale electricity pricing, which forced AEMO to cap the wholesale price, in turn prompting generators to withdraw capacity from the market. The suspension allows AEMO to direct capacity back to the market so they can reduce the risk of blackouts or load shedding.
Mohsin Ali, Energy Market Intelligence Manager at Cornwall Insight Australia:
“While AEMO have said their forecast for reserve supply conditions have improved, the pathway out of the suspension is still up in the air. AEMO will be assessing the situation day by day until they are convinced the market can operate, in some order, without their guiding hand.
“For the cap to be lifted, generation capacity currently out for maintenance would need to come back online. We would also need to see a reduction in underlying costs for generators so this can flow through to reduced wholesale prices. This means lower coal and gas input costs, as thermal power stations still supply most of the energy in Australia. With international coal and domestic gas prices still at high levels, there is no immediate relief on the horizon.
“While AEMO’s intervention may take some heat out of the short-term crisis, it is likely they will be paying compensation to generators directed to provide the supply. If the suspension lasts for an extended period, the exact level of this compensation is expected to be high. This compensation will ultimately be recovered from customers on their electricity bills. So while the lights may stay on, all users will end up paying in the end.”
Notes to Editors
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Cornwall Insight is the pre-eminent provider of research, modelling, analysis, consulting and training to businesses and stakeholders engaged in the Australian, Great British, and Irish energy markets. To support our customers, we leverage a powerful combination of analytical capability, a detailed appreciation of regulation codes and policy frameworks, and a practical understanding of how markets function.