Market Price Cap incidents on the rise in the last two years

Instances of sustained Market Price Cap (MPC) – especially during high demand days – have been on the rise in recent years, according to the latest research from Cornwall Insight Australia. In the last two years, the total count of periods when the market has settled at MPC is 16 times the count of the previous three years (FY16-18).

The findings

  • Since FY19, there have been 17 instances where the market settled at MPC.
  • Before FY19 the market had only once – in New South Wales (NSW) – settled at MPC.
  • Every instance of settlement price at MPC in all states is (at least) partly driven by extreme demand as opposed to unforeseen contingencies alone.

The below graph plots the count of settlement periods (average of six 5-min dispatch intervals) when prices have reached MPC in each state. To account for when prices hit MPC during an ‘organic’ market tightness and to filter out MPC events caused only by unexpected contingencies, Cornwall Insight Australia also plots a count of settlement periods when prices hit MPC during strong demand (demand > 90th percentile for the year) in each mainland state.

Count of settlement periods at Market Price Cap and 90th percentile demand (FY16-20)

Lumi Adisa, Lead Consultant – Market Analysis and Business Development at Cornwall Insight Australia, said:

“With summer officially starting last Tuesday, the National Electricity Market (NEM) is about to go through the season that typically has the highest demand. Market tightness, usually seen during summer sometimes pushes power prices to their maximum level – MPC – currently set at $15,000/MWh.

“Victoria (VIC) and South Australia (SA) have especially felt the impact of Hazelwood’s retirement, particularly during peak demand periods in summer. Due to the correlation in weather patterns between both states, high demand periods are increasingly happening on the same days.

“On the supply side, wind output can also be similar in both states during these summer super peaks. In FY19, prices settled at MPC only in SA and VIC with the entire count (10) happening within the same 24 hours in both states. On January 24, 2019, the settlement price hit MPC in VIC for two consecutive periods (6.30 PM – 7 PM), and at 11.30 AM the following day. In SA, the market settled at MPC for seven consecutive periods (5.30 PM to 8.30 PM). Whilst demand was very strong in both states (highest 30-min demand was recorded in SA on this day), other factors also played key roles in this outcome.

“During these high price periods, wind output peaked at 205MW in SA and 400MW in VIC. This compared to wind’s total installed capacity of around 1.5GW in SA and around 1.2GW in VIC at the time. Forced outages to a few of the ageing brown coal fleet (mainly Yallourn and Loy Yang A) in VIC also removed around 880MW from the market by 2.30 PM in the afternoon of January 24. Temperature issues similarly forced other brown coal units to revise-down their bid capacities.

“With climate experts predicting more extreme temperature events, and ageing coal assets retiring, it is likely the NEM will see more summer days like this, where the entire system will be put to the test on low wind/strong demand days. More importantly what impact will incoming batteries have on the chart above in the coming years?”