Reassurance Critical Amidst Electricity Market Turmoil

“The unprecedented suspension of the National Electricity Market spot market is a clear signal that the energy crisis in Eastern Australia is intensifying. Worried energy users need confidence as the situation develops so they know what they will pay, that prices are not being manipulated and whether the lights will go out,” Innes Willox, Chief Executive of national employer association Ai Group said today.

“The Australian Energy Market Operator has judged that the spot market, which is meant to determine immediate operational decisions about electricity supply and demand, cannot be operated in accordance with the rules under current conditions. That has never happened before, but it is understandable given the collision of dire circumstances the system now faces.

“Most acutely, a huge amount of coal generation capacity is out of service due to failures or maintenance; and the price of gas is so high that the administered price caps that are meant to protect energy users are below the fuel costs of many gas peakers. With central direction by AEMO more and more necessary to say who generates, when they generate, and how much they get paid, the normal spot market appears currently unworkable. The effect of today’s announcement is that these controls and directions will be in the hands of AEMO alone for the time being.

“The detail of the AEMO market suspension will be completely arcane to most business and household energy users. They need confidence that the physical electricity system they depend on will not collapse. They need as much guidance as possible about what they will pay, and whether it will be reasonable. This is particularly urgent for those energy users who have direct exposure to the suspended spot market. But ultimately the costs of operating the system fall on all energy users.

“Energy users also need confidence that all market participants are working to the common good. Reports of questionable bidding behaviour or the deliberate withholding of generation capacity may hopefully reflect confused interpretations of a complex situation. The solution to that is maximum transparency and the demonstration of good faith by the energy market players upon whom we all ultimately depend.

“The acute challenge of managing our energy systems through this period of low supply and high demand will naturally occupy much of the attention of our energy governance bodies and governments. But we have to also keep in mind that, due to the high prices of coal and gas on international markets, we are likely to see high energy prices long after this winter’s crisis is resolved. High prices may last for years. We need a strategy not just for the next fortnight, or this winter, but to build a more robust, reliable and affordable energy system that can get us to net zero emissions,” Mr Willox said.

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