In this special edition, Lasanthi Weerasekara focuses on the suspension of the National Electricity Market (NEM) this month, for the first time in the market’s history. We investigate what a market suspension means, how energy pricing is determined during a suspended market and how compensation schemes work.
It has certainly been an interesting time in the National Electricity Market, with the Australian Energy Market Operator (AEMO) announcing a NEM-Wide Market Suspension for the first time in the market’s history.
In today’s update, we will bring you a brief summary of what that means.
Under the National Electricity Rules, AEMO has the power to suspend the market if it determines that it has become impossible to operate the spot market in accordance with the provisions of the National Electricity Rules.
That’s what occurred on June 15th.
Well, under normal market conditions, AEMO’s dispatch engine (called NEMDE) automatically sets spot prices and generator output targets for each regional reference node, every 5-minutes. If there is enough generation available and bid-in, NEMDE will be able to solve for the lowest-cost mix of generation to meet demand, subject to network capabilities.
If you would like to know more about normal market dispatch and generator bidding processes, wholesale market energy education videos for these topics will be published on our Shell Energy website very soon.
So, when AEMO anticipates a short-fall in supply over a given day or period, it has several tools to try and rectify this. These include:
However, as a last resort, AEMO may suspend the spot market in one or more regions. When the market is suspended, bidding and generator dispatch via AEMO’s dispatch engine may continue as normal if AEMO determines it is practical and reasonably possible to do so. Where this is not possible, AEMO may instead manually determine the mix of generation it considers optimal to meet demand and instruct generators on when they need to be available. In this instance, AEMO has largely taken the latter approach.
During a suspended market, if AEMO’s pricing and dispatch system remains available, AEMO may continue to price and dispatch the market as per normal. Alternatively, AEMO may price the market using a default pricing schedule.
This schedule is based on the average working weekday and non-working weekday historical half-hourly prices over a four-week period ending two weeks prior. These prices, when calculated, are also capped by AEMO such that no half-hour price can exceed the $300/MWh administered price cap (or APC) prior to publication. When the market suspension pricing schedule is in effect, the half-hourly prices may be less than a generator’s costs of supply. In this case, generators will be automatically compensated based on benchmark values of generation set by AEMO. This benchmark is based on information used in the latest Integrated System Plan that estimates generator costs based on fuel type.
If a generator’s actual costs are higher, or a generator incurs additional costs over and above this benchmark level, it can apply to AEMO to have these additional costs reimbursed.
Another compensation regime (administered by the Australian Energy Market Commission) is also in place under the market rules for registered participants impacted by the administered price cap.
As a result of a tight supply demand balance due to multiple factors, and high input energy costs for gas and diesel fuelled generators, the market prices in all four mainland states tipped over a key level called the Cumulative Price Threshold or CPT, between the 12th and 13th of June.This resulted in an APC of $300/MWh being applied in all regions.The CPT is a key feature for risk management in the NEM and is designed to prevent a cascading market failure whereby:
Given high gas and diesel prices, this $300 cap level did not cover the fuel costs of several generators who were called upon to generate, resulting in AEMO directing as much as 5 GWs of generation each day. Large volumes of capacity withdrawal resulted in more than 50% of 5-minute intervals being over-constrained.
This required manual resolution by AEMO. Ultimately, AEMO found it was no longer possible to reliably operate the spot market, and took the decision to suspend it on the 15th of June.
A lot happened in the lead up to the events that resulted in the market suspension. Our Wholesale Energy Market Update, filmed in mid-May, provides analysis over the January to April 2022 period. You can find this update on our website on the Energy Insights page.
We look forward to bringing you more detail on the market suspension, and the immediate lead up, in our next Wholesale Energy Market Update.
In this wholesale energy market education video, Senior Energy Trader, Andrew Hines talks about how generator bidstacks operate in the National Electricity Market.
Hello, I’m Andrew Hines, Senior Energy Trader at Shell Energy and this energy education video will be talking about Bidstacks. All scheduled generators must submit a Bidstack corresponding to each individual generating unit to AEMO which will determine how the plant is operated or dispatched and form an input to determine the spot price for each five minutes. Each Bidstack has 10 different price bands. 10 different prices set between the market price floor of negative a thousand and the market price capped of $15,100 a megawatt hour. For each half hour of the trading day which runs from 4 a.m. to 4 a.m., the generators must split up their total available megawatts across these 10 price bands to form the Bidstack. Different types of generating units will have different types of Bidstacks. Baseload units will have a minimum generating level bid in at a low even negative price, as is more economical for the units to stay on in low prices rather than to have to shut down and restart. Peaking units like gas fire generators or hydro units can start faster and may bid into respond to high price events are just to be dispatched at peak demand times. All Bidstacks for a trading date must be submitted to AEMO by 12:30 p.m. on the day before. Up to that point, generators can unconditionally submit as many changes as they like. Post 12:30, each new Bidstack or rebid must be submitted with a rebid reason to describe why the change to the Bidstack was made. National electricity rules require that generators make all bids and rebids in good faith such that at the time of making the bid, the generators must have a genuine intent to honor that bid if the material conditions and circumstances upon which the bid is based remain unchanged. When making a rebid, the reason must capture what material conditions or circumstances change which prompted the rebid.
In this wholesale energy market education video, Senior Energy Trader, Andrew Hines looks at the electricity dispatch process in the National Electricity Market.
– In this energy education video, we’ll be looking at the dispatch process in the national electricity market. Every five minutes, AEMO sets spot prices for power in each of the five regional reference nodes. This sets what generators receive for their output and what retailers and other energy users pay in that five minutes. Along with setting spot prices, the dispatch process sets output targets for all scheduled generators to meet demand, subject to transmission network constraints. To determine which generation is needed and in turn the price, the NEM dispatch engine or NEMDE takes in several inputs. Firstly, the volumes and corresponding prices that generators are willing to reduce and sell power into the spot market are provided by generators in the form of bid stacks, price/volume pairs across each of the half hours of the trading day. Next, network operators provide transmission network capabilities that AEMO convert to constrain equations. These quantify how much power can flow through different parts of the network at different times. Such constraints are impacted by line outages, weather, local demand, and local generation, among other things. Finally, AEMO input their demand forecast as well as forecast for generation from non and semi scheduled generators such as wind and solar farms. All this data is processed to solve the required generation output from each generator, the least cost marginal megawatt to satisfy required demand, subject to network capabilities. The marginal megawatt means the next megawatt needed to satisfy an increase in demand. It is the price of this marginal megawatt that sets the spot price in each node for that five minute dispatch interval.
These videos have been prepared for information and explanatory purposes only and are not intended to be relied upon by any person. Customers should seek independent advice before making any decisions about electricity contracting arrangements.
If you have any questions, comments, or suggestions for any topics for future updates, please leave us a message and we’ll get back to you.
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23 June 2022
In this update, Andrew Hines, Grant Shannon and Lasanthi Weerasekara look at the volatility of energy markets globally and domestically, resulting in unprecedented spot prices across all nodes of the National Electricity Market. The team provide insights into what’s behind this significant change.
1 December 2021
In this quarter’s update, David Guiver, Andrew Hines, Lasanthi Weerasekara and Grant Shannon look at the power market and how renewable energy from large projects is influencing spot prices. They focus on the changes in supply and demand for environmental certificates and review the correlation between international and domestic prices in the gas market.