AER issues third report following the high electricity prices in SA

The Australian Energy Regulator (AER) today issued an investigation report into the derating of the Heywood interconnector. The investigation resulted from high electricity spot market prices in South Australia over the March quarter this year.

During that quarter, South Australia experienced a series of high price events in the electricity spot market. The AER published two reports covering the periods when the spot price exceeded $5 000/MWh. Those reports are available on the AER website and identified the three main contributing factors to those prices as:

  1. extreme weather conditions;
  2. a significant reduction in the transfer capability of the network between Victoria and South Australia (the derating of the Heywood interconnector); and
  3. strategic bidding by AGL at its Torrens Island power station in South Australia.

The first factor, an extended period of record high temperatures, led to an increase in air conditioning use and electricity demand. Demand levels reached new record highs.

The second factor involved the South Australian transmission network service provider, ElectraNet, reducing the maximum allowable flow on the Heywood interconnector by around 100 MW or 25 per cent in December 2007. A significant proportion of South Australia's electricity requirements are sourced from generators in Victoria using the Heywood interconnector.

The attached report sets out the results from the AER’s investigation into the Heywood derating. The focus of this investigation has been to determine whether ElectraNet, the TNSP that owns and operates the transmission network in South Australia, has complied with relevant obligations under the National Electricity Rules (Rules). In particular, the investigation focuses on ElectraNet’s compliance with its network planning and reporting obligations.

While this particular investigation has not revealed any specific breaches of the Rules by ElectraNet, it has identified a number of information quality issues. Poor quality information can have significant ramifications for other market participants, who rely on operational and planning publications by network operators for the purposes of their operational and investment decisions.

The AER has requested that ElectraNet commit to improving its processes by:

  • better integrating changes to the network capability identified through the planning process into its ongoing analysis of, and reporting on, the expected future operation of its networks; and
  • disseminating reliable, prompt and full information relating to major network factors (such as those contributing to the Heywood derating) as soon as its analysis and studies reveal issues likely to have significant impacts within the National Electricity Market.

The third significant factor contributing to the high prices in the March 2008 quarter was strategic bidding by AGL. AGL owns the largest generator in South Australia, Torrens Island power station. AGL priced between 75 per cent and 86 per cent (or up to 890 MW) of its Torrens Island capacity at or close to the price cap of $10 000/MWh during a series of high price events throughout the quarter.

While bidding high prices is not a breach of the Rules, the Rules require generators to bid and rebid in 'good faith'. AGL revised its offer through rebidding a number of times, specifically on 19 February. The AER is investigating AGL's compliance with the good faith provision on that day.

The AER has used its information gathering powers to seek extensive information from AGL about the circumstances and reasons for AGL’s rebidding on 19 February. The investigation into this matter is complex and continuing. The AER’s findings will be released publicly as soon as the investigation is complete.

A copy of the report is available from the AER website.

Documents (1) Author
Issued date: 
23 December 2008
AER reference: 
AC 163/08