AER publishes report on high ancillary service prices in Queensland on 25 August 2018

Today the Australian Energy Regulator (AER) has published a report into prices in the frequency control ancillary services (FCAS) market in Queensland on 25 August 2018.

On Saturday 25 August 2018, the price for all eight frequency control ancillary services exceeded $5000/MW in Queensland for most of the dispatch intervals between 1.25 pm and 2.45 pm.

According to our analysis, a combination of factors led to the high prices:

  • A single lightning strike caused the Queensland to New South Wales interconnector (QNI) to “trip”, islanding the Queensland region from the rest of the NEM. As a result, frequency in the Queensland region increased (and fell in the rest of the NEM).
  • Consistent with standard practice, the Australian Energy Market Operator (AEMO) required Queensland to source all FCAS locally.
  • All available local ancillary services in Queensland were used in an effort to maintain frequency in the region, some of which were priced very high. This contributed to the high prices.
  • At times the level of available local FCAS was not sufficient to meet the required amount set by AEMO. The trade-off between the competing demands for energy and FCAS led to FCAS prices exceeding $14 000/MW.

Strategic rebidding by participants did not contribute to the prices exceeding $5000/MW. The event in Queensland had a cascading effect in other regions. The reduction in frequency across the NEM caused an increase in flows of electricity from Tasmania to Victoria across the Basslink interconnector, causing 81 MW of load to be shed in Tasmania. The reduction in frequency also activated the emergency control scheme on the Vic-SA (Heywood) interconnector, causing it to trip. In South Australia, most services experienced one dispatch interval above $5000/MW between 1.25 pm and 1.45 pm. The reduction in frequency in the “islanded” New South Wales/Victoria region triggered under-frequency load shedding, causing a total of 997 MW of supply to be interrupted.

Our report provides detailed analysis of why the high prices occurred.

Background

The AER monitors and reports on wholesale electricity markets. As part of this role, we report on events that result in wholesale electricity spot prices exceeding $5000 per megawatt hour (MWh) and frequency control ancillary services (FCAS) prices exceeding $5000 per megawatt (MW). Our reporting on energy market outcomes promotes market transparency, sometimes revealing potential compliance matters.

Most customers are not directly exposed to wholesale electricity and ancillary services price spikes. Although some extremely large businesses and industrial customers purchase direct from generators, energy retail companies are the main buyers in the wholesale electricity market. Consumers are not directly exposed to FCAS prices. Generators and retailers manage their exposure to wholesale price variations by locking in, through hedge contracts, the price for the electricity they produce or buy. This helps provide price stability for their customers.

Sector: 
Segment: 
Issued date: 
19 June 2019
AER reference: 
AC 80/19
Contact: 
AER Media 0466 409 921 media@aer.gov.au