AER publishes report on high wholesale electricity prices on 4 January 2020

Today the Australian Energy Regulator (AER) has published a report into prices in the wholesale electricity market in New South Wales on 4 January 2020.

The AER monitors and reports on events and causes that result in the wholesale electricity spot price exceeding $5000 per megawatt hour (MWh). The wholesale electricity spot price exceeding this threshold triggers the AER reporting, but there can be many reasons a high spot price occurs, including supply-demand conditions in the wholesale market at the time.

On 4 January 2020 the spot price for electricity for the 4 pm to 6 pm trading intervals exceeded $5000/MWh in New South Wales.

The AER’s analysis found the following factors contributed to the high prices:

  • Bushfires in the Snowy Mountains saw multiple network outages occur in quick succession leading to New South Wales being electrically separated from the southern states.
  • Network outages also limited generation supply from generators in the Snowy region by around 2700 megawatts (MW).
  • Temperatures were high, exceeding 40ºC impacting generator availability.
  • Some rebidding from low to high prices.

More in-depth analysis of these events can be found in the AER’s report.

Most customers are not directly exposed to wholesale electricity prices. Energy retailers are the main purchasers in the wholesale electricity market. Retailers bundle electricity with network services for sale to their residential, commercial and industrial customers. Generators and retailers can manage their exposure to wholesale market price variations by entering hedge contracts that lock in prices for the electricity they intend to produce or buy and these instruments would have affected overall financial outcomes on the day.

The AER’s role in monitoring wholesale energy markets and reporting on high price events helps to enhance market transparency and compliance. Our analysis provides a foundation to detect non-compliance, market irregularities, inefficiencies and consumer harm. We draw on this work to advise the COAG Energy Council, other stakeholders and market bodies on wholesale market issues.

Sector: 
Segment: 
Issued date: 
27 February 2020
AER reference: 
AC 33/20