AER reports on 8–9 February high wholesale electricity prices in South Australia and New South Wales

The Australian Energy Regulator (AER) has released its analysis into high wholesale electricity spot prices on 8 February in South Australia and 9 February in South Australia and New South Wales.

The AER’s analysis determined that the high wholesale electricity spot prices were driven by high energy demand associated with very hot weather on these days.

The higher than expected demand in South Australia on 8 February could not be met fully by local supply. This meant that more electricity was being imported from other states than the equipment could safely carry. When imbalances like these occur the Australian Energy Market Operator (AEMO) must return the power system to a secure operating state as quickly as possible.

After unsuccessfully exploring alternatives to increase generation in South Australia to meet demand and return the system to a secure state, AEMO directed the South Australian transmission company (ElectraNet) to reduce customer load by 100 MW.

ElectraNet in turn instructed the distribution company, SA Power Networks (SAPN), to reduce load by 100 MW and as a result of a system error, SAPN instead shed around 300 MW of customer load. The AER is undertaking a compliance assessment of the load-shedding event and SAPN’s actions to ensure it satisfied all relevant responsibilities.

AER analysis also found that AEMO underestimated the amount of energy required, contributing to the load-shedding event.

“More accurate forecasts of both demand and wind generation may have led to earlier market signalling of a shortage”, said AER Chair Paula Conboy.

“We understand accurate forecasting during extreme conditions can be particularly challenging but it is also critical to the effective operation of the market”, Ms Conboy said

“Our role is to investigate these events in the market, ensure businesses and the market operator are meeting their obligations and identify where improvements can be made to drive better outcomes for consumers”, she added.

Similar conditions on 9 February 2017 were flagged earlier in the day and reserve notices issued by AEMO encouraged South Australian generators to provide more electricity to meet demand. However, no generators responded with additional supply

AEMO then used its power to direct Engie to bring additional Pelican Point generator online – triggering special pricing arrangements that resulted in high electricity wholesale spot prices in South Australia and New South Wales.

Background notes

8 February 2017 – South Australia

On 8 February 2017, wholesale electricity spot prices in South Australia were volatile from mid-afternoon to late evening. Prices exceeded $5000/MWh for five consecutive trading intervals, from 5.30 to 7.30 pm inclusive. Prices ranged from $9387/MWh to $13 440/MWh.

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

  • The maximum temperature in Adelaide was 42 degrees, which led to high demand for electricity. Demand for electricity is usually high on hot days, especially in the late afternoon when air conditioner usage reaches its peak. The market operator (AEMO) underestimated the high level of demand and overestimated the amount of supply wind generation was able to provide on the day.
  • Although all available local generation supply and transfers from neighboring regions were at a maximum, this was not enough to meet the higher than expected demand for electricity. The resulting wholesale spot prices of $11 141/MWh at 5.30 pm and $13 160/MWh at 6 pm reflected the near scarcity conditions.
  • With demand for electricity continuing to increase, supply from neighboring states reached the point where the level of electricity coming into the state was greater than the secure equipment limit. Under such circumstances, AEMO has 30 minutes in which to return the power system to a secure operating state.
  • After unsuccessfully exploring alternatives to return the system to a secure state within 30 minutes (including asking Engie’s Pelican Point power station to increase its output), at around 6 pm AEMO directed the South Australia transmission company (ElectraNet) to reduce customer load by 100 MW in an effort to reduce electricity consumption. In South Australia this is carried out by the distribution company, SA Power Networks, under agreement with ElectraNet.
  • In accordance with the Electricity Rules, prices for each 5-minute interval when load shedding applies are set at the market price cap of $14 000/MWh. As a result, spot prices reached $13 440/MWh at 6.30 pm and $9387/MWh at 7 pm.
  • Although load shedding was no longer required by 7.30 pm, the 7.30 pm spot price reached $13 400/MWh as high-priced local generation supply was required to meet persistent high demand.

As a result of a system error, SA Power Networks shed around 300 MW of customer load. As stated in our December 2016 Quarterly Compliance Report, we are undertaking a compliance assessment of the load-shedding.

More accurate forecasts of electricity demand and wind output may have provided AEMO with more alternatives to maintain system security, such as directing Engie to make additional supply available at its Pelican Point power station.

9 February 2017 – South Australia and New South Wales

On 9 February 2017 wholesale electricity spot prices in South Australia exceeded $5000/MWh at 5 pm, 5.30 pm and 6.30 pm. In related events, the spot price reached $7822/MWh at 5 pm in New South Wales. The AER’s analysis determined that the following factors contributed to the high prices:

  • The temperature in Adelaide reached 41 degrees, leading to high demands for electricity, especially during the late afternoon. Given the extent of expected demand for electricity, the market operator predicted shortfalls in spare local supply and electricity transferred from Victoria to satisfy reserve requirements.
  • On the basis of the predicted shortfalls, AEMO encouraged generators in South Australia to voluntarily provide electricity.
  • This request was unsuccessful, and as a result AEMO used its powers to require Engie to start and run an additional generator at its Pelican Point Power Station in South Australia, triggering the need for special pricing arrangements (“what if” pricing).
  • “What if” pricing affects prices in all states and ultimately led to the high prices in South Australia and New South Wales.

More in-depth analysis of these events can be found in the AER’s 8 February 2017 and 9 February 2017 South Australia high price event reports and 9 February 2017 New South Wales high price event report.

Most end-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 price variations in the wholesale market by entering hedge contracts that lock in firm prices for the electricity they intend to produce or buy.

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. We typically publish our reports into high price events within 40 business days.

Find out more about the AER.

Sector: 
Segment: 
Issued date: 
27 April 2017
AER reference: 
AC 44/17