AER reports on high ancillary services prices in South Australia in October 2017

The Australian Energy Regulator (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).

Most end-customers are not directly exposed to wholesale electricity and ancillary service market prices. Energy retailers are the main purchasers in the wholesale electricity market—they 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. Participants enter into hedging arrangements separately outside of the wholesale electricity market.

Transparency is key to the efficient operation of the National Electricity Market. AEMO facilitates this by publishing, amongst other things, advanced notice of planned network outages and forecasts of the demand for and prices of electricity. In addition, AEMO publishes all market outcomes, including participants’ offers for both energy and FCAS, the day after any given trading day. The AEMC and AEMO are currently undertaking reviews of elements of FCAS operations, with details on this work expected to be released in 2018.

Today we are publishing two reports into extreme pricing events in the FCAS markets in South Australia:

  • 13 & 14 October 2017 - Raise and lower regulation services around $10 000/MW
  • 24 October 2017 - Raise and lower regulation services over $11 000/MW
What is FCAS and who provides it?

FCAS is required to maintain the frequency of the power system within the frequency operating standards. Lower and raise regulation services continuously adjust to small changes in demand or supply (changes that cause the frequency to move by only a small amount). Of the 26 power stations (including wind farms) in South Australia the following four are registered to provide FCAS.

Power Station Registered Capacity (MW)
  Lower regulation Raise regulation
Osborne (Origin Energy) 36 36
Quarantine (Origin Energy) 50 50
Pelican Point (Engie) 100 100
Torrens Island (AGL) 200 260
Total 386 446

While these generators are registered to provide FCAS, their full FCAS capacity is not always available at the time they are required for reasons including plant and operational limitations.

The AER’s analysis determined that a combination of factors led to the high prices:

  • Both high priced events occurred during outages on the Heywood interconnector, one planned, one unplanned. The outages created a risk of islanding South Australia from the NEM. Under such conditions, the AEMO requires 35 MW of lower and raise regulation services to be sourced locally in South Australia so that it can maintain the frequency of the power system. 
  • AEMO announced the planned outage, which occurred on 13 and 14 October, to the market well in advance. However, less than 35 MW was offered at price bands below $5000/MW. As a result, during the planned outage AEMO had to dispatch higher priced capacity in order to meet the 35 MW requirement.
  • For the unplanned outage which occurred on 24 October, less than 35 MW was offered at price bands below $5000/MW in lower regulation services. Initially enough raise regulation services priced below $5000/MW was available to meet the 35 MW requirement, but AGL rebid 16 MW of raise regulation services from prices below to above $5000/MW. This meant higher priced capacity had to be dispatched in order to meet the 35 MW requirement.

The AER’s high price event reports: 13 & 14 October 2017 and 24 October 2017 provide further detail of the events.

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: 
12 January 2018
AER reference: 
AC 03/18