AER reports on high wholesale electricity prices in January 2020

The Australian Energy Regulator (AER) has published two reports into high prices in the wholesale electricity market in South Australia and Victoria on 30 January 2020 and in South Australia, Victoria and New South Wales on 31 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 30 January 2020 the spot price for electricity for the 6.30 pm and 7 pm trading intervals exceeded $11 000/MWh in South Australia and Victoria.

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

  • Maximum temperatures in Melbourne and Adelaide exceeded 39 degrees, leading to a higher than forecast demand for electricity
  • A reduction of 560 MW of low priced generation due to a plant trip at Loy Yang A
  • The output of wind generation was around 3200 MW lower than what is installed across both regions

On 31 January 2020 the spot price exceeded $5000/MWh for the 2 pm trading interval in South Australia and multiple times in Victoria and New South Wales from 3 pm to 7 pm.

The following factors contributed to the high prices:

  • The Heywood interconnector which links Victoria and South Australia failed due to an extreme storm which caused six high voltage transmission towers in Victoria to collapsed
    • In South Australia, constraints used to manage the islanded region after the interconnector failure resulted in large amounts of lower priced generation being unable to make it to market.
    • In New South Wales and Victoria high temperatures led to high demand for electricity. Although large amounts of capacity was rebid in to lower prices it was not enough to offset the loss of imports from South Australia due to the interconnector outage and further decreases to available generation resulting from plant technical issues.
    • Rebidding from low to high prices did not contribute to the high price events on either days.

More in-depth analysis of these events can be found in the AER’s 30 January 2020 and 31 January 2020 reports.

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: 
26 March 2020
AER reference: 
AC 35/20