AER reports on high wholesale electricity prices in NSW in December 2020

The Australian Energy Regulator (AER) has today published a report into prices in the wholesale electricity market in New South Wales (NSW) on 17 December 2020.

The AER monitors and reports on the causes for wholesale electricity spot prices exceeding $5,000 per megawatt hour (MWh). The wholesale electricity spot price exceeding this threshold triggers the AER reporting. There can be many reasons a high spot price occurs, including outages that adversely affect supply-demand conditions in the wholesale market.

During the 4pm, 4.30pm and 6pm trading intervals on 17 December 2020, the spot price for electricity exceeded $5,000/MWh in NSW.

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

  • Demand in NSW was high and NSW had limited access to capacity priced below $5,000/MWh.
    • At least 3,000 MW of baseload generation was on planned or unplanned outages.
    • Access to low-priced capacity from Queensland was limited because of lightning around the Queensland to NSW interconnector in the afternoon.
  • Due to tight demand and supply conditions, rebidding of capacity from lower to higher prices and removal of capacity contributed to the prices above $5,000/MWh.
  • To address tight demand and supply conditions, AEMO activated/dispatched the Reliability and Emergency Reserve Trader.

More in-depth analysis of these events can be found in the AER’s 17 December 2020 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 stakeholders and market bodies on wholesale market issues.

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Issued date: 
24 February 2021