AER reports on high wholesale electricity prices in Victoria and South Australia on 18 and 19 January 2018

The Australian Energy Regulator (AER) has released its analysis into high wholesale electricity spot prices on 18 and 19 January in South Australia and Victoria.

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 prices occurs, including supply-demand conditions in the wholesale market at the time.

On Thursday 18 February 2018, spot prices exceeded $5000/MWh for four consecutive intervals, from 4.30 pm to 6 pm inclusive in Victoria and South Australia. Prices ranged from $5079/MWh to $13 136/MWh.

On Friday 19 February 2018, in South Australia, the spot price reached $11 864/MWh at 2.30 pm, $13 408/MWh at 3 pm, $5413/MWh at 5 pm and $5332/MWh at 6 pm. The spot price exceeded $5000/MWh only once in Victoria, reaching $10 152/MWh at 2.30 pm.

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

18 January:

  • Temperatures were high in both regions, reaching 40ºC in Melbourne and 43ºC in Adelaide.
  • Supply from neighbouring regions was limited due to network limitations, as forecast.
  • Although the majority of the capacity offered by participants was priced low, it still wasn’t enough to satisfy the level of demand. As a result high priced generation was required, leading to high prices.

19 January:

  • Temperatures exceeded 40ºC in Melbourne and Adelaide.
  • Although the majority of the capacity offered by participants was priced low, it still wasn’t enough to satisfy the level of demand. As a result high priced generation was required, leading to high prices.
  • In response to the forecast tight supply and demand conditions, AEMO activated Reliability Emergency Reserve Trader (RERT) contracts in Victoria and South Australia, leading to intervention pricing arrangements.

Rebidding from low to high prices did not contribute to the high price events on either day.

More in-depth analysis of these events can be found in the AER’s reports 18 January 2018 and 19 January 2018.

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.

Sector: 
Segment: 
Issued date: 
20 March 2018
AER reference: 
AC 34/18