AER reports on high wholesale electricity prices in Victoria and South Australia on 24 and 25 January 2019

The Australian Energy Regulator (AER) today released its analysis into high wholesale electricity spot prices on 24 and 25 January 2019 in South Australia and Victoria.

The AER monitors and reports on events and causes that result in the wholesale electricity spot price exceeding $5 000 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 24 January 2019, spot prices exceeded $5 000/MWh for eleven consecutive intervals, from 4pm to 9pm inclusive in Victoria and South Australia. Prices ranged from $13 702/MWh to $14 500/MWh.

On Friday 25 January 2019, in Victoria, the spot price reached $7 433/MWh at 11 am and $14 500/MWh at 11.30 am. The spot price exceeded $5 000/MWh only once in South Australia, reaching $11 340/MWh at 11.30am. From 11.30am a price safety net capped the price at $300/MWh in both regions.

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

24 January 2019

  • Temperatures were high in both regions, reaching 41ºC in Melbourne and 48ºC (a new record) in Adelaide, 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.
  • Several generator outages (planned and unplanned) significantly reduced available low priced local electricity supply in Victoria. 
  • 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.
  • 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.
  • Despite the RERT there was still insufficient generation to meet power system security requirements. Therefore in order to maintain the security of the power system at around 6 pm AEMO directed a Victorian aluminium smelter to reduce their load by 266 MW in an effort to reduce electricity consumption. 

25  January 2019

  • Temperatures stayed high in Melbourne, reaching 43ºC and pushing demand higher than originally anticipated.
  • A number of generators in Victoria experienced outages starting earlier in the week. This significantly reduced available low priced local electricity supply. 
  • 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.
  • Of the capacity offered by participants, all available generation in Victoria and the majority of available generation in South Australia was priced low. However this still wasn’t enough to satisfy the level of demand and high priced generation was required from South Australia, leading to high prices in both regions.
  • Despite the RERT there was still insufficient generation to meet power system security requirements. Therefore in order to maintain security AEMO implemented controlled supply interruptions to Victorian customers for around three hours. 

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 24 January 2019 and 25 January 2019.

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: 
26 March 2019
AER reference: 
AC 36/19