The Australian Energy Regulator (AER) has released its analysis into high wholesale electricity spot prices on 7 February 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 Wednesday 7 February 2018, spot prices exceeded $5000/MWh for one trading interval at 4 pm in Victoria and South Australia, reaching $6847/MWh and $8001/MWh respectively.
The AER’s analysis found the following factors contributed to the high prices:
Temperatures were high in both regions, reaching 37ºC in Melbourne and 40ºC in Adelaide leading to higher than average demand.
There has been a material reduction in available capacity in Victoria and South Australia following the closure of the Hazelwood and Northern power stations. There is still enough generation capacity available to meet demand, however changes in supply conditions have led to more expensive capacity setting price.
Normal network constraints limited supply from neighboring regions as forecast.
While the majority of capacity was offered at low prices, high priced capacity was still required to meet demand.
Rebidding from low to high prices did not contribute to the high price events on the day.
More in-depth analysis of these events can be found in the AER’s reports 7 February 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 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.