The Australian Energy Regulator has released its report into market events that led to the suspension of the national electricity spot market in June 2022.
The AER acted quickly to investigate the behaviour of generators in the market after it had received reports from stakeholders, including the Australian Energy Market Operator (AEMO), that generators were withdrawing capacity, causing AEMO to issue urgent directions to get supply into the market to mitigate the risk of blackouts.
Generators must have reasonable cause for actions that cause an AEMO direction otherwise they could be in breach of the Rules.
In a series of compulsory face-to-face interviews with generator employees in addition to reviewing a range of other materials such as emails and recorded phone calls, the AER’s investigation looked into the circumstances facing generators when they withdrew capacity, including limited fuel availability and commercial viability due to high fuel prices.
The investigation revealed behaviour that resulted in poor market outcomes. Some generators, in withdrawing capacity from the market, engaged in conduct that significantly contributed to the circumstances causing AEMO to issue a direction. Several generators appear to have had little to no regard about the effect of their actions on the broader system.
However, generators may have had a reasonable cause to withdraw capacity given they were facing limited fuel availability and wanted to conserve fuel for peak periods or preserve fuel stocks. . Another cause – fearing having to supply at a loss – is less clear given the existence of a compensation regime designed to encourage supply during times of system stress.
Currently, the Rules do not oblige generators to offer available capacity and they can decide not to do so for commercial reasons. However, the prioritisation of commercial freedom can be detrimental to power system security, particularly under times of system stress.
The AER’s report raises a number of reform options for consideration which may tighten this aspect of the rules to ensure generators continue to generate during times of system stress.
The AER welcomes work already being done such as the increase in the administered price cap of $300/MWh to $600/MWh by the Australian Energy Market Commission and wants further discussion on the how the market can better balance the commercial imperatives of generators when the system is under stress.
Further, the AER’s investigation revealed some poor compliance practices by some generators regarding Projected Assessment of System Adequacy (PASA) submissions which is the process by which generators inform the market on the physical capability of their plant. Late rebidding and contemporaneous record keeping were also areas of concern along with
traders effectively ignoring forecast and actual lack of reserve notices issued by AEMO during the June 2022 events. The AER is continuing to investigate one generator for possible breaches of the Rules concerning PASA submissions.
Despite the behaviour of generators being unhelpful in withdrawing capacity, we otherwise found that AEMO and generators worked closely together in difficult circumstances and that there was good transparency and communication by both AEMO and generators.