AER issues report on high electricity prices in South Australia

The Australian Energy Regulator today issued a report on high electricity spot market prices in South Australia over January and February.

"Over the two months electricity half-hourly spot market prices increased to $5000/MWh or more in South Australia on 25 occasions," AER Chairman, Mr Steve Edwell said. "The AER is required to report on all such events.

"The price events saw the highest prices in South Australia since the market started in 1998. Over January and February prices averaged $200/MWh compared to an average price of $75/MWh over the same period in 2007. The previous highest average price for the two months was $140/MWh in 2001.

"The price events also contributed to high annual prices in South Australia, $90/MWh over the financial year to date, compared with $50/MWh at the same time last year.

"The AER's report finds that the high prices were caused by a combination of high demand, generator bidding and transmission constraints.

"High temperatures increased air conditioning use and electricity demand. While demand levels were high they were typical for this time of year.

"Bids from AGL contributed to high prices. AGL owns the largest generator in South Australia, Torrens Island.

"AGL priced between 75 per cent and 86 per cent (or up to 890MW) of its Torrens Island capacity at or close to the price cap of $10,000/MWh during the high price events. This represents around one third of South Australia's demand at those times.

"Bidding high prices is not a breach of the National Electricity Rules. However, AGL revised its bids a number of times. The Rules require generators to rebid in 'good faith'. The AER is investigating AGL's compliance with the good faith provision.

"A significant proportion of South Australia's electricity requirements are sourced from generators in Victoria using the Heywood and Murraylink transmission inter connectors. In December the South Australian transmission network service provider (Electranet) reduced the maximum allowable flow on Heywood, the larger of the two inter-connectors, by around 100 MW or 25 per cent. This reduction contributed to high prices by limiting the supply of low cost electricity from Victoria.

"The AER will be investigating the reduced flow capabilities between the two states further."

The report will be available on the AER website.

Issued date: 
4 March 2008
AER reference: 
NR 002/08
Steve Edwell, AER Chairman 03 9290 1421 0423 047 554
Lin Enright, Media 02 6243 1108 0414 613 520
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