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House of Assembly - Fifty-Fifth Parliament, First Session (55-1)
2022-06-15 Daily Xml
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Ministerial Statement

Declaration of Electricity Market Suspension

The Hon. A. KOUTSANTONIS (West Torrens—Minister for Infrastructure and Transport, Minister for Energy and Mining) (14:00): I seek leave to make a ministerial statement.

Leave granted.

The Hon. A. KOUTSANTONIS: Challenging and unique conditions are currently occurring in the National Electricity Market, impacting supply availability and wholesale prices. Wholesale gas and electricity prices are currently significantly higher than longer term averages, driven by higher seasonal demand, generation unavailability, high fuel costs and the global energy supply crunch associated with the war in Ukraine. These circumstances have resulted in persistent high spot market prices across the National Electricity Market.

The administered price provisions of the National Electricity Rules form an important component of the market safety net, which operates to protect and sustain electricity trading in the National Electricity Market during periods of sustained high prices. If market prices in the region rise to levels that are likely to cause substantial financial stress, then those prices are capped until they return to lower levels.

Administered price conditions are independently assessed by the Australian Energy Market Operator for each region and each market within the National Electricity Market. An administered price period is triggered in a region when the sum of spot prices for the previous seven days exceeds the cumulative price threshold. The cumulative price threshold that currently applies is $1.36 million, which is equivalent to an average spot price of $674.16 per megawatt hour over the previous seven days.

The cumulative price threshold has been reached in Queensland, New South Wales, Victorian and South Australian NEM regions. Where the cumulative price threshold has been reached, an administered price cap of $300 per megawatt hour for dispatch intervals in that region applies for the duration that prices are administered. It is important to note that generators who bid into the market will be protected from losses through the administrated price cap arrangements.

This approach factors in the direct cost of generators and opportunity costs and are designed to ensure that generators continue to bid into the market and provide protection for generators so they will not face losses during through this process. This process is run independently by the Australian Energy Market Commission. We now have generators bidding as if they bought their coal and gas for these new spot prices, so AEMO has placed a price cap.

While the generators have sufficient capacity to supply our operational demand, as a result of the administered price cap being implemented, some generators are deliberately withdrawing from market. This has forced AEMO to issue a lack of reserve notice to direct generators on to avoid load shedding. This direction entitles generators to additional compensation, which is in the best interests of their shareholders.

The government has poor visibility of the market, which impedes its ability to predict and manage situations like this. As the house is aware, we are progressing reforms which seek to improve the transparency of the gas market. The previous Labor government put in place 250 megawatts of sovereign generation as a safeguard to protect us from uncooperative markets. The former Liberal government promptly privatised this safeguard.

While AEMO has directed the Snapper Point power station to generate at 100 per cent of its 150-megawatt capacity, the house would be disappointed to hear it is still using diesel—or as members opposite would have said 'dirty diesel’—as a primary fuel for the gas turbines.

Even more disappointingly, the 120 megawatt Lonsdale generators are unable to operate as they are disconnected from the grid. The gas turbines, generators and associated equipment are being prepared for relocation to a new site at Bolivar as a result of the privatisation, decommissioning a piece of—

Members interjecting:

The SPEAKER: Order! The minister has the call.

The Hon. A. KOUTSANTONIS: —critical infrastructure so we are left vulnerable over winter. The current market practice of generators withdrawing capacity, forecast lack of reserves and the market operator having to direct generation into the market—

Members interjecting:

The SPEAKER: Order! The member for Flinders is called to order. The Premier is called to order. The minister has the call.

The Hon. A. KOUTSANTONIS: —to manage these reserve shortfalls is not how the market should be operated, nor is it sustainable.

The Australian Energy Market Operator has informed the NEM of its intention to suspend the spot market in each region at 1.30pm today. This is unprecedented in the history of the National Electricity Market. AEMO says it has taken this action because it has become impossible to continue operating the spot market while ensuring a secure and reliable supply of electricity for consumers in accordance with the National Electricity Rules. What this means is that the market operator will apply a predetermined suspension pricing schedule for each region, including South Australia.

The declaration will continue until AEMO determines again it is possible to operate the market within the capability of AEMO's market systems in accordance with the rules.

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