Australia Suspends Power Trading In Spot Markets

In a move meant to cool down ever higher energy prices and ‘hoarding’ so to say the Australian Energy Market Operator (AEMO) has suspended the wholesale electricity spot market across all five participating NEM states in the country. AEMO’s notice states that even as it is shutting the market wef June 15, it has been forced to take the drastic action because it was becoming impossible to operate the market under regular rules. No date has been provided on resumption of trading  in the spot market.

The National Electricity Market (NEM), which covers all of Australia except Western Australia and the Northern Territory is the key power trading market. Coal-fired power makes up about 65 per cent of generation and gas 7 per cent, with the rest coming from renewables. The market-based system is run by the Australian Energy Market Operator (AEMO). Generators offer their capacity at different prices, and AEMO aims to exactly match supply and demand.

This is apparently the first time ever that such a decision has been made, with the only previous such action being taken during a blackout in 2016.

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AEMO had tried to impose price caps on June 13, but those were considered unfair to generators as cost of fuels rose further.

Now generators will get paid the average price in their state over the past four weeks, meaning they are likely to get between AUD $300/MWh and $500/MWh, not the flat rate of $300/MWh that was mandated in the price cap.

Rising costs of coal and natural gas have been blamed for the crisis, with generators buying in the spot market particularly hit.

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Reports say more than 7.5GW of capacity has been withdrawn in the last few days as gas based generators waited for the market regulator to ask them to provide power, to get the benefit of maximum compensation.

The Australian action has underlined the risks of fossil fuel driven grids, especially the massive emergence of gas based power in recent years. Even as countries like India have all but given up on power generation from gas at even lower prices than the current costs, it is the high jump in coal prices that has threatened to cripple grids. And clearly, most countries do not have renewable energy in the right quantity or the right time to manage. The answer may lie in faster renewable capacity creation, along with storage.

Unfortunately, it is also a given that for poorer countries, this also means a strong revival of coal based generation, at least for the next 2 years, as despite the hike, infrastructure to burn and generate power from coal remains the nearest option in place for most. Plus, coal prices have not gone as high as gas prices have.