Australia’s energy operator steps in to keep the lights on

Melbourne — Australia’s energy market operator took the unprecedented step on Wednesday of suspending the electricity spot market across the east of the country to ensure it can keep the lights on amid a string of outages at coal-fired plants.

The move came after the operator capped wholesale prices on Monday as required when they exceeded a set threshold, which led some generators to withhold supply as they could not cover their costs at the capped price of A$300 (R3,334) per megawatt hour (MWh).

That forced the market operator to order generators to supply 5 gigawatts of power, which they had not offered into the market on Tuesday, to avert blackouts in New South Wales and Queensland.

“The situation in recent days has posed challenges to the entire energy industry, and suspending the market would simplify operations during the significant outages across the energy supply chain,” Australian Energy Market Operator (AEMO) CEO Daniel Westerman said in a statement.

He said it was understandable generators had held back supply in light of the price caps along with unplanned outages and supply challenges with coal and gas, but having to direct generators to provide supply had made it impossible to maintain normal market operations.

By taking over control of the market, the operator would be able to monitor which generators are available and when to ensure reliable supply.

“Despite that visibility, I would say we are facing tight periods ahead, especially in New South Wales,” Westerman said in a televised media conference.

He urged households in New South Wales the country’s most populous state and home to Sydney, to conserve power where possible, in the first such request since the power crisis started in May.

The market, which normally trades in five-minute intervals, was suspended at 4.05am GMT.

‘Challenging times’

Australia has been hit by soaring power and gas prices over the past three weeks due to many factors, including planned and unplanned outages at several coal-fired plants, periods of low wind and solar output, a cold snap, and record-high global coal and gas prices.

Coal-fired plants normally supply about 65% of eastern Australia’s power supply, but more than a quarter of that capacity is unavailable.

To make up for the lost supply, the market has had to rely on extra gas-fired and diesel-fired generation at a time when gas and diesel prices have rocketed.

“We are seeing very challenging times. Right now we see the market is not able to deal with all the factors thrown at it. Frankly, those factors are quite extreme,” Westerman said.

The market operator said it will set prices during the market suspension and will pay generators compensation to cover their costs.

The Australian Energy Council, which represents the main generators, supported the market operator’s move to reset the market.

“We hope the conditions improve in this new phase and we can soon return to an uncapped market,” council CEO Sarah McNamara, said in a statement.

Reuters