Legal & Regulatory

AEMO Begins Cautious Lift of Australian Electricity Market Suspension

The Australian Energy Market Operator (AEMO) on June 22 initiated the first step to lift a suspension of its National Electricity Market (NEM), citing a “clear improvement in market conditions.”

The measure comes more than a week since it indefinitely suspended spot markets in all regions of its NEM, given critical power generation supply shortfalls that it had said made it “impossible to continue” operations under national electricity rules. Suspension of the NEM marked a dramatic step for the AEMO, which serves as an independent system operator (ISO) that operates the competitive market serving New South Wales, Queensland, South Australia, Victoria, and Tasmania.

While fuel supplies remain tight, more than 4,000 MW of generation is back online after outages, AEMO said on Wednesday. That paves the way for the operator to initiate a staged approach to lifting the market suspension, said AEMO CEO Daniel Westerman.

“The first step is that at 4 a.m. [on June 23], we will allow the market to set the price again,” Westerman said. “The second step will be to completely lift the suspension,” he said. Collaborative actions across federal, state, and territory governments, alongside the industry, had allowed the market operator to make the move, he noted.

A key development is that the market will restart without the administered price cap in place. A week ago, Westerman had pointed to “price caps, coupled with significant unplanned outages and supply chain challenges for coal and gas” as primary hurdles that led generators to remove capacity from the market, prompting a crisis that made it “impossible” for AEMO to continue market operations.

After the first step, the AEMO expects the dispatch engine—the system used to schedule generation into the grid—to operate with “very few constraints,” AEMO said. AEMO said it also anticipates a low volume of directions from AEMO to generators,” which should instead  “respond to market signals.” If that occurs, the NEM could also see a “reduction in forecast shortfalls of energy, or low reserves, as generators respond to those market signals.”

AEMO, however, is proceeding cautiously. It said it “would monitor these conditions for a further period of at least 24 hours” before proceeding to the second step to completely lift the market suspension. Conditions remain dynamic, the organization noted.

“By removing these conditions, we hope that the market will return to a normal bidding and dispatch situation—allowing the market to operate without major AEMO interventions and manual management of generation,” Westerman said.

The AEMO’s approach is generally supported by industry, including the Australian Energy Council (AEC), which represents competitive power generators and retailers that participate in the NEM. “The staged return of the market announced by the Australian Energy Market Operator is a positive step forward,” noted AEC Chief Executive Sarah McNamara on Wednesday. “It will give generators confidence to bid into the market under more normal bidding and dispatch conditions.” 

McNamara was optimistic the AEMO’s recent efforts marked progress. “Whilst no power system operates without risk, the community should be reassured the worst of the supply issues that affected the market in recent weeks are behind us for now,” she said.

Energy regulators in Australia, however, urged generators to heed market rules. “While the market is moving out of the suspension, the NEM is still facing considerable challenges, and it is essential for registered participants to comply with their obligations under the national electricity rules (NER) to ensure AEMO can maintain a secure and reliable power system,” wrote Clair Savage, chair of the Australian Energy Regulator (AER), in a June 23 letter to generators.

Savage said that the AER will continue to monitor generator compliance with market rule obligations. “Should the AER detect material breaches of obligations by registered participants, enforcement action will be considered,” she wrote.

Sonal Patel is a POWER senior associate editor (@sonalcpatel@POWERmagazine).

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