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Crisis mode: National energy market on hold

coal power station
AEMO has suspended the National Energy Market temporarily. (Source: Getty)

The Australian Energy Market Operator (AEMO) has suspended the National Electricity Market temporarily as the challenges facing the energy sector continue to mount.

According to the notice from the energy regulator, the spot market in New South Wales, Queensland, South Australia, Victoria and Tasmania has been temporarily halted because it has been “impossible” to operate the spot market under current conditions.

The spot market refers to the system where energy generators - such as coal power stations and solar farms - offer to supply the market with electricity for retailers to buy in five minute increments. Retailers then sell this electricity to customers.

AEMO said the market operator would instead apply a pre-determined pricing schedule for each region, and compensate eligible generators supplying electricity into the market during the period of suspension.

The announcement follows several warnings of power outages across the eastern states as the electricity market deals with several challenges.

This includes the conflict in Ukraine, unplanned coal power plant outages, low wind and solar output and an unseasonably cold winter driving up demand for energy.

The conditions have been pushing prices up, forcing AEMO to install cap prices on the amount generators could charge.

AEMO chief executive Daniel Westerman said price caps installed by the market operator earlier in the week was one reason energy generators were pulling generation from the market.

He also said unplanned outages and supply chain challenges for coal and gas were playing a role.

Westerman said the reluctance of generators to supply was “understandable”.

“..but with the high number of units that were out of service and the early onset of winter, the reliance on directions has made it impossible to continue normal operation,” he said.

“In the current situation, suspending the market is the best way to ensure reliable supply of electricity for Australian homes and businesses.”

The suspension will be reviewed daily.

Professor Ariel Liebman, director at the Monash Energy Institute, said the latest development in the energy market was somewhat good for consumers because it provided “some certainty that they're being looked after by the market operator more powerfully now”.

While the majority of energy customers are on fixed-term contracts, he said AEMO’s decision would take pressure off consumers and retailers who were exposed to the wholesale price.

Liebman wasn’t entirely sure how the new prices would be calculated but understood they would be less than before the price caps were installed.

He said the unprecedented decision to suspend the market was likely triggered by AEMO’s concern that generators were not providing the correct information about what they were able to generate, which was needlessly putting the system at risk of blackouts.

“Reading between the lines, what AEMO is saying is they believe that there is more than is being voluntarily offered in response to the directions or requests, and therefore [AEMO] needed to have more control over the whole situation,” he said.

“Because if you get it wrong, then you get blackouts, and there's no need for blackouts if there's 5000 megawatts of peaking generators available to be directed.”

Energy prices going through the roof

Rising wholesale energy prices filter down to higher energy prices to customers, with many households bracing for massive hikes this winter.

Some smaller retailers have even urged customers to jump ship and find cheaper deals or face price hikes as high as 285 per cent.

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