Purpose of research project *
In June 2022, Australia took the unprecedented action of suspending its wholesale spot National Electricity Market (NEM). This was precipitated by sustained periods of spot prices at the maximum possible value ($15,500/MWh) as compared to typical prices on the order of $50-$100/MWh. These persistently high prices caused the Australian Energy Market Operator (AEMO) to direct gas fired power plants to generate at maximum output to prevent system-wide blackouts across the eastern seaboard. Market suspensions in wholesale electricity markets are highly disruptive and undermine market confidence and stability, leading to a loss of trust among participants and increasing investment risk. They also cause supply-demand imbalances, heightening the risk of supply shortages and increasing costs for consumers.The conducted research project examined in detail the suspension of the NEM by identifying the key factors leading to the market suspension, investigating the behaviour of market participants and price outcomes during this period, and providing important recommendations for policy and decision-makers related to avoiding or managing crises in wholesale electricity markets.
Who has, is or will benefit *
Market suspensions in wholesale electricity markets are highly disruptive and lead to significant additional costs for businesses and households. Therefore, research and recommendations on how to avoid electricity market suspensions and increasing energy security during the decarbonisation of energy system is of utmost importance to market participants, policy-makers, regulators and consumers. Results of the project have provided benefits to Australian households, businesses and the economy, by helping to reduce the cost of electricity and risk of disruptive market suspensions. Ultimately the project has helped to support the transition to reliable, cost-effective, and low-carbon electricity.Description of impact *
Born of the Macquarie University Consilience Centre “Transitioning Energy Markets”, our research brought together experts from different Departments at MQBS, including Professor Stefan Trueck, an expert on the NEM, Professor Sean Foley, an expert in Forensic Finance, as well as a DFCRC supported student (Arvind Rangarajan) and Dr Jiri Svec from Sydney University.The research identified several causes of the crisis, including high fuel cost for coal- and gas-fired generators driven by the conflict in Ukraine as well as the fact that the market-administered price cap (APC) was set too low. A key result of the project was that the APC had not been sufficiently adjusted to new market conditions since it was previously updated to $300/MWh in 2008.
The research conducted, along with the derived results and policy recommendations, has raised awareness about required changes among major regulatory and government bodies such as the Australian Energy Market Commission (AEMC) and the Australian Renewable Energy Agency (ARENA). In November 2022, the AEMC made a final rule on amending the administered price cap, increasing it from $300/MWh to $600/MWh.
Members of the project team have also been invited to present key insights of the project and additional suggestions for reforms of electricity markets in Australia at major policy showcase events such as the ARENA Insights Forum in March 2024 and the AEMC ‘Connecting Policy and Research Forum’ in 2024. Trueck has also been invited to join the Academic Advisory Group for the 2025 Review of the NEM (Nelson Review).
| Category of impact | Policy impacts, Economy impacts, Commercial impacts |
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