Australia updates market rules to reduce power outage potential

The Australian Energy Market Commission (AEMC) has announced rule updates to the National Electricity Market, aimed at mitigating the risk of power outage as the country undergoes a transition from aging coal-fired generation to increased reliance on renewable energy sources.

Analysis conducted by the AEMC revealed that current price settings in the wholesale electricity market are insufficient to guarantee a reliable system during the transition to renewable energy.

The impending retirement of coal-fired generation adds further pressure, with AEMO forecasting in its 2022 Integrated System Plan a 60% exit from the market by 2030.

This pressure will create reliability risks, with AEMO’s latest Electricity Statement of Opportunity update showing NSW (New South Wales) and Victoria will begin to experience reliability pressures between 2025 and 2028 without new investment.

To address these challenges, the AEMC has introduced rules to incrementally raise the Market Price Cap, Cumulative Price Threshold, and Administered Price Cap.

These changes aim to provide greater flexibility for investors to contribute new generation and storage during periods of high demand and emergency situations, ultimately enhancing system reliability.

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Under the final rule, the Market Price Cap, representing the price ceiling in the wholesale electricity market, will increase from the current AUD$16,600/MWh ($10,889/MWh) to AUD$22,800/MWh ($14,957/MWh) by July 1, 2027.

The Cumulative Price Threshold, signalling the end of a sustained seven-day period of extreme high prices in the wholesale electricity market, will extend from 7.5 to 8.5 hours at the Market Price Cap by the same date.

Additionally, the Administered Price Cap, capping prices once the Cumulative Price Threshold is reached, will be set at $600/MWh ($394/MWh) from July 1, 2025.

These price settings, states the AEMC in a release, would have no impact on wholesale electricity prices over 99% of the time but would deliver additional capacity to reduce the risk of power outage and ensure the electricity system remains reliable for households and businesses.

Commented AEMC chair Anna Collyer in a release: “These changes will encourage more generation and battery storage into the system when we need it most, reducing the risk of damaging outages for electricity consumers and keeping the system stable as we rapidly transition to higher levels of renewable energy and decarbonise our economy.

“Importantly, this final rule is designed to have no bearing on electricity prices under typical market conditions. Rather, it enables price fluctuations to encourage new market entrants, thus fostering competition to the benefit of all consumers.”