AEMO takes action: Wholesale electricity spot market suspended, so review energy purchase agreements

Stuart MacGregor, Erik Beerden and Georgia Davis
17 Jun 2022
Time to read: 2 minutes

A recent move by the Australian Energy Market Operator (AEMO) has seen the spot market for wholesale electricity suspended after it became largely impossible to continue operating. This serves as a timely reminder to energy market participants to review their energy purchase agreements to ensure they remain fit for purpose.

At 2.05pm on 15 June 2022, the AEMO issued a market notice declaring a suspension of the spot market in all regions of the National Electricity Market (NEM) (i.e. New South Wales, Queensland, South Australia, Victoria and Tasmania) until further notice.

AEMO’s action to suspend the spot market for wholesale electricity was in response to a combination of factors that made it impossible to continue operating the spot market while ensuring a secure and reliable supply of electricity to consumers.  These factors included:

  • planned and unplanned generation outages;
  • coal and gas supply challenges;
  • low periods of renewable generation;
  • greater demand due to the early onset of winter; and
  • administered price caps.

It is unclear how the authorities will respond to prevent such an event happening in the future.  What is clear, however, is that higher prices and supply volatility in the NEM are likely to continue as the market transitions to a cleaner energy system. 

AEMO’s suspension powers

Under cl.3.14.3(a)(3) of the National Electricity Rules (NER), AEMO can suspend the spot market in a region where it determines that it has become impossible to operate the spot market in accordance with the provisions of the NER.  AEMO cannot suspend the spot market solely because spot prices have reached the market price cap or the market floor price, or because it has issued a direction or intervened in the market under rule 3.12 of the NER (see cl.3.14.3(b) NER).

It must conduct reviews of each occasion when it suspended the spot market to assess the adequacy of the provision and response of facilities or services, and the appropriateness of actions taken to restore or maintain power system security (see cl.3.14.3(c) NER).

Once AEMO has suspended the spot market, market suspension scheduled prices replace the administered price cap.  Clause 3.9.2(e)(5) of the NER provides that following the declaration of a suspension of the spot market, AEMO must set prices for the spot market for each trading interval during the period of market suspension.

The process AEMO follows to set prices for the spot market during market suspension is outlined in cl.3.14.5 of the NER.

Eligibility for compensation due to market suspension

AEMO must compensate eligible participants to maintain the incentive for the supply of energy, market ancillary services and wholesale demand response during market suspension pricing schedule periods (see cl.3.14.5A & cl.3.14.5B NER) – largely, to keep the market going and ensure continued supply.

Clause 3.14.5A of the NER sets out the provision for the payment of compensation due to market suspension pricing schedule periods.  To be eligible for such compensation, you will need to be a Market Suspension Compensation Claimant.  The exact amount of compensation payable is determined in accordance with a formula prescribed under the NER (see cl.3.14.5A(d)).  

AEMO will provide eligible claimants with a notice in writing indicating the amount of compensation payable (see cl.3.14.5A NER).  Where such a notice has been issued, the eligible Market Suspension Compensation Claimant may make a written submission to AEMO claiming additional compensation as set out in clause 3.14.5B of the NER (comprising compensation for direct costs that exceed applicable thresholds).

Compensation under administered prices

Notwithstanding that we are now operating in a suspended market, we note that eligible participants still have until 22 June 2022 (inclusive) to notify the AEMC and AEMO of their intention to claim compensation for incurred costs during the administered pricing period.

What’s next

AEMO’s suspension of the spot market serves as a timely reminder to energy market participants to review their energy purchase agreements to ensure they remain fit for purpose.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.