The operator of Australia’s main electricity grid plans to conduct a “detailed investigation” into the breakdown of the country’s wholesale power market that triggered an unprecedented suspension during last week’s energy crisis.
The Australian Energy Market Operator said on Wednesday it plans to resume trading in a two-stage process starting with the market setting prices again from 4am AEST on Thursday. After monitoring conditions for 24 hours, Aemo will decide whether the market suspension will be formally lifted.
“We will absolutely be working very closely with the regulator and Australian Energy Markets Commission on a series of actions … to prevent this from happening again,” Daniel Westerman, Aemo’s chief executive, told journalists, adding that it would be looking “to make sure that that dysfunctional behaviour doesn’t reoccur”.
“It’s not a place where the market operator wants to be in suspending the market, Westerman said. “So we’re looking at obviously undertaking a detailed investigation … to understand comprehensively the lessons learned and put in place actions so it doesn’t happen again.” He did not give a date when the investigation would be completed.
The federal energy minister, Chris Bowen, said he wouldn’t comment on individual generators but said it was up to generators to bid into the market “as they’re required to do as a matter of law”.
Bowen said he supported the restart to energy trading as “a prudent and carefully managed approach to return to more normal market conditions”.
An unusually widespread and prolonged cold snap at the start of winter combined with many coal-fired power units going offline to strain power supplies in five states. Temperatures have warmed in most places, easing demand, while some 4,000 megawatts of generation capacity has returned to operation since Aemo suspended the market.
Several energy ministers complained about what they saw as anti-competitive behaviour by some generators that threatened blackouts in some states. The federal government has asked the competition watchdog to join the hunt for possible gaming actions in the market.
But Westerman downplayed claims the generators had made conditions worse.
“At an operational level, we have exceptional working relationships with each generator,” he said. “We have been able to reduce the amount of generation that is under direction from Aemo from about 5,000MW down to less than 1,000MW”
Aemo had operated since 1998 without needing to suspend its main electricity market. Normally it would identify a potential future supply gap, announce it in a market notice, and generators would respond.
One complication was that soaring wholesale prices – mostly caused by an unusual reliance on costly gas – had triggered price caps, starting in Queensland. At $300 a MW-hour, some generators dropped out of the market, waiting to be instructed back in by Aemo, with the prospect of compensation in the future for any price gap.
Both Westerman and Bowen spoke out in favour of further work on the development of a so-called capacity market that would pay generators and other electricity suppliers to have a certain amount of energy on standby. On Monday Aemo and other members of the Energy Security Board released a design paper on the plans for consultation.
Westerman said a capacity market would help enable the transition of the grid away from fossil fuels, namely gas and coal. It would ensure “that we do have sufficient dispatchable capacity on hand at any time. That sort of mechanism will prevent in future these types of things [including the market suspension] from happening.”
Bowen said he and the state and energy ministers wanted the work on a capacity market “to focus primarily on new technology”, such as storage.
“I want to see this done and I want to sit down right,” Bowen said. “This is a massive transformation which we need to get cracking on.
“We need to make faster progress on the transformation, and we need the capacity mechanism to help us do that to provide that safety net underneath as we engage in this significant transformation to a more renewable economy, a more renewable energy system with more storage.”
The AiGroup, meanwhile, welcomed the plan to re-boot the electricity market but said conditions remain far from normal.
“Today’s announcement is the first step on the road out of energy hell – and in to purgatory,” said Innes Willox, the employer group’s CEO.
“We could be there for a very long time.
“Firstly it is quite possible that fresh unexpected events will worsen our situation,” he said. “We need to stay ready for anything.”
“Secondly the bill for the recent acute crisis still needs to be paid,” Willox said.
“Very few energy users have been directly exposed so far, but sooner or later all of us will pay our share of the very large costs that Aemo has had to incur to keep the lights on.
“Finally, we face the grim reality that on the other side of acute chaos lies a chronic crisis of energy affordability,” Willox said.
