The Australian Energy Market Operator (AEMO) shocked some wind and solar projects’ developers late last week, suspending all commissioning activities and approvals until further notice. Speculations are rife that these developers could see halted activity in the upcoming months as the energy supply crisis threatens in the backdrop.
Australia’s energy crisis has time and again urged the AEMO to act on the issue. However, the problem does not appear to have a found a perfect solution yet. The latest solution offered by the AEMO has received backlash and widespread frustration from the project developers.
As per the AEMO, the power market had become “impossible to operate” while ensuring a secure and reliable electricity supply to Australian businesses and households. The AEMO recently suspended the wholesale electricity market for the East Coast, affecting five of Australia’s six states. The move was unexpected and left many awaiting a solution.
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The AEMO is an independent system operator that operates the market serving New South Wales, Queensland, South Australia, Victoria, and Tasmania. These states together form the National Electricity Market (NEM). The spot market suspension in question has been the result of unprecedented market volatility that has stemmed largely from global factors.
What does the suspension mean for the market?
The decision came as the AEMO struggled to manage supply shortfalls in Queensland and New South Wales on June 14. In response, the AEMO activated 5 GW of generation that had not reached the market “through direct interventions”.
The AEMO operates two electricity spot markets through which electricity is traded across the country. These wholesale or spot markets are used by power generators to supply the market with specified amounts of electricity at varied prices or bids. Once that is fixed, the AEMO chooses which generators will be deployed to produce electricity. Generally, the cheapest generator is put into operation first, followed by others until supply matches the demand.
The price offered by generators is decided through auctions – held every five minutes. Thus, the dispatch price of electricity is decided every five minutes, which is paid by distributors or retailers to buy electricity. Once these companies buy wholesale electricity, they supply the same to consumers and pass on any fluctuation in price to them.
What is the likely effect of this suspension?
The process is expected to be a massive blow to the wind and solar farms still undergoing the commissioning process. Some thermal generators that are yet to receive approvals to return to service after repairs may also see some effect of the suspension coming their way.
Some of the projects that are yet to complete their commissioning process include Stockyard Hill, Western Downs, Blue Grass, Moorabool, and the country’s biggest hybrid winter and solar project, Port Augusta Renewable Energy Hub. Most importantly, the duration of this suspension is unknown. Thus, projects that are yet to receive approval and move to the next stage are left in the dark about their future. However, the AEMO has stated that the suspension will be reviewed daily for each NEM region.
The suspension by the AEMO comes at a time when it has sent out instructions to generators to switch on when needed. However, the suspension has affected the capacity-building process for most of these generators. Till the time the AEMO does not find it practical to resume the market operations as before, these generators would have to manage on their own.
Why is the Australian electricity market in the middle of the storm?
The Australian electricity market is facing its toughest test ever as a range of international headwinds are affecting it. The Russia-Ukraine war has hiked commodity prices, with supply chain disruptions and lockdowns in China further exacerbating the issue. All this has resulted in higher prices of commodities such as coal, which is a crucial ingredient in Australia’s power generation process.
Relying on domestic coal production is also difficult as heavy flooding in NSW and Queensland has affected mining capacity. Additionally, Australia’s weather has taken a turn for the worse as a cold snap has hit Australians. This has significantly raised the demand for electricity across the country.
However, Western Australia has been able to skirt the ongoing crisis due to its own wholesale market. This local market has acted as a shield against international pressures. The state also has a robust gas supply to keep it up and running at all times. Thus, one can say that decreasing dependence on international factors could help create more stability in the current climate.