AEMO makes unprecedented decision to suspend energy market

15 Jun, 2022

AEMO has had to suspend the spot market in all regions of the National Electricity Market (NEM), stating it has become impossible to operate as is.

AEMO applied a suspension pricing schedule for each NEM region and eligible generators who bid into the market during suspension price periods will be compensated.

AEMO CEO Daniel Westerman said the energy market operator was forced to direct five gigawatts of generation through direct interventions, stating it was no longer possible to reliably operate the spot market or the power system this way.

“In the current situation suspending the market is the best way to ensure a reliable supply of electricity for Australian homes and businesses,” he said.

“The situation in recent days has posed challenges to the entire energy industry, and suspending the market would simplify operations during the significant outages across the energy supply chain.”

This followed AEMO’s intervention on Monday night to prevent widespread blackouts across Queensland. After warning Queenslanders of possible power outages, AEMO said it was using its powers to direct electricity generators to avoid shortfalls.

The market operator is in talks with large consumers as the country faces an energy crisis, mainly due to poorly performing coal-fired generators — an unfolding situation described as “unprecedented and unpredictable”.

Last week, Federal Energy Minister Chris Bowen convened an emergency energy ministers meeting which agreed to three points of action, including a National Transition Plan. Minister Bowen said it won’t deliver immediate relief to the current soaring energy prices, but will help Australia in its long-term goal of decarbonising the energy grid.

Tim Buckley, senior energy market analyst, director of Climate Energy Finance, said without access to cheap Australian gas or the power of force majeure, gas plants in turn are further restricting supply.

“Only Federal intervention to reclaim East Australian gas…for domestic use first, at reasonable prices, can deflate this fossil fuel crisis near term.”

However, while there are calls for the Federal Government to limit LNG exports to divert gas to the domestic market, EnergyQuest notes it is more complicated than that.

“While east coast spot gas prices spiked in May, Gladstone LNG exports actually fell, from 2.1 million tonnes (Mt) in April to 1.9 Mt in May. In fact, in May the Gladstone LNG projects were only operating at an average 86 per cent of nameplate capacity, down from 96 per cent in April.

“Of a total 29 LNG cargoes from Gladstone in May, industry sources estimate that 27 cargoes were delivered under long-term contracts, with only two spot cargoes in May.”

EnergyQuest Chief Executive Officer Graeme Bethune said any desire to redirect gas to the domestic market that is already contracted by one of these countries under long-term contracts obviously needs to be handled with extreme sensitivity.

“The situation is further complicated by the fact that the major buyers have already invested in developing the fields from which they expect to receive their supply.

The Chinese companies CNOOC and Sinopec have shares of 50% of QCLNG Train 1 and 25% of APLNG, respectively, while Petronas and Kogas have 27.5% and 15% shares, respectively, in GLNG.

“They have already made substantial down payments on the gas they have contracted. The gas is not ours; it has already been sold. They are also investing hundreds of millions of dollars a year to maintain supply.”

Mr Bethune said that there may still be scope to direct more gas south from Queensland to alleviate the current crisis with coal generator outages.

“However, the options need to be carefully assessed with a full appreciation of the international ramifications.”

Andrew Stock, former Origin Energy Executive and past director of the Clean Energy Finance Corporation said the crisis demonstrates how critical it is to bring forward as soon as possible new renewable capacity storage and critical transmissions links.

“What we really need to do is enact a transition plan fast, to ensure that no stone is left unturned in encouraging investment in renewables and storage.”

Professor Ariel Liebman, Director, Monash Energy Institute said the shortage of natural gas on the global market triggered by sanctions against Russia has caused a set of never before seen challenges for the Australian grid and electricity market frameworks.

“This could have been avoided if sufficient volumes of Australian natural gas were always available for domestic use in a way that decouples us from the international market which is now so tight there is essentially no limit to the price being asked by uncontracted sellers.”

The current energy challenge in eastern Australia is the result of several factors – across the interconnected gas and electricity markets. In recent weeks in the electricity market, we have seen:

A large number of generation units out of action for planned maintenance – a typical situation in the shoulder seasons.