High-Priced Energy Events Spark Concerns for Consumers

The Australian Energy Regulator (AER) has flagged potential inefficiencies in the electricity market due to aggressive bidding strategies during high-price events. These strategies, while not technically against the rules, may harm consumers by driving up costs.

Between July and September 2024, wholesale electricity prices exceeded $5,000/MWh a staggering 54 times, the second-highest quarterly record since 2008. Key factors included:

• Network limitations restricting energy flow between regions.

• High demand and low wind output.

• Coal plant outages, averaging 3,500 MW during the quarter.

The AER observed that rebidding during high-price events often reduced the availability of lower-priced capacity, pushing prices up:

• Examples include South Australian batteries and gas plants bidding at or near the market cap ($17,500/MWh) during constrained network conditions.

• Rebidding behavior from diverse assets, including batteries like Hornsdale Power Reserve and Lake Bonney, highlights an industry-wide trend.

These bidding practices increase average electricity prices, which flow through to retail bills, placing financial pressure on consumers.

While renewables played a larger role in this period, driving a 21% increase in wind generation compared to 2023, there were still challenges:

• Periods of very low wind output (below 7% capacity).

• Network constraints in South Australia, where more than half of the high-price events occurred, limited access to cheaper power.

To mitigate future high-price events, the AER recommends:

1. Collaborating with AEMO and AEMC to improve network outage planning.

2. Enhancing interconnector capacity, as seen with South Australia’s Heywood interconnector upgrade.

3. Exploring potential rule changes to address inefficiencies in rebidding behavior.

As Australia transitions to a greener energy future, balancing market efficiency, renewable integration, and consumer protection will be critical to ensuring affordable and reliable energy for all.

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