The AEMC today published a final rule setting out a new compensation framework to apply during market suspension events.
AEMO suspends the spot market when the market cannot operate as normal, for example, if there is no electricity supply due to a ‘black system event’. Market suspension has happened twice in the history of the national electricity market.
When the market is suspended, spot and ancillary service prices can either be set using the normal central dispatch and pricing process, or by the Market Suspension Pricing Schedule (MSPS) – a schedule of prices based on prices in the preceding four weeks.
The compensation framework set out in the final rule will apply during periods when the MSPS is in operation. Its aim is to allow participants who incur losses during such periods to recover their direct costs, while also managing the impact on consumers who ultimately bear the cost of compensation payments.
Compensation will be automatically payable to scheduled generators in the suspended region where estimated costs incurred exceed MSPS revenue earned. Compensation will also be payable to scheduled generators in neighbouring regions in the event that price scaling results in prices that are too low to cover estimated costs (price scaling occurs when energy flows towards a suspended region and the price in the suspended region is lower than the price would otherwise be in the exporting region).
Estimated costs will be determined by AEMO based on the average estimated short run marginal cost of each class of generator in each region. This will be supplemented by a 15 per cent premium to account for divergences between estimated and actual costs.
Where automatic compensation is insufficient to cover direct costs, an eligible party will be able to seek additional compensation by lodging a claim with AEMO.
In this way, the new compensation framework seeks to encourage participants to work collaboratively with AEMO to restore or maintain supply, rather than wait for a direction from AEMO and then recover any losses through the directions compensation process.
The new compensation framework will commence on 20 December 2018, following development of the supporting market suspension compensation methodology by AEMO.
Media: Bronwyn Rosser, Communications Specialist, 0423 280 341; 02 8296 7847
This rule change request from AEMO relates to a recommendation in AEMO’s final incident report for the black system event which occurred in South Australia in late 2016. As a result of the black system event, the South Australian electricity market was suspended for 13 days.