Australia’s Competition and Consumer Commission said it would investigate producers’ bidding behavior under last week’s price cap for any breaches of market misconduct rules.
The statement was released by the ACCC in a special update to its latest report on the conduct of electricity markets. It was included in a special addendum following the dramatic events of last week when Australia’s energy market operator imposed a price cap following runaway wholesale market prices.
However, AEMO then had to suspend the entire market – for the first time – due to massive withdrawals of capacity and because it became “impossible” to manage and guarantee supply. Consumers were asked to moderate their energy consumption.
The withdrawal sparked allegations that some producers were “playing the market”, and in particular the two competing compensation schemes designed to ensure producers are not operating at a loss.
A warning from the regulator against illegal behavior was followed by a clarification of the price cap compensation scheme by another key body, before the AEMO decided to suspend the market to ensure the lights remained on.
“The ACCC notes that generators may have been motivated to withdraw capacity due to differences in compensation regimes under the Administered Price Cap and AEMO’s instruction process,” writes l. ACCC in its report.
“The Australian Energy Regulator is responsible for enforcing the National Electricity Rules, which set out rules regarding the behavior of generators. The ACCC will also monitor the bidding behavior of generators for possible violations of the spot market ban prohibiting misconduct in the energy market.
The producers and their lobby group defended their actions, insisting that they had no choice but to withdraw capacity given the structure of the market, its bidding system and fuel shortages. Some note that storage facilities have effectively been trapped by the lack of arbitrage opportunities and other factors.
Others however, from the prime minister down, fear the system has been manipulated. Consumer groups have warned of a “breach of trust”.
The ACCC notes that the primary cause of the wholesale price spike was the “unprecedented” spike in gasoline prices. Domestic spot prices had jumped up to five times more than they were in March and were well above international prices.
“The difference likely reflects a range of national conditions, including significant cold weather along Australia’s east coast, generator outages, high coal prices influenced by volatility in global commodity markets and the impact of renewables on the national electricity market,” the report said.
He did not explain the impact of renewables, although states with the largest share of renewables enjoyed lower prices than those almost totally dependent on coal and gas, such as Queensland and NSW.
According to AEMO, this so-called “northside” divide between coal-dependent states in the north and more renewable-focused state grids in the south first emerged in early 2021.
Meanwhile, the Australian Energy Market Commission has reminded generators who incurred costs under the administered price cap – prior to the market suspension – that they have until close of business on Wednesday to inform him and the AEMO of their intention to make a complaint.