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Energy Insights

Market responds to January heatwaves

The recent elevated temperatures across South Australia, Victoria and New South Wales continues to put pressure on the National Electricity Market (NEM), and as AEMO moved to shore up supply through compulsory load shedding the debate around reliability intensified. Read on to learn how the energy market respond to January heatwaves.

With heatwaves experienced across the country in January, demand for electricity increased in lock step. This culminated in power blackouts in many states, felt most severely in Victoria.

In Victoria, after Australian Energy Market Operator (AEMO) initially issued a reserve warning and called on retailers to increase generation capacity, the market operator then initiated compulsory load shedding. This was implemented under both the Reliability and Reserve Trader Mechanism (RERT) and separately, AEMO worked with Alcoa - the largest business energy user in the state - to reduce its power usage and free up available supply.

In response to such critical events, the Australian Energy Market Commission (AEMC) is busy drafting guidelines that will allow AEMO to reward big businesses that forego power during emergency situations.

This is in support of ongoing improvements to the RERT, and will include pricing guidelines for paying back companies that participate in load shedding. According to the AEMC, this is expected to help manage the costs of tapping expensive emergency reserves through load shedding that are ultimately passed onto other energy consumers.

Released in February, a Grattan Institute Report titled Keep Calm and Carry On: Managing Electricity Reliability, has looked further into the causes of blackouts across the NEM, saying that blackouts haven’t increased in the last decade. The report noted that “over the past 10 years, more than 97 per cent of outages across the National Electricity Market could be traced to the poles and wires that transport power to homes and businesses.”

The report goes further to say that while there are challenges with variable renewable generation, Australia’s electricity supply has not become less reliable as a result, and more broadly urges greater policy certainty.

Moving into February when the demands on the electricity system are typically higher than January, and temperatures remain elevated, the NEM is expected to remain under pressure. Alongside this, the debate regarding a solution to ensuring supply and managing associated costs is expected to heighten, particularly as the Federal Election approaches.

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