Australian energy market operator to lift market suspension this week

The Bayswater Power Station is pictured in Muswellbrook, Australia, June 21, 2022. Picture taken June 21, 2022. REUTERS/Loren Elliott

MELBOURNE, June 22 (Reuters) – Australia’s energy market operator said on Wednesday it would lift its unprecedented suspension of the spot electricity market in stages, starting on Thursday, as a return of some coal-fired generation eased the country’s power crisis.

The market operator last week capped wholesale prices and had to force generators using gas and diesel to supply power, even at loss-making prices, to fill a gap from coal-fired generation to avert blackouts.

Around 25% of the market’s coal-fired capacity has been offline over the past few weeks due to planned maintenance and unplanned outages due to technical faults, leading to shortfalls as demand spiked amid a cold snap, while prices rocketed due to soaring global gas and coal prices. read more

On Wednesday, the market operator said generators were gradually restoring output to more normal conditions.

“We have seen nearly 4,000 megawatts of generation return to service since this time last week, and that means the risk of any of shortfall has reduced markedly,” Australian Energy Market Operator Daniel Westerman told reporters at a televised media conference.

The market suspension would be lifted in stages, with generator bids used to set electricity prices from 4 a.m. (1800 GMT) on Thursday. The operator would monitor the market for at least 24 hours before making a decision to formally lift the market suspension, Westerman said.

While the market has stabilised for now, analysts say Australia is likely to face more power supply disruptions and high prices over the next few years as the country’s ageing coal-fired plants, which supply more than 60% of the market’s power, are likely to break down more often.

“When the coal generators stop working, you just don’t have enough bulk energy during the day or in the night,” said David Leitch, principal at energy consultant ITK Services Australia.

“We just haven’t built enough wind and solar yet to replace the coal generators,” he said.

The government, energy regulators and power providers expect around 14 gigawatts (GW), or 60% of eastern Australia’s coal-fired capacity to be retired by 2030. That will need to be replaced by more than double that capacity in wind and solar farms and energy storage to ensure the lights stay on.

One of the issues standing in the way of more rapid construction of renewable energy and back-up power is lack of transmission capacity, a problem that the new Labor government wants to overcome by providing A$20 billion ($14 billion) in cheap finance.

However proposed transmission projects are facing regulatory delays and protests from farmers and communities opposed to huge towers crossing their land and national parks. read more

($1 = 1.4418 Australian dollars)

Reporting by Sonali Paul; Editing by Christian Schmollinger and Richard Pullin

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