Spot Power Trading to Resume in Australia After Market Failure

(Bloomberg) – Spot trading will resume in one of the world’s most sophisticated power markets, about a week after the regulator imposed limits on prices and took control over generation to ensure supply.

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The Australian Energy Market Operator, responsible for the smooth operation of a grid that covers about 80% of the nation’s demand, will allow the market to resume setting prices from 4 am Sydney time on Thursday, it said in a statement.

Officials will monitor the functioning of the grid for at least a further 24 hours before formally ending the intervention, under which the operator moved to limit prices and had compelled utilities to provide electricity supply.

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“By removing these conditions, we hope that the market will return to a normal bidding and dispatch situation, allowing the market to operate without major AEMO interventions,” Daniel Westerman, chief executive officer of the grid manager, said in the statement.

Trading was halted on June 15 after what Australia’s Energy Minister Chris Bowen called a “perfect storm” of disrupting factors. Breakdowns at aging power plants, reduced wind and solar generation and tight coal and natural gas markets all contributed to a squeeze on supply, just as a cold snap at the start of the Australian winter added to demand.

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Soaring costs of electricity triggered an automatic price cap of A $ 300 ($ 208.50) a megawatt-hour, which led to generators declining to supply power, arguing the rate was too low to cover costs.

AEMO disputed that claim and said it was forced to take control of the market because about one-fifth of generation was unavailable. Under normal trading, spot prices range in a band between minus A $ 1,000 to A $ 15,100 a megawatt-hour.

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