National electricity market suspended as NSW residents told to conserve power to reduce blackout risk

The Australian Energy Market Operator (Aemo) took the drastic step of suspending the entire national electricity market for the first time in its history on Wednesday.

In the hours prior to the suspension, Aemo had issued a flurry of lack of reserve alerts at the level 3 warning for all the mainland states within the market.

On Wednesday evening, the NSW energy minister, Matt Kean, told Sydney residents to reduce usage between 5.30pm and 8pm to reduce the risk of blackouts.

The latest Aemo forecasts for potential shortfalls in supply cited 8.30pm as a period of concern and flagged a possible intervention to order more generation as late as an hour earlier.

The market scheme to pay big energy users to cut their power use had also been activated in NSW on Wednesday, Aemo said.

Significant shortfalls in Victoria, Queensland and South Australia were avoided on Wednesday but more were forecast for Thursday.

Both the commission and the regulator had in the past day reiterated the importance of generators providing supply to the tight market, even with price caps of $300/MWh now imposed on all five states.

Generators have denied gaming the market by withdrawing supply, saying the price caps had affected the profitability of some bids but they would follow orders if instructed to generate power to avoid blackouts.

In a statement, Westerman noted that about 3,000MW of coal-fired power plant capacity was offline through unplanned outages alone, while others were having scheduled maintenance breaks. The early onset of winter had also increased demand for electricity and gas, while wind and solar energy output had been down at times.

The market suspension was temporary, but it is unclear when it will resume under normal rules.

McArdle said the suspension was needed because under the existing rules the price threshold could have lasted weeks if not longer. The price limits are imposed when spot prices reach almost $1.4m over 2016 five-minute intervals over a rolling seven-day period.

When the market was suspended, prices in Queensland had topped $9m, NSW about $8m, Victoria $4.5m and South Australia $3.9m, he said.

On the one hand, companies forced to use high-cost gas would be losing money by using it to generate electricity. At $40 a gigajoule, the cost of producing a MWh of power would be about $440 but the price cap was only $300.

Stabler said the public messaging needed to be sorted out, not least because the market strains could last through winter.