National energy market system prepared for carbon price introduction

The Australian Energy Market Operator (AEMO), the national power system and market operator, does not foresee any energy supply security impacts during the immediate transition period following the introduction of the carbon price on 1 July 2012.

“Some changes in generation outputs, and in turn, network flows in the market, are expected in the short term as a result of the carbon price introduction; however, AEMO does not expect any concerns relating to network security,” said AEMO Managing Director and CEO Matt Zema.

AEMO expects to see some increase in the operation of low-emissions natural gas-fired generators, but does not foresee any concerns relating to gas supply security.

As operator of the National Electricity Market, AEMO’s current outlook for the next two summer peaks (Power System Adequacy Report) has not revealed any alarms relating to this transition period and the outlook shows no material breaches of the reliability standard.

“This outlook identifies supply availability and expected electricity reserve levels. It enables AEMO to successfully manage power system security and market reliability and assists market participants in planning their operations over this period,” Zema said.

Wholesale electricity spot price forecasts across the NEM are estimated to rise on average by around $20 per MWh as a result of the introduction of the carbon price. A wholesale price rise of $20 per MWh represents roughly 10% of a typical domestic electricity tariff.

Although this increase is anticipated to be about $20 per MWh on average, actual electricity spot prices in different regions across the NEM may vary depending on many factors including:

• Electricity and gas demands, influenced by time of day and weather;
• Output of wind generation;
• Non-availability of transmission lines or generators due to both planned and forced outages;
• Cost and availability of generation fuel, such as coal and gas, and the availability of water for hydro plants;
• Generator operating and marketing strategies, in turn influenced by their positions in financial (hedge/contracts) markets.

AEMO intends to publish a ‘Carbon Price - Market Review Report’ in the three months after 1 July which aims to analyse and discuss price impacts in different periods (peak/off peak), export and network flows and any other related changes that may have occurred in the NEM.