Minimising the risk of electricity price shock by making generators give three years’ notice of closure

The Australian Energy Market Commission has made a new rule that requires large electricity generators to provide at least three years’ notice before closing.

The Australian Energy Market Commission has made a new rule that requires large electricity generators to provide at least three years’ notice before closing. The rule is based on one of the recommendations in the Finkel Panel review.

Unexpected generator exits, like the recent closure of Hazelwood power station in Victoria, can lead to a sudden increase in wholesale electricity prices. To help avoid this, the new rule requires generators with scheduled or semi-scheduled generating units to give the Australian Energy Market Operator at least three years’ notice of an intention to close, and regularly update AEMO about any changes.

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This information will help market participants respond to possible future shortfalls in electricity generation, for example by building replacement capacity.

AEMO must consider and include information about generator exits as part of its annual long-term forecast process – the Electricity Statement of Opportunities (ESOO). An up-to-date list of expected closure dates for generating units will be available on AEMO’s website.

If a closure is likely to have a significant effect on system reliability in the short or medium term, AEMO will be required to publish an interim Electricity Statement of Opportunities report that considers the impact of the closure on overall system supply.

The AEMC has recommended new civil penalties, enforced by the Australian Energy Regulator, if generators fail to comply with the new obligations.

The rule includes an additional role for the AEMC’s Reliability Panel that gives the Panel discretion to identify specific scenarios when energy shortages could arise. AEMO must then consider these scenarios and their impact on generation adequacy when preparing its Energy Adequacy Assessment Projection reports.

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To support implementation of the new rule, the AER will be required to develop a guideline by 31 August 2019 specifying how generators should provide information about closures to AEMO, and when exemptions may apply. In the meantime, generators can voluntarily provide information about closures to AEMO.

This rule change request is part of the Commission’s broader system security and reliability work program.

/Public Release.