AEMO’s Energy Market Intervention & the Rise of Global Energy Commodities 

More than three months have passed since the Australian Energy Market Operator (AEMO) suspended the National Electricity Market (NEM) wholesale market. Their unprecedented move was to ensure that all Australian homes and businesses had access to a reliable supply of electricity. AEMO eventually lifted the suspension after a few manual interventions, and after bidding and electricity dispatching has eventually normalised. 

AEMO’s Intervention 

The winter months and increasing prices of fuel in the global market caused an imbalance between supply and demand. Managing the situation was next to impossible, which lead the AEMO to take the energy market by its reins. 

In addition, the rising prices of gas and coal made it difficult for the market to normalise. Even the safeguards designed to prevent runaway market prices weren’t spared from the confluence of unforeseen events. AEMO’s intervention paid off and the crisis was averted, and the supply-demand imbalance finally eased. 

Rising Gas Prices & Their Effect on the Energy Market 

Considering that AEMO was able to ease the supply-demand situation, the continuous rise of gas prices is affecting the energy market. It’s challenging for energy retailers to continue supplying their customers with electricity due to extreme pricing pressures. 

The ongoing conflict between Ukraine and Russia caused a significant increase in global fossil fuel prices. It should be noted that Russia is a major exporter of both crude oil and natural gas. Import bans and other sanctions imposed on Russia have created a crisis in gas exportation. 

Nicki Hutley, an Economist and Climate Councillor, explained, “What we’re seeing right now is the cost of remaining heavily reliant on fossil fuels for energy. Soaring energy bills for many households will exacerbate already significant inflationary pressures.” 

According to some experts, Australia’s reliance on gas and government policy failures on energy security has brought this crisis to light. If global gas prices continue to rise, a looming power crisis is on the horizon. 

Will Easing of Gas Prices Help Stabilise the Energy Market? 

The Federal Government implemented a 6-month reduction in fuel excise last March 2022. The Australian Competition & Consumer Commission (ACCC) was tasked to monitor fuel prices, costs and profits, and submit quarterly reports. It will continue to monitor fuel prices upon the full implementation of excise by the 29th of September. 

The ACCC also recommended the Australian Domestic Gas Security Mechanism (ADGSM). This is to ensure that Australia has enough natural gas to supply its users. ADGSM is designed to empower the government to control the exportation of liquified natural gas (LNG). 

However, the Institute for Energy Economics and Financial Analysis Australia (IEEFA Australia) warns that even if the ADGSM is activated, it will not solve the crisis of rising gas prices. Bruce Robertson’s published report on IEEFA said, “The solution to excessively high domestic gas prices is a full domestic gas reservation policy fixing prices at $5/gigajoule (GJ) on existing and future gas production.” 

The A$5/GJ price point will help stabilise the market because wholesale gas prices will be cut by half, which lowers the wholesale price of electricity on the market. In addition, the suggested price allows for healthy profit margins for gas companies and still encourages energy-intensive manufacturing industries to prosper in Australia. 

How Your Business Organisation Can Navigate a Volatile & Dynamic Energy Landscape 

AEMO continues to warn everyone of future “power gaps” as the coal exodus starts to gain traction. They warn of possible power supply shortages in the country’s largest grid by the year 2025. AEMO’s forecast also calls for the Federal Government to fast-track its renewable energy generation and transmission projects to address future power supply demands. 

The faster we can make the transition to clean energy happen, the less of that Ukraine invasion premium we will be paying — Tennant Reed, Australian Industry Group’s Climate & Energy Director 

Business organisations are starting to realise that we’re reaching the end of our coal dependency, and we’re transitioning towards renewable energy and electrification. Green energy projects will help them navigate through a volatile and dynamic energy landscape. 

Electrification (or more precisely, degasification), for example, helps decrease carbon emissions and ensure an affordable and secure energy supply when coupled with renewable generation and storage capacity. A building or a facility can be fully optimised, via upgrades, and converted into an energy-efficient complex.  

Investing in renewable energy, battery storage, and electrification doesn’t only help with decarbonisation. It helps businesses become more self-sufficient and insulates them from a volatile energy market. 

Learn how to reduce your business’ energy demand and take control of your energy bills by connecting with 3E Group team of Net Zero experts. Call us at 1300 557 764. 

The article was published on September 26, 2022

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