The statewide power outage in South Australia on the afternoon of 28th September created a media frenzy with vested interests from all sides quick to lay blame for what contributed to the power outage and whether it could have been avoided.
This is the first time an entire state has been completely shut off from the National Electricity Market (NEM) since it was established in 1998. This event has highlighted the vulnerability of electricity networks and made energy security a hot political topic.
So what happened (in simple terms)?
According to the AEMO’s initial report into the incident released on 5th October, this is what is happened:
- A severe weather event (occuring only once in 50 years according to the Premier) brought down significant transmission network infrastructure in very quick succession.
- To protect itself against damage, a rapid sequence of automatic triggers ultimately caused the network automatically shut itself down.
- AEMO is yet to shed light on what might (or might not) have happened in the lead up to prevent the outage from occurring at such a large scale.
How did this impact wholesale electricity rates in the state?
You might be surprised to learn that for the month of September 2016, wholesale baseload futures in SA were largely unchanged. In fact, SA performed better than NSW, VIC and QLD in terms of wholesale futures prices rises.
What does this mean for South Australian electricity prices in the future?
Surprisingly, SA received some welcome relief from wholesale electricity price increases in September prior to the outage. This was in part due to talk of adding additional gas fired generation back into the system, thereby increasing supply.
The SA electricity spot market has been suspended since the outage. This is reflected in the wholesale futures with the market trading on very low volumes.
We are of the view that the outage has only made the simmering South Australian electricity situation more politically sensitive and thereby even more difficult to ignore from a policy and reform perspective. We therefore expect that the continued political and media focus on energy security (consistency of supply), wholesale prices may remain relatively stable in the short term.
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