We have developed this page to provide some context to the ‘what and why’ of the Cumulative Price, the Cumulative Price Threshold, and how that can trigger Administered Pricing.
(A) Rationale for having Administered Pricing (under Cumulative Price Threshold)
There is a timing mis-match in payments between the wholesale market and the retail market:
1) In the wholesale market, registered “Market Customers” (mostly the Retailers) pay the AEMO for the energy that’s physically delivered, and the AEMO pays the Generators according to a settlements timetable.
2) It can be quite some time later that the Retailer recovers what they should from Retail Energy Users (i.e. households buying from the retailer – along with commercial and industrial energy users).
This can involve very large sums of money – especially during periods of market volatility (given the very high Market Price Cap).
(B) Key Terms
In order to ensure that this liquidity risk (as distinct from profitability risk) is manageable, the NEM Rules includes a provision incorporating the Cumulative Price, the Cumulative Price Threshold, and Administered Pricing:
|
Cumulative Price |
This is the rolling total of 7 days of Trading Prices for the Region – which means: (a) Prior to Five Minute Settlement, this means the sum of the most recent 336 (30-minute) Trading Prices in the region; and (b) After Five Minute Settlement, this is the sum of the most recent 2,016 (5-minute) Trading Prices in the region. … hence, from 1 October 2021 the CPT increased from $226,500 to $1,359,100…. but you should really keep track of this page on Market Price Cap to understand how it’s trended since that time. There is a (separate) Cumulative Price for each Region-Commodity permutation … i.e. there are 55 of them, following the introduction of FFR. |
|
Cumulative Price Threshold |
Explain, with reference to the Market Price Cap. |
|
Administered Pricing |
If the Cumulative Price exceeds the Cumulative Price Threshold, then Administered Pricing begins and the prices (for the Regions and Commodities affected) are capped at the Administered Price Cap.
|
Note that this principle also applies in the FCAS market … to explain more
(C) Instances where the Cumulative Price Threshold has been reached
It is a rare event for the Cumulative Price to reach the Cumulative Price Threshold.
Here are some examples – currently focused on the ENERGY market:
|
March 2008 |
In March 2008 (almost 10 years after the NEM had started) we saw the first instance of it happening, with South Australia reaching the Cumulative Price Threshold. This article, written back at the time by someone who worked for us then, provides some details. |
|
January 2009 |
On Wednesday 28th January 2009 both South Australia (first) and then Victoria (shortly afterwards) hit the Cumulative Price Threshold during the extreme weather leading into to the “Black Saturday” bushfire disaster. This article was written on Thursday 29th January. Note that an all-time record level was established for Scheduled Demand across the NEM, and also in Victoria and South Australia. |
|
June 2009 |
On Wednesday 17th June 2009 the Tasmanian region hit the Cumulative Price Threshold. This article was written at the time. |
|
November 2009 |
On Friday 13th November 2009 the South Australian region hit the Cumulative Price Threshold. This article was written at the time. |
|
January 2019 |
In response to what’s happened in the QLD region in June 2022 (CPT for the first time ever), and how media reports had referenced WattClarity in writing that this was ‘first time since 2009’, one of our readers pointed out that we’d omitted the experience of VIC and SA on 25/26 January 2019 when they both reached the Cumulative Price Threshold. Reviewing articles written back then I note: 1) This article on 25th January 2019 looking back on Thursday 24th January 2019 … and noting it was close 2) This article on 6th February 2019 noting that the Cumulative Price Threshold was reached for VIC and SA. |
|
June 2022 |
This is undoubtedly the biggest combined event: 1) On Sunday evening 12th June 2022, the Queensland region hit the Cumulative Price Threshold, as noted in this article on the day. 2) At 18:30 on Monday (not quite 24 hours after QLD) the NSW region hit the Cumulative Price Threshold, after which Administered Pricing began 3) At 21:50 South Australia began Administered Pricing, followed by Victoria at 21:55 – meaning all four regions at the same time. This is the first time that it’s happened in any region since the introduction of Five Minute Settlement. |
|
May 2024 |
From 19:55 on Wednesday evening 8th May 2024, Administered Pricing commenced in the NSW region following a sustained bout of volatility that had a number of causes. This was described in more detail in a series of articles collated here. |
|
Another occasion? |
Hopefully not too soon we’re bound to see this happen again in one of the regions… |
Note that this table also needs to be updated to list the few additional occasions where Administered Pricing has been required for FCAS markets, but not ENERGY. Note that:
1) If Administered Pricing occurs for ENERGY, then Administered Prices also apply for all FCAS commodities; but
2) It is possible for FCAS prices to be Administered, without requiring ENERGY prices to be Administered.
There are a couple of occasions when that has happened.