From March 2001 through to April 2002, the NEM had experienced a flattening of price outcomes in all regions as a result of a sharp decline in the level of volatility shown in the market.
The addition of Pelican Point in SA, Callide C in QLD, and the QNI interconnector between QLD and NSW contributed to a much larger surplus of available generation capacity in each region, thus suppressing prices. The large surplus of capacity that existed at 1st May 2002 (which was forecast to grow larger in the immediate term) presented a real risk to generator profitability.
With an increase in both average demand and generation, the surplus had not changed markedly and generators looked to the time of peak winter demand in order to exploit the relative shortage in available generation at those times. As generators took this opportunity to increase market volatility, a significant increase in average prices was delivered for the months of May, June and July.
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