Cumulative Price, and the Cumulative Price Threshold

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(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 will increase from $226,500 to $1,359,100.

Cumulative Price Threshold

Explain, with reference to the Market Price Cap.

Administered Pricing

If the Cumulative Price exceeds the Cumulative Price Threshold, then AEMO steps in and (under Administered Pricing) caps the dispatch price – and hence the Trading Price – to $300/MWh for the region.

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.

Another Date?

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More discussion?