In this short page, we will explain about the Market Price Cap – which works in tandem with the Cumulative Price Threshold.
(A) Why is there a Market Price Cap?
To our knowledge, all electricity markets across the world has a price cap … with the NEM being an ‘Energy Only’ Market, the price cap is higher than is the case in energy markets that also include Capacity Payments.
A1) What’s in the name?
When the NEM started, the Market Price Cap (MPC) was called VOLL (the Value of Lost Load).
This original name was was a derivation of market designs that existed elsewhere (e.g. in the original market design for England and Wales, the VOLL in that market was combined with a calculated Loss of Load Probability (LOLP) to calculate the Capacity Payment made).
As shown in the table below, the VOLL name was formally abandoned in 2010 … but many stakeholders still refer to it as such.
Note – VOLL should not be confused with Value of Customer Reliability (VCR), which the AEMC requires the AER to calculate, as noted here.
A2) Why a Price Cap?
Because electricity demand needs to be balanced in real time by supply to keep the system frequency stable, there are inevitably times when supply and demand are tight. The price cap is required to prevent the price spiking to unpalatable levels on those occasions of market scarcity.
(B) How the Market Price Cap is set?
The AEMC Reliability Panel has responsibility for setting, and periodically adjusting the Price Cap. This is done as part of a periodic ‘Reliability Standard and Settings Review’, which is conducted every four years.
(C) How the Market Price Cap has trended over time?
Here’s a table here of how the Market Price Cap has changed since the start of the NEM:
| Dec 1998 (start of the NEM) |
At the start of the NEM, this was known as VOLL, and was set at $5,000/MWh. |
| approx June 2002 | VOLL was increased to $10,000/MWh |
| 1st July 2010 | VOLL was renamed the ‘Market Price Cap’ and was increased from $10,000/MWh to $12,500/MWh
You can find further details about this change on the AEMC website under the ‘NEM Reliability Settings: VoLL, CPT and Future Reliability Review’ (i.e. ERC0080). |
| 1st July 2012 | Something in between, from memory |
| 1st July 2013 | The Market Price Cap was increased to $13,100/MWh |
| 1st July 2014 | The Market Price Cap was increased to $13,500/MWh |
| 1st July 2015 | The Market Price Cap was increased to $13,800/MWh |
| 1st July 2016 | The Market Price Cap was increased to $14,000/MWh |
| 1st July 2017 | The Market Price Cap was increased to $14,200/MWh |
| 1st July 2018 | The Market Price Cap was increased to $14,500/MWh |
| 1st July 2019 | The Market Price Cap was increased to $14,700/MWh |
| 1st July 2020 | The Market Price Cap was increased to $15,000/MWh |
| 1st July 2021 | The Market Price Cap was increased to $15,100/MWh
The first time it hit that level was Sunday 11th July 2021 (the NSW dispatch price at 18:35) |
| 1st October 2021 | On 1st October 2021 the Market Price Cap did not change – however (because of the commencement of Five Minute Settlement) the Cumulative Price Threshold, which is based on the Market Price Cap, did increase by 6 times.
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| 1st July 2022 | The Market Price Cap increased to $15,500/MWh
In conjunction with this, the Cumulative Price Threshold increased to $1,398,100 (from $1,359,100 post 5MS). |
| 1st July 2023 | The Market Price Cap increased to $16,600/MWh
In conjunction with this, our understanding is the Cumulative Price Threshold is scheduled to increase to $1,490,200. |
| 1st July 2024 | As the AEMC noted here:
1) The Market Price Cap increases to $17,500/MWh, 2) In conjunction with this, our understanding is the Cumulative Price Threshold is scheduled to increase to $1,573,700/MWh — Note that the CPT increase is slightly different than the recommendation in the Final Report of 1st Sept 2022 (which suggested $1,575,000 – i.e. 7.5 hours at MPC). The logic the AEMC used was described here. |
| 1st July 2025 | In the 2022 Reliability Standard and Settings Review, the recommendation in the Final Report of 1st Sept 2022 recommended that:
1) The Market Price Cap increase to $19,500/MWh. 2) The Cumulative Price Threshold increase to $1,872,000 (i.e. 8 hours at MPC) |
| 1st July 2026 | In the 2022 Reliability Standard and Settings Review, the recommendation in the Final Report of 1st Sept 2022 recommended that:
1) The Market Price Cap increase to $21,500/MWh. 2) The Cumulative Price Threshold increase to $2,193,000 (i.e. 8.5 hours at MPC) |
We’ll add more context here as the need arises…