The AEMC today published an assessment of generator rebidding in the national electricity market. Our analysis found that rebidding is contributing to the delivery of efficient market outcomes but can be a problem where there is a lack of competition between generators.
The AEMC’s analysis was requested by former Federal Energy Minister the Hon Josh Frydenberg MP to consider claims made in a recent Grattan Institute report on ‘gaming’ practices in the wholesale electricity market.
Our report, developed in collaboration with the AER, used detailed data provided by the AER on high price events in which rebidding was the primary cause. The AER monitors and investigates rebidding behaviour and also instances where the actual wholesale price is significantly different to the forecast price (informed by pre-dispatch bids).
Wholesale price spikes can be caused by a range of factors, including higher than expected demand, a generator fault, network constraints and other changes in market conditions. Sometimes generators will rebid in response to these changed conditions. Our analysis showed that rebidding is only a problem where there are high levels of market concentration, permitting dominant generators to set wholesale prices.
The Commission noted that issues with industry structure are best addressed by policies that reduce market concentration, lower barriers to entry, and promote efficient new investment. Increased investment in generation capacity and demand response will improve competition and help alleviate the impact of market concentration in the future. This is consistent with the findings and recommendations of the recent ACCC inquiry into Electricity supply and prices. These recommendations are currently under consideration by the COAG Energy Council.
Media: Bronwyn Rosser, Communications Specialist, 0423 280 341; (02) 8296 7847; bronwyn.rosser@aemc.gov.au
Background
What is rebidding?
Generators offer or ‘bid’ to supply a certain amount of power at a particular price up to a day and a half before the power is needed. Generators must be genuinely prepared to honour their bid if AEMO calls on them to supply or ‘dispatch’.
If there is an unexpected need for more or less supply as the dispatch time draws nearer, generators can submit a new offer (a rebid).
Rebidding allows participants to adjust bids in response to new information as it becomes available. This could include changes in weather, consumer demand, generator performance, network constraints or bids of other participants.
What is gaming?
Gaming is when a generator:
- rebids its supply at a higher price just before dispatch, without any legitimate justification for changing its bid; or
- knows in advance that it intends to rebid but delays the rebid until the last possible moment.
Both of these actions are against the rules because they prevent other parties from responding with a lower bid.
Is gaming a problem in the NEM?
No. Acceptable rebidding can promote efficient outcomes for consumers by enabling electricity supply to adjust to changed market conditions. However, there must be strong governance around how rebids are made. The 2016 Bidding in good faith rule requires generators to keep records of the reasons for late rebids so these can be scrutinised by the AER. It also gives the AER better tools to manage compliance with bidding rules and take enforcement action in cases of false or misleading rebidding. Fines of up to $1 million per breach can apply.