The Australian Energy Market Commission (AEMC) has today provided further guidance to the market about the administered price cap (APC) compensation process.
Under the APC compensation arrangements, generators that bid into the market will be protected from losses through the arrangements. The approach the AEMC will take factors in the direct costs of generators and opportunity costs. These arrangements are designed to ensure generators continue to bid into the market and provide protection for generators so they will not face losses through this process. This is a process run independently by the AEMC.
AEMC Chair Anna Collyer said this process, which allows a participant to claim their direct and opportunity cost, differs from the directions process which provides compensation based only on direct costs.
“The AEMC is committed to processing compensation claims for losses during administered pricing periods as fast as possible,” Ms Collyer said.
The rules, outlined in the APC compensation guidelines set out how participants can apply during an administered price period for direct costs and opportunity costs. Claims should be assessed in the timeframes that AEMO uses in its directions process.
The AEMC considers claims should be made at the end of an administrative pricing period, during which the APC applies. If the APC applies for an extended period then we will accept weekly claims from participants. This minimises the administrative burden while providing timely compensation to industry.
The process for opportunity costs is set out in the guidelines and requires consideration of appropriate methodologies for claims. This process will take longer than direct cost processes and will be a critical priority for us.
We would also point to correspondence from the Australian Energy Regulator (AER) which reminds market participants and scheduled generators of their obligations under the NER:
Market participants must not by any act or omission, whether intentionally or recklessly, cause or significantly contribute to the circumstances causing a direction to be issued, without reasonable cause.
An administered price period occurs when the rolling seven-day average of wholesale spot prices breaches the cumulative prices threshold (CPT). The CPT is now based on five-minute prices and is set at $1,359,100, which is the equivalent of the spot price being set at the MPC of $15,100/MWh, continuously, for 7.5 hours.
The CPT is designed to protect customers from extended high price periods. The compensation process is aimed to ensure generators continue to bid into the market and they do not face losses during this period.
Eligible parties include scheduled generators, non-scheduled generators, scheduled network service providers, scheduled loads, ancillary service providers, and demand response service providers.
These parties can claim compensation if they provided energy or other services during an administered price period and incurred a net loss. That is, their direct and/or opportunity costs exceeded their total revenue from the spot market over an entire “eligibility period”.
Opportunity cost is the value of the best alternative opportunity for eligible participants during the application of a price limit event or at a later point in time.
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