Compensation – administered pricing, market suspension, and directions
During periods of administered pricing, market suspension or directions, eligible market participants can make claims for compensation. The assessment of claims is subject to the requirements under the National Electricity Rules.
This page gives an overview of the compensation available for administered price periods, market suspension, and directions and summarises the process for making a claim.
Claims are assessed by either the Australian Energy Market Commission (AEMC) or the Australian Energy Market Operator (AEMO), depending on the prevailing circumstances of the claim and the type of compensation being claimed. In some cases, administered pricing periods, market suspension schedule pricing periods, or directions can overlap. In such cases, market participants may be eligible to claim multiple types of compensation concurrently. See the compensation overview table below for a summarised overview of each compensation claim.
On this page you can find:
- compensation overview
- administered pricing compensation
- market suspension compensation
- directions compensation
- how are costs associated with compensation payments recovered?
- provide your feedback on compensation processes
|Administered pricing compensation
|Market suspension compensation
|Where is the process set out in the Rules?
|Clause 3.14.6 of the NER.
|Clauses 3.14.5A and 3.14.5B of the NER.
|Clauses 3.15.7, 3.15.7A and 3.15.7B of the NER.
|Who administers the claim process?
|Who can be compensated, and for what?
|Participants who provide services during price limit events and make a loss.
Participants who provide services during a market suspension schedule pricing periods.
Where a market suspension overlaps with an administered pricing period, the relevant compensation scheme depends on whether the price was set by the administered price cap or floor or the market suspension pricing schedule.
|Participants who are directed to provide specific services, or additional compensable services.
|What is the mechanism for calculation and payment?
|Participants can be compensated for direct and opportunity costs, by lodging a claim with the AEMC.
|Initially, participants automatically receive a payment determined by a formula that estimates direct costs. Participants can lodge claims for additional compensation for direct costs with AEMO.
|Initially, participants automatically receive the 90th percentile spot price for energy or Frequency Control Ancillary Services over the preceding 12 months. Participants can lodge claims for additional compensation for direct costs and loss of revenue with AEMO.
Administered pricing compensation
Compensation is available to eligible market participants during an administered price period, where the administered price cap (APC) or an administered floor price is applied.
The National Electricity Rules (NER) under clause 3.14.6 and the Australian Energy Market Commission (AEMC) compensation guidelines set out a process for eligible market participants to claim compensation for any losses during an administered price period.
What is an administered price period?
The CPT is designed to protect customers from extended high price periods. The CPT is based on five-minute prices. The CPT is set at $1,490,200, and the market price cap (MPC) is $16,600/MWh. Under the NER, the MPC and CPT must be adjusted in line with the consumer price index each year.
Currently, during administered price periods, the spot price is collared in the region between the administered floor price of -$600 per MWh and the APC of $600 per MWh.
Compensation claims made to the AEMC under NER clause 3.14.6 are assessed and determined based on the MPC, CPT, APC, administered floor price and AEMC compensation guidelines that are in place at the time of the relevant administered pricing period. This may differ from the current versions of NER clause 3.14.6, the MPC, CPT, APC and AEMC compensation guidelines.
Objectives of the framework – administered pricing compensation
The objective of the payment of compensation under clause 3.14.6 of the NER is to maintain the incentive for:
(1) Scheduled Generators, Non-Scheduled Generators and Scheduled Network Service Providers to supply energy;
(2) Ancillary Service Providers to supply ancillary services;
(3) Market Participants with scheduled load to consume energy; and
(4) Demand Response Service Providers to supply wholesale demand response,
during price limit events.
Eligibility to claim - Administered pricing compensation
Parties eligible to make a claim for administered pricing compensation are 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 supplied energy or other relevant 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” (the period from the first trading interval of a trading day where the spot price is set by the administered price cap, until the end of that trading day).
Opportunity cost is the value of opportunities foregone by the claimant, and is defined in the compensation guidelines as 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.
How to make a claim - Administered pricing compensation
The AEMC compensation guidelines set out how participants can make a claim for compensation for direct costs and opportunity costs following the application of an APC. Claims will be assessed in accordance with the statutory timeframes. More information on the statutory timeframes is available in the compensation guidelines (see page 17).
The assessment process for direct and opportunity costs is set out in the AEMC compensation guidelines. The process for assessing opportunity costs takes longer than direct cost process as it requires public consultation and consideration of appropriate methodologies for claims.
If a party decides to make a claim, the following applies:
- The AEMC compensation guidelines.
- The claimant must provide notification in writing that it is making a claim within five business days of the end of the administered price period event to both:
- This notification in writing must include the:
- administered price period and price limit event for which the claim relates. Price limit events(s) refer to the actual trading intervals in which the spot price in a relevant region was either set by the administered price cap or reduced by scaling from an upstream region).
- region in which the administered price period and price limit event applied
- The notification will state whether the claim is a direct cost claim or a claim that includes opportunity costs. Note it is possible to claim direct costs and opportunity costs for the same price limit event.
- After receiving the notification to make a claim, the AEMC will publish a notice of receipt. The AEMC will then seek information from the claimant that we consider required to enable assessment of the claim - if the claim includes opportunity costs, this information must include the methodology used by the claimant to determine its opportunity costs.
- The claimant subsequently provides substantiation. The onus is on the claimant to provide evidence and justification. There is no set time period for this step. Any claims of confidentiality in respect of information provided by the claimant to the AEMC must be specified in the claim.
- The AEMC will commence formal assessment as soon as practicable after receiving sufficient information from the claimant. A notice will be published that formal assessment has started.
- The compensation processes differ depending on whether the claimant is seeking direct costs only, or also opportunity costs. Claims for opportunity costs will be subject to public consultation.
- The AEMC will consult with the claimant before making its determination. The claimant will be notified of the AEMC’s final decision as soon as practical.
Example of a claim - Administered pricing compensation
An example of a valid claim is as follows;
Party: [Registered participant name]
Category of registered participant: [e.g. scheduled generator]
Administered price period and region in which price limit event(s) that applied: [Start date and time, end date and time] in [e.g. NSW]
Type of compensation: [Direct costs/opportunity costs]
The AEMC’s assessment of administered pricing compensation will consider any other compensation claimants have received, such as compensation for directions or compensation due to AEMO intervention events.
Current and historical administered pricing compensation claims
The AEMC has received compensation claims under clause 3.14.6 of the Rules due to the application of the administered price cap on the following occasions:
Compensation claims made under NER clause 3.14.6 are assessed and based on the version of NER clause 3.14.6, CPT, APC and AEMC compensation guidelines in place at the time of the relevant administered price event. This may differ from the current versions of NER clause 3.14.6, the CPT, APC and AEMC compensation guidelines.
Market suspension compensation
Compensation is available to eligible market participants following Market Suspension Pricing Schedule (MSPS) periods. AEMO is required to pay compensation to eligible Market Suspension Compensation Claimants if prices in the MSPS are deem not sufficient to cover their estimated costs. Compensation will be calculated as per NER clauses 3.14.5A(d) and 3.14.5B.
What happens during a market suspension?
Under clause 3.14.3 of the National Electricity Rules (NER), AEMO may declare the spot market to be suspended in a region when any of the following occur:
- The power system in the region has collapsed to a black system
- AEMO has been directed by a participating jurisdiction to suspend the market following declaration by that jurisdiction of a state of emergency
- AEMO determines that it has become impossible to operate the spot market in accordance with the provisions of the NER.
The spot market is taken to be suspended at the start of the dispatch interval in which AEMO makes the declaration.
The spot market remains suspended until AEMO declares that spot market operation is to resume. AEMO’s approach is to resume the spot market when none of the three conditions apply and AEMO is satisfied that there is minimal possibility of suspending the market within the next 24 hours due to the same cause. If the spot market was suspended due to a direction from a participating jurisdiction, then AEMO can only resume the spot market after that participating jurisdiction has revoked the direction. AEMO will endeavour to provide a minimum two hours’ notice before resuming the spot market after a black system or jurisdictional direction to allow an orderly transition to normal pricing, or a minimum 30 minutes’ notice if the market is suspended due to a failure of AEMO’s central dispatch process.
Pricing during Market Suspension
Spot prices and FCAS prices in a suspended region continue to be set in accordance with NER rule 3.9 where AEMO considers it practical and reasonably possible to do so, and central dispatch is continuing under rule 3.8.
Otherwise, prices will be based on the relevant Market Suspension Pricing Schedule developed and published in accordance with NER clause 3.14.5(e).
AEMO must cap spot prices in regions upstream of a suspended region in accordance with NER clause 3.14.5(f) to minimise the accrual of negative inter-regional settlement residues.
AEMO updates and publishes the Market Suspension Pricing Schedule weekly and 14 days in advance, in accordance with its Market Suspension Pricing Methodology. The schedule, methodology, and guide on market suspension pricing is available on AEMO’s website. The Market Suspension Pricing Schedules can also be found in the MARKET_SUSPEND_SCHEDULE table of the MMS Data Model.
Objectives of the framework – market suspension compensation
(a)The objective for the payment of compensation under clause 3.14.5A and clause 3.14.5B of the NER is to maintain the incentive for:
(1) Scheduled Generators to supply energy;
(2) Ancillary Service Providers to supply market ancillary services; and
(3) Demand Response Service Providers to supply wholesale demand response, during market suspension pricing schedule periods.
Eligibility for market suspension compensation
In accordance with clauses 3.14.5A and 3.14.5B of the NER, market participants eligible for compensation under this framework include:
- scheduled generators which supply energy,
- ancillary service providers which supply market ancillary services, and
- demand response service providers which supply wholesale demand response where it occurs during market suspension pricing schedule periods.
Claims for market suspension compensation
Eligible claimants do not have to make a claim for market suspension compensation in the first instance, as compensation payments to eligible Market Suspension Compensation Claimant are initiated by AEMO. In accordance with the intervention settlement timetable, AEMO will notify each eligible Market Suspension Compensation Claimant in writing:
- whether they are entitled to receive compensation pursuant to NER clause 3.14.5A(b); and
- if so, the amount of compensation payable, as calculated in NER clause 3.14.5A(d).
Within 15 business days of receipt of the email notice from AEMO, participants can then make a written submission to AEMO to claim for additional compensation as a Market Suspension Compensation Claimant.
The timeframe for the claim process is outlined in the intervention settlement timetable on AEMO’s website.
Where can I find more information – market suspension compensation
For more information on market suspension compensation eligibility, claims and processes please contact, firstname.lastname@example.org.
Compensation is available from AEMO for eligible participants to recover the costs associated with complying with a direction.
The calculation of directions compensation is governed by clauses 3.15.7, 3.15.7A and 3.15.7B of the NER. The cost recovery for directions compensation is governed by clause 3.15.8 of the NER.
Eligibility for directions compensation
Currently, participants who are directed for the following services can be compensated through the directions compensation framework:
- any market ancillary service
- a direct substitute for energy and FCAS energy, and
- a service where energy or market ancillary services are provided incidentally, including inertia, voltage control and system strength.
Directed participants that do not provide a service in this list but instead provide an ‘other compensable service’ are entitled to “fair payment compensation.”
Examples of this include:
- directions for batteries to maintain a particular state of charge and bid regulation FCAS to zero, to provide headroom
- directions for units to provide System Restart Ancillary Services (SRAS).
Claims for directions compensation
Eligible claimants do not have to make a claim for directions compensation in the first instance, as compensation payments to directed participants are initiated by AEMO. In accordance with the intervention settlement timetable, AEMO will notify each directed participant in writing the amount that they are entitled to receive pursuant to NER clauses 3.15.7(c) or 3.15.7(d). Within 15 business days of receipt of the email notice from AEMO, participants can then make a written submission to AEMO to claim for additional compensation as a directed participant.
Directed participants that provided an ‘other compensable service’ as determined by AEMO, will be notified by AEMO in writing within 10 business days of issuing a direction in accordance with NER clause 3.15.7A(b). The notice will include:
- the date and time of the relevant direction;
- the scheduled plant or market generating unit the subject of the relevant direction;
- the circumstances of the relevant direction;
- AEMO’s determination as to whether an other compensable service was provided in order to comply with the direction, and if applicable, a description of the other compensable service provided; and
- AEMO’s reasons for its determination
Within 15 business days of receipt of the email notice from AEMO, participants can then make a written submission to AEMO to claim fair payment compensation in accordance with NER clause 3.15.7A(f).
The timeframe for the claim process is outlined in the intervention settlement timetable on AEMO’s website.
Where can I find more information – directions compensation
For more information on directions compensation eligibility, claims and processes please contact, email@example.com.
How are costs associated with compensation payments recovered?
AEMO manages the payment of compensation and the associated cost recovery across all of the frameworks. Compensation payments are recovered from retailers and other market customers who consume energy in the region during the relevant time period. The compensation frameworks are important for ensuring that services continue to be provided during periods of market stress so that customers continue to receive electricity. The schemes include checks and balances so that the compensation paid is appropriate.
Provide your feedback on compensation processes
On 2 November 2023, the Australian Energy Market Commission (AEMC) self-initiated a review into electricity compensation frameworks in the NER (the Review), following the disruptive market events of June 2022.
The Review considers administrative price, market suspension and directions compensation frameworks. It aims to improve their collective functioning and ultimately provide market participants with the confidence to ensure electricity supply during market disruption.
The Review is an opportunity to ensure the frameworks align to achieve optimal outcomes both on a standalone basis and in combination. If you have feedback on the compensation frameworks, we encourage you to share your views with the project team and make a submission to the consultation paper by 1 February 2024.
This webpage is current as at [x] 2023. It is provided by the AEMC for information purposes only and is based on the version of the National Electricity Rules in force as at the date noted above. The AEMC does not warrant or represent that the information on this webpage is accurate, reliable, complete or current for particular purposes and it is not a substitute for the National Electricity Rules. You should verify and check the accuracy, completeness and reliability of any information and seek independent legal advice before relying on any information contained on this webpage.