Submissions sought on update to scarcity pricing settings

We are seeking feedback on proposed amendments to the Electricity Industry Participation Code 2010 (Code) to update the scarcity pricing settings. This will better reflect consumer expectations and improve price signals during periods of tight supply.

We are proposing to:

• raise energy scarcity prices to be more reflective of the cost of power interruptions to consumers and businesses
• reduce the number of reserve scarcity tranches to make scarcity price signals easier to understand
• raise the default value for controllable load to align with the proposed energy scarcity values.

At rare times, there may not be enough generation to meet short periods of peak demand on the power system. Scarcity prices in the wholesale market signal the cost of not having enough resource to meet consumer needs. Scarcity prices are set high to incentivise a response from industry participants to avoid a potential shortfall of supply.

Most consumers will not be affected by scarcity prices as they pay a fixed price for their electricity. Retailers or spot-exposed consumers may pay scarcity prices if they do not have sufficient risk management contracts in place to manage their spot price exposure if scarcity pricing occurs.

In 2023, the Market Development Advisory Group recommended an update to the scarcity pricing settings to ensure they properly reflect the value of reliability to consumers. Recent power system events on 10 May 2024 and 5 July 2024 also highlight how the settings can produce outcomes that are inconsistent with consumer expectations.

Our proposed Code amendment aims to:

• better reflect consumer expectations that power cuts should not occur while there is generation capacity available for dispatch
• better reflect the high cost of involuntary demand reduction on consumers and businesses
• improve price signals during periods of potential scarcity to assist with resource coordination and to continue to provide robust signals for investment in flexible capacity.

We invite feedback on the proposed values for energy scarcity, reserve scarcity and the default value for controllable load.

Read the consultation paper and have your say.

We look forward to receiving your submissions to this consultation by 5pm Friday 29 November 2024.

View consultation