Scarcity pricing introduces a price floor and price cap to the spot market when an electricity supply emergency causes forced power cuts (called emergency load shedding) throughout one or both islands.
Arrangements for scarcity pricing are contained in Part 13 of the Code.
If scarcity pricing is triggered, the generation weighted average spot price (GWAP) will be calculated for the affected island(s) based on existing pricing processes.
GWAP takes the generation weighted average of the spot price at each GIP.
If the generation weighted average spot price is lower than $10,000/MWh, all prices within the affected island(s) will be scaled up so that the generation weighted average spot price reaches $10,000/MWh. If the generation weighted average spot price based on existing pricing processes is more than $20,000/MWh, all prices will be scaled downwards so that the generation weighted average spot price is $20,000/MWh.
In combination, the floor and cap mechanism during scarcity gives improved revenue certainty for providers of last resort resources (generation and demand response), while also giving more assurance to wholesale purchasers that spot prices in emergency load shedding will not settle well above the level expected in a workably competitive market. Scarcity pricing increases incentives for consumers and net-retailers to enter into hedge arrangements with providers of last resort resources, increasing competition in the provision of these resources.
A stop-loss mechanism halts the application of scarcity pricing if the average price in the last 336 trading periods is greater than $1,000/MWh. If the average price exceeds this threshold, normal pricing processes would apply.
Prices following the resolution of infeasibilities caused by a shortage of reserve are limited to the higher of:
- three times the highest scheduled energy offer price; and
- the highest-priced offer scheduled of the reserve product that is short.
If you have any questions or want more information email our market operations team.