This assessment of generator rebidding in the national electricity market (NEM) 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.
This 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. This analysis shows 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.