Average wholesale electricity prices in NSW through 2017 have been significantly higher than historic levels. While high prices in the National Electricity Market (NEM) are not unprecedented, the price outcomes experienced in NSW are different to those witnessed previously. Historically we have typically seen high average prices that are driven by a limited number of extreme price events. The high average prices we have observed in NSW beyond the summer period have been sustained and have not been driven by extreme price events.
In this environment, the Minister for Environment and Energy requested that the AER monitor the NSW wholesale market for features or generator behaviours that may be detrimental to effective competition and provide advice to the Council of Australian Governments (COAG) Energy Council on any factors affecting the efficient functioning of the NSW market by November 2017. The minister highlighted that the Australian government is keen to ensure that where high wholesale prices do occur, they are justified by legitimate market circumstances and are not a result of inappropriate exercise of market power.
The AER's analysis shows that the higher prices reflect a shift in the offer behaviour of NSW generators since October 2016. This involves a 'step change' whereby generation capacity that was being offered at lower prices ($0-50/MWh) is now being offered at higher prices ($50-150/MWh). This change in offer behaviour has been sustained - it has been an enduring feature of the NSW market since October 2016. We have identified a number of contributing factors to this change in generator offer behaviour.