Cumulative Price, and the Cumulative Price Threshold

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There is a timing mis-match in payments between the wholesale market and the retail market:
1)  In the wholesale market, registered “Market Customers” (mostly the Retailers) pay the AEMO for the energy that’s physically delivered, and the AEMO pays the Generators according to a settlements timetable.
2)  It can be quite some time later that the Retailer recovers what they should from Retail Energy Users (i.e. households buying from the retailer – along with commercial and industrial energy users).

This can involve very large sums of money – especially during periods of market volatility (given the very high Market Price Cap).

In order to ensure that this liquidity risk (as distinct from profitability risk) is manageable, the NEM Rules includes a provision incorporating the Cumulative Price, the Cumulative Price Threshold, and Administered Pricing:

Cumulative Price This is the rolling total of 7 days of Trading Prices for the Region

(i.e. the sum of the most recent 336 Trading Prices in the region – to be updated with 5-Minute Settlement)

Cumulative Price Threshold Explain, with reference to the Market Price Cap.
Administered Pricing If the Cumulative Price exceeds the Cumulative Price Threshold, then AEMO steps in and (under Administered Pricing) caps the dispatch price – and hence the Trading Price – to $300/MWh for the region.

It is a rare event for the Cumulative Price to reach the Cumulative Price Threshold. Here are some examples:

March 2008 In March 2008 (almost 10 years after the NEM had started) we saw the first instance of it happening, with South Australia reaching the Cumulative Price Threshold.

This article, written back at the time by someone who worked for us then, provides some details.

January 2009 On Wednesday 28th January 2009 both South Australia (first) and then Victoria (shortly afterwards) hit the Cumulative Price Threshold during the extreme weather leading into to the “Black Saturday” bushfire disaster.

This article was written on Thursday 29th January.

Note that an all-time record level was established for Scheduled Demand across the NEM, and also in Victoria and South Australia.

June 2009 On Wednesday 17th June 2009 the Tasmanian region hit the Cumulative Price Threshold.

This article was written at the time.

November 2009 On Friday 13th November 2009 the South Australian region hit the Cumulative Price Threshold.

This article was written at the time.

Another Date? More….

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