AEMO has suspended the wholesale electricity spot market after companies failed to supply coal and gas for electricity generation.

The electricity spot market is used by the Australian Energy Market Operator (AEMO) to match the supply of electricity from power stations with real-time consumption by households and businesses. 

The market operator says the spot price tells generators how much electricity the market needs at any moment in time to keep the physical power system in balance.

AEMO took the extraordinary step in a bid to avoid mass blackouts, putting itself in charge of directing supplies from energy providers to the power grid.

The spot market shutdown followed another extraordinary move earlier in the week, when AEMO imposed a price cap across all the mainland state grids on Monday and Tuesday.

It comes after gas generators began holding the energy market to ransom, with a cost of generation sitting well above the $300/MWh price cap.

Because of the price cap, gas generators withdrew over 7.5GW of capacity in the days leading up to the suspension, saying they were waiting to be directed by market operators to supply power, allowing them access to maximum compensation. The system has been described as a profiteering scam. 

Withholding capacity to force a direction from AEMO is illegal and subject to fines in the millions of dollars.

AEMO says it “has become impossible to continue operating the spot market while ensuring a secure and reliable supply of electricity for consumers”. The price cap is likely to be in place for many weeks.

It is the first time that the national market, which includes Queensland, Victoria, South Australia, NSW and the ACT, has been suspended in this way. 

AEMO CEO, Daniel Westerman, blamed the decision on unplanned outages, supply chain challenges for coal and gas, low wind and solar output and price caps.

The suspension should simplify AEMO’s job to ensure power supplies. It is running a compensation regime that will see generators paid the average price in their state over the past four weeks.

“In the current situation suspending the market is the best way to ensure a reliable supply of electricity for Australian homes and businesses,” Mr Westerman said.

“The situation in recent days has posed challenges to the entire energy industry, and suspending the market would simplify operations during the significant outages across the energy supply chain.”

New South Wales Energy Minister Matt Kean, South Australia's Energy Minister Tom Koutsantonis and his Queensland counterpart Mick de Brenni have all welcomed the intervention.

Prime Minister Anthony Albanese says energy companies have failed to put customers first.

“My message to the energy companies is that they have a responsibility to their customers, whether they be households or businesses, to do the right thing,” Mr Albanese said.

“We need to end the sort of nonsense that we’ve seen over the last decade, where we had 22 different energy policies announced, but none of them landed.

“We’ve got one policy. We’re going to land it. We’re going to implement it. And it will make a difference because it will provide the certainty that business requires to be able to invest.”