IB Economics—internal assessment coversheet

School code Name of school

Queensland Academies of Health and Science

Candidate name Phillip Kofod

Candidate number

Teacher Michelle Palmer

Title of the article Power shortages could hit eastern Australia as energy market operator
scrambles to avoid outages.

https://amp-theguardian-com.cdn.ampproject.org/v/s/
amp.theguardian.com/australia-news/2022/jun/14/energy-supply-gaps-
forecast-in-queensland-and-nsw-amid-electricity-shortages-during-
cold-snap?
Source of the article
amp_gsa=1&amp_js_v=a9&usqp=mq331AQKKAFQArABIIACAw%3D
%3D#amp_tf=From
%20%251%24s&aoh=16551735266973&referrer=https%3A%2F
%2Fwww.google.com&ampshare=https%3A%2F
%2Fwww.theguardian.com%2Faustralia-news%2F2022%2Fjun
%2F14%2Fenergy-supply-gaps-forecast-in-queensland-and-nsw-amid-
electricity-shortages-during-cold-snap

Date the article was published 14th June 2022

Date the commentary was written 6th July 2022

Word count (750 words maximum) Not finished (due to me restarting on the 12th July 2022)

 Section 1: Microeconomics

Section of the syllabus the article

relates to (please tick the one that
 Section 2: Macroeconomics


is most relevant)
Section 3: International economics

 Section 4: Development economics

 ARTICLE
Energy

Power shortages could hit eastern Australia as

energy market operator scrambles to avoid
outages
Aemo cancels alert on potential blackouts in Victoria but electricity shortfalls forecast to continue in
Queensland and New South Wales
 Follow our Australia news live blog for the latest updates
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Peter Hannam
Tue 14 Jun 2022 05.55 EDT
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Eastern Australia has faced another day of electricity shortages requiring regulators to order
generators back into the market to avoid power outages and blackouts as a long cold snap rolls on.
Each of the five states in the national electricity market (Nem) – from Queensland to Tasmania –
had a forecast shortfall of electricity, according to the Australian Energy Market Operator (Aemo)
on Tuesday.
As of 3pm AEST on Tuesday, New South Wales had the largest forecast shortfall of 1,726 megawatts
at 9pm, among five such predictions. Queensland had three forecast gaps, the largest of which was
1,537 megawatts at 8pm.
Aemo had warned Victoria could face blackouts on Wednesday evening, but cancelled the alert on
Tuesday afternoon after the market responded.
Victoria’s energy minister, Lily D’Ambrosio, blamed the scare on “strange behaviour” from power
companies sitting on their reserves and not bidding into the market.
She said the generators were “potentially” gaming the system, a topic federal, state and territory
energy ministers asked Aemo to investigate after their meeting last week.
“No one likes the situation we’re seeing now,” D’Ambrosio told ABC radio. “We’ve been told and
assured by the market operator that there is more than sufficient power in Victoria available, it’s
just not being bid into the market.”
The market operator also triggered its plan to pay big power users to reduce their load in
Queensland for a second consecutive day on Tuesday and also activated it in NSW.
Aemo late on Monday introduced price caps of $300/megawatt-hour for the wholesale power
market that now cover the four mainland states in the Nem after prices exceeded thresholds that
trigger limits.
Electricity consumers in Queensland cut use to avoid blackouts as NSW and Victoria face shortages
On Tuesday morning, Tasmania, the one state in the national market without a price cap, was
getting spot prices at the maximum market level of $15,100/mwh.
The energy shortage is expected to continue on Wednesday with Aemo forecasting an electricity
supply gap of more than 2,800 megawatts in NSW at 8pm.
Energy ministers were confident the power sector would get through without forced blackouts.
They rely on Aemo to muster extra support and instruct generators to switch on when shortages
loom.
Matt Kean, the NSW energy minister and treasurer, told RN Breakfast on Tuesday that he was
confident the state’s electricity market would weather another cold day without consumers having
to turn down their appliances to avoid blackouts.
“We’ve got enough reserve capacity at the moment but obviously, there is not a lot of slack in the
system,” Kean told a media conference. “But [it’s] the market operator who runs the system, they’re
directing our plan to make sure that we don’t have any outages at this stage.”
Kean said he had been assured by the Aemo chair, Daniel Westerman, that “there’s enough plants
available to ensure reliability for the coming week in NSW”.
He said the introduction of the price caps had prompted some generators to withdraw from the
market as the limit was “too low to cover their costs”.
“So this is a market failure issue,” Kean said. “Aemo, the system operator, they have the power to
direct plants to put electricity into the system and that’s exactly what they’re doing at the moment”.
The NSW minister also shed some of the blame on the state’s northern neighours.
“Obviously, there’s been some big challenges in Queensland,” he said. “They’ve had an unusually
cold winter and number of the big generators have gone out of the system. That’s putting increasing
pressure on the New South Wales generators.”
Kean’s Queensland counterpart, Mick de Brenni, rejected the view his state was to blame for tight
market conditions.
“Queensland has been doing the heavy lifting for the entire east coast, whether it’s on supplying gas
to NSW and Victoria, to opening up more gas fields for exploration,” De Brenni told journalists.
“But the main thing that I want to reassure all Queenslanders is that the system is operating,” he
said. “We don’t expect there to be widespread outages.”
However, Dylan McConnell, an energy expert at Melbourne University, said the forecast shortfalls
appear to be artificial, caused by the sudden withdrawal of capacity from the market.

In Victoria, 2 gigawatts of generation capacity had also been pulled out overnight. The state’s brown
coal plants are not linked to global markets and their fuel has not increased in line with those
international price spikes.
Aemo set wholesale price caps on Queensland on Sunday for the first time since 2019 and the first
time in that state. The caps are automatically triggered with the aim of protecting consumers when
spot prices for a seven-day period reach a cumulative $1.3591m.
The federal climate and energy minister, Chris Bowen, told an afternoon media conference that he
was confident there would be sufficient supplies of electricity in the system to avoid blackouts.
Earlier, he told RN Breakfast the market was “not a perfect system”. The price caps had prompted
generators to withdraw, only to be instructed back into the market by Aemo.
Energy ministers would look at the market’s operation “in due course”, Bowen said.
The challenge was “you can’t predict when a coal-fired power station is going to go out”, reinforcing
the need to make the transition to “new forms of energy” that the previous government had failed to
do.
Asked about reported price-gouging by energy companies offering businesses only short-term
expensive supplies, Bowen said the energy ministers had tasked the competition regulator to act
against “any untoward behaviour” in the market.
A spokeswoman for the Australian Energy Regulator said that agency was “monitoring the market
closely”. It has also sent a warning letter of sorts to the industry.
Bowen did not reject outright a call by Malcolm Turnbull on Monday that eastern Australia should
introduce a temporary gas reservation system to ensure supply and limit prices, but said any
change to the so-called gas trigger would need consultation and then legislative change.
In a statement issued on Tuesday morning, Aemo said it would “take further actions to improve
electricity reserves, including directing generators into the market, which helped meet electricity
shortfalls in Queensland and New South Wales” on Monday.
It added that separate price caps remain for gas markets in both the Sydney Short Term Trading
Markets (STTM) and Victoria Declared Wholesale Gas Market (DWGM). The cap was set at a limit
of $40/gigajoule after reaching cumulative high price thresholds in Victoria on 30 May and for
Sydney on 7 June and will remain in place until prices remain below a threshold price for a day.

COMMENTARY
This article is about the power shortages in eastern Australia and how it is affecting the power market. The
author of the article is Peter Hannam who is Guardian Australia’s economics correspondent, he has a
higher-level degree of education as he attended Harvard University and he received a bachelor’s degree in
Social Studies.

The article states that Aemo Energy which is a public limited company has placed place caps on the
wholesale power market of $300/megawatt-hour that now is in four mainland states in the Nem (Hannam,
2022). A price cap is a maximum price set by the government for a particular good (Tragekes, 2020). These
price caps/ceilings will help with the issue of the cost of living rising as people aren’t paying as much to have
power to survive. Matt Kean, the NSW energy minister, and treasurer stated that this issue was a market
failure issue. Market failure occurs when the market fails to allocate resources efficiently, or to provide the
quantity and combination of goods and services mostly wanted by society. Market failure results in allocative
inefficiency, where too much or too little of goods or services are produced and consumed from the point of
view of what is socially most desirable (Tragekes, 2020).

This graph shows the price cap/ceiling of $300/mega-watts per hour. The price ceiling is below price
equilibrium due to when the price floor is place below the price equilibrium the quantity demanded will rise
and the quantity supplied will fall, causing a shortage. The price caps/ceilings will help with the issues of the
prices rising so much which is a major issue in Australia which has increased 23.4% in the last decade.
Also, price caps/ceilings have been introduced for gas prices and the cap was set to $40/gigajoules.

The government introducing a price cap/ceiling will stop energy providers who are usually monopolies from
making the consumers overpay for a utility that everyone needs. Price caps/ceilings are placed by
governments to stop firms from making their prices of their goods too high for example after the 2005
Hurricane Katrina the government created a price ceiling on bottled water $5 USD ($7.42 AUD) per gallon
(3.78 liters). Peter Hannam used Twitter to easily show what is occurring to a large audience. He also uses
quotes from high-ranking government officials such as a states energy minister. The government using price
caps/ceiling against this power crisis will help decreasing the cost of living which will help lower class to
middle class to support them to not become homeless or makes the government lose money to support
them.

References
Hannam, P. (2022, June 14). The Guardian. Retrieved from Power shortages could hit eastern Australia as
energy market operator scrambles to avoid outages: https://amp-theguardian-
com.cdn.ampproject.org/v/s/amp.theguardian.com/australia-news/2022/jun/14/energy-supply-gaps-
 forecast-in-queensland-and-nsw-amid-electricity-shortages-during-cold-snap?
amp_gsa=1&amp_js_v=a9&usqp=mq331AQKKAFQArABIIACAw%3D%3D#amp_tf=
Tragekes, E. (2020). Economics for the IB Diplomaa. Cambridge: Cambridge Panel.