News & insights
Date: October 2022 | Client: Australian Energy Council | Sector: Energy | Expertise: Regulation & competition
Price caps in the Australian National Energy Market (NEM)
- provide a brief overview of capacity markets and energy only markets in order to contextualise the discussion;
- provide a detailed discussion of the theory of whether generators would be expected to double-dip upon the introduction of the capacity market in addition to the NEM’s existing energy market;
- discuss and analyse key assumptions relating to this theory; and
- provide real-life evidence of the theory in practice in other contexts.
- offers are based on net marginal costs meaning that double dipping should not occur;
- with all else equal, changing the market price cap should have no impact on physical or financial outcomes;
- low market price caps drive the need for capacity markets, not the other way around; and
- lowering the market price cap for other reasons may be appropriate but comes with trade-offs.
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