Revisiting the crisis: An empirical analysis of the NEM suspension

This paper examines the suspension of the Australian National Electricity Market (NEM) that occurred in June 2022. Our study aims to (i) identify the key factors leading to the market suspension, (ii) investigate the behaviour of market participants and price outcomes during this period, and (iii) provide important recommendations for policy and decision-makers related to avoiding or managing crises in wholesale electricity markets. We contribute to the literature by focusing on a severe market crisis event, thoroughly examining generator bidding, dispatch and spot price dynamics over different time periods around the suspension event. Our study examines these dynamics at a high degree of granularity, presenting results at the generator fuel level and for different sub-samples, including the pre-crisis period, the built-up of the crisis, the suspension period, and after the crisis. Our empirical findings highlight that policymaking, in particular the set level of the administered price cap, as well as a lack of reliable substitutes for fossil fuel generation, were leading causes for the suspension. Further, our analysis finds limited evidence of strategic bidding on average but does not deny its possibility at granular levels. Finally, we propose policy implications based on our findings to ensure a well-functioning NEM that can facilitate a smooth energy transition.