Australia power market halted in dramatic move to avert blackouts

MELBOURNE, June 15 (Reuters) - Australia's energy market operator took the unprecedented step on Wednesday of suspending the electricity spot market across eastern Australia to ensure it can keep the lights on, amid a string of outages at coal-fired plants.

Even with the extraordinary step, the market operator warned that power supply remained tight and urged households in the country's most populous state, New South Wales, to conserve power, its first such request since the country's power crisis began in May.

The dramatic move came after the operator capped wholesale prices on Monday as required when they exceeded a set threshold, which led some generators to withhold supply as the capped price of A$300 per megawatt hour (MWh) did not cover their costs.

That prompted the market operator to order generators to supply 5 gigawatts (GW) of power, which they had delivered to the market on Tuesday, to avert blackouts in two states - New South Wales and Queensland.

The market operator said it will set prices during the market suspension and will pay generators compensation to cover their costs.

"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," Australian Energy Market Operator (AEMO) chief executive Daniel Westerman said in a statement.

The Australian government welcomed the move.

"This is the best way to make sure the lights stay on and AEMO has the government's full support in taking this action," Energy Minister Chris Bowen said in a statement on Twitter.

Westerman said it was understandable generators had held back supply in light of the price caps along with unplanned outages and supply challenges with coal and gas, but having to direct generators to provide supply had made it impossible to maintain normal market operations.

By taking over control of the market, the operator would have clear visibility on which generators are available and when in a timely manner so it can ensure reliable supply.

"Despite this, conditions remain tight in the coming days, in particular in New South Wales, where we would urge consumers to conserve energy where it is safe to do so," Westerman told reporters in a televised media conference.

The market, which normally trades in five-minute intervals, was suspended at 0405 GMT.

'CHALLENGING TIMES'

Australia has been hit by soaring power and gas prices over the past three weeks due to many factors, including planned and unplanned outages at several coal-fired plants, periods of low wind and solar output, a cold snap, and record high global coal and gas prices.

Coal-fired plants normally cover around 65% of eastern Australia's power supply, but more than a quarter of that capacity is currently unavailable.

To make up for it, the market has had to rely on extra gas-fired and diesel-fired generation at a time when gas and diesel prices have skyrocketed.

"We are seeing very challenging times. Right now we see the market is not able to deal with all the factors thrown at it. Frankly those factors are quite extreme," Westerman said.

Australia's two biggest power producers, AGL Energy (AGL.AX) and Origin Energy (ORG.AX), said they were working closely with the market operator to ensure reliable supply.

"We believe there needs to be an urgent focus on how to bring as much power capacity back into the market as quickly as possible, including addressing coal supply and transport constraints to a number of plant," Origin's head of operations, Greg Jarvis, said in emailed comments.

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