AEMC Updates Market Price Cap and Cumulative Price Threshold for 2025-26: What You Need to Know

The Australian Energy Market Commission (AEMC) has announced updates to two critical components of the National Electricity Market (NEM): the Market Price Cap (MPC) and the Cumulative Price Threshold (CPT). These changes, which take effect from 1 July 2025, aim to balance reliability and affordability in Australia’s energy market. Let’s break down what this means for households, businesses, and energy providers.

What Are the MPC and CPT?

First, let’s decode the jargon:

• Market Price Cap (MPC): This is the maximum price electricity can reach in the NEM’s wholesale spot market during any 30-minute trading interval. Think of it as a “safety net” to prevent extreme short-term price spikes.
• Cumulative Price Threshold (CPT): This limits the total amount that prices can accumulate over a seven-day period. If prices hit the MPC multiple times within a week, the CPT ensures the system resets to avoid prolonged high costs.

Both settings are adjusted annually to reflect inflation, measured by the Consumer Price Index (CPI) – a key indicator of cost-of-living changes published by the Australian Bureau of Statistics (ABS).

Key Changes for 2025-26

The AEMC has confirmed two types of adjustments:

1. A progressive increase in base values (starting in 2025) due to a rule change finalised in December 2023.
2. Annual CPI adjustments to account for inflation.

Here’s a snapshot of the updated values:

Note: These figures are rounded to the nearest $100 as required by the National Electricity Rules (NER).

The MPC will rise gradually from $18,600/MWh in 2025 to $22,800/MWh by 2027, while the CPT increases from $1,674,000/MWh to $2,325,600/MWh over the same period.

Why Are These Changes Happening?

The updates stem from a 2023 AEMC rule change designed to:

• Improve grid reliability: Higher price caps allow generators to recover costs during supply shortages, encouraging investment in backup capacity.
• Keep pace with inflation: CPI adjustments ensure the MPC and CPT reflect real-world economic conditions.

The base year for calculating CPI adjustments has also shifted to 2022, aligning with recent ABS data.

How Are the MPC and CPT Calculated?

While the formulas might look complex, the process boils down to three steps:

1. Start with the base value (e.g., $18,600/MWh for the MPC in 2022).
2. Adjust for inflation using the average CPI from the previous two years.
3. Round to the nearest $100 for simplicity.

For 2025-26, the AEMC used CPI data from 2024 (year c) and 2022 (year b):

MPC Calculation Example:

• Base MPC = $18,600/MWh
• Inflation factor = 554.7 (2024 CPI) ÷ 509.2 (2022 CPI) = 1.089
• Adjusted MPC = $18,600 × 1.089 = $20,262.02 → Rounded to $20,300/MWh

The CPT follows the same method, starting with a base of $1,674,000/MWh.

What Does This Mean for You?

For energy retailers and generators, higher price caps mean:

• Greater revenue potential during peak demand (e.g., heatwaves or outages).
• Incentives to maintain or build reliable energy infrastructure.

For households and businesses, the changes could lead to:

• Slightly higher wholesale energy costs, though retailers often hedge against spikes.
• Improved grid stability, reducing the risk of blackouts.

The AEMC emphasises that these adjustments are proactive measures to future-proof the energy market amid growing demand and renewable energy transitions.

Where to Find More Information

The full details of the 2025-26 reliability settings, including CPI data and formulas, are available in the AEMC’s schedule of reliability settings.

Final Thoughts

While terms like “MPC” and “CPT” might seem abstract, they play a vital role in keeping Australia’s energy market fair and functional. By aligning price limits with economic realities, the AEMC aims to strike a balance between encouraging investment and protecting consumers.

Stay informed with Watt Utilities for more updates on energy policies, market trends, and practical tips to manage your power bills.