The Australian Energy Market Operator (AEMO) has taken the extraordinary step of suspending the spot market for wholesale electricity across the country.

The electricity sector has been dealing with soaring costs, forcing AEMO to cap prices and compel generators to offer their services.

AEMO has now suspended the spot market entirely across the National Electricity Market — which includes Queensland, Victoria, South Australia, NSW and the ACT — saying it is impossible to ensure reliable electricity supply under the current circumstances.

It's the first time the market has been suspended nationally and it will be reviewed daily in each state.

AEMO chief executive Daniel Westerman says suspending the market will simplify operations of the electricity market.

"It was impossible to operate the system under current conditions while ensuring reliable, secure supply of electricity to Australian homes and businesses.

"Right now we see the market is not able to deal with all the factors thrown at it. Frankly, those factors are quite extreme, ranging from generators that are both planned and unplanned outages, very high demand. [There are] a confluence of factors at hand."

He said the suspension created a more simple process to keep track of energy generators.

"We are creating a simple process where AEMO has true visibility of which generators are available and when in advance, rather than relying on last minute interventions," Mr Westerman said. 

He said NSW residents should try and conserve energy where it is safe to do so on Wednesday night.

"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."

The spot market is what AEMO uses to match the supply of electricity from power stations with real-time consumption by households and businesses.

AEMO says the spot price tells generators how much electricity the market needs at any moment in time to keep the physical power system in balance.

Energy price hikes prompt price cap

Soaring costs have prompted AEMO to cap electricity prices in recent days.

That led to power generators withdrawing electricity on the basis that their operations would be unprofitable under the price cap.

This meant AEMO forced operators to supply electricity into the grid to avoid blackouts, with the operators being compensated for the supply.

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Energy ministers have welcomed the decision.

"This decision will help prevent energy companies from putting energy reliability at risk by unnecessarily withdrawing supply," NSW Energy Minister Matt Kean said.

Mr Kean also said the potential shortage in NSW would be between 5:30pm to 8:30pm on Wednesday.

Queensland Energy Minister Mick de Brenni said the decision reduced the risk of supply shortfalls and unplanned outages.

"Importantly, this means your power will stay on," he said.

"I can assure Queenslanders there is surplus supply to meet demands in our state and a further generating unit is scheduled to return to service later this week."

South Australia's Energy Minister Tom Koutsantonis said AEMO made the right decision.

"Unprecedented action to meet an unprecedented crisis," he said.

Opposition lays blame on brand new minister

Prior to AEMO's decision, Federal Energy Minister Chris Bowen said households along Australia's east coast should not experience power outages this week.

"I am also pleased that AMEO advises me that will likely continue to be the case — that we will be able to avoid any load shedding events or any blackouts of course that is subject to any outages in the system," Mr Bowen said.

"As I've said repeatedly this week, the system is under pressure."

He says the issues with the national energy market are evidence the system has been mismanaged for the past decade.

But Opposition Leader Peter Dutton said the blame lies with Mr Bowen, who was sworn in as energy minister two weeks ago.

"This is a problem of Chris Bowen's making and he needs to fix it," Mr Dutton said after the AEMO announcement.

"Labor is transitioning to renewables too quickly, that is very obvious. It's obvious that they are spooking the market."

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