The national energy operator has taken the drastic step of suspending Australia’s entire east coast wholesale market, saying it is impossible to keep operating in the current emergency.

The Australian Energy Market Operator announced the unusual step on Wednesday afternoon.

It applies to all of Australia, except for Western Australia and the Northern Territory.

Chief executive Daniel Westerman said it followed AEMO being forced to direct five gigawatts of generation through direct interventions on Tuesday, and it was no longer possible to reliably operate the spot market or the power system this way.

“In the current situation, suspending the market is the best way to ensure a reliable supply of electricity for Australian homes and businesses,” he said.

“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.”

Mr Westerman said the move meant AEMO had taken over the national market to “make sure we have clear visibility on which generators are available and … on the supply and demand balance”.

“Despite that visibility I would say we are facing tight periods ahead, especially in NSW,” he said.

“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, ranging from generators that have both planned and
unplanned outages [to] very high demand.”

The suspension is temporary and will be reviewed daily for each section of the national energy market.

It is the first suspension in the history of the national energy market, which began in 1998.

It followed AEMO issuing “Lack of Reserve Level 3” notices for Queensland and NSW earlier on Wednesday. A LOR3 notice means that “available electricity supply is equal to or less than the operational demand”.

There was also a similar warning for South Australia. AEMO signalled it was anticipating an energy supply crunch in South Australia on Friday from 8-9.30am and 5-9.30pm, issuing an LOR3 notice for the state.

Tweet from @AEMO_Energy

SA Premier Peter Malinauskas said policy makers should be “deeply ashamed” of the ongoing crisis. He said Australia was witnessing a “market failure on a grand scale across the National Electricity Market” that was occurring “in a way that I think a range of policymakers should be deeply ashamed of”.

“The simple fact is that we’re in a first world country that is energy rich, and the fact that we’ve now got Australians being told that they should turn off porch lights to keep the system going. I think is somewhat of an embarrassment,” he said.

Victoria and the ACT also face potential supply shortages in coming days.

Energy Minister Chris Bowen said on Wednesday he was pleased significant load-shedding and blackouts had been avoided so far, as a cold snap, the temporary shutdown of some coal-fired power station units and high gas prices stretched the system.

“AEMO advises me that that will likely continue to be the case that we will be able to avoid any load shedding events or any blackouts,” he said in Gladstone on Wednesday.

“Of course, that is subject to any unexpected outages in the system … which is under pressure.”

Prime Minister Anthony Albanese, meanwhile, had a warning for providers who were seeking to game the system by shutting down generation when prices were capped by regulation.

“They have a responsibility to their customers, whether they be households or businesses, to do the right thing,” he told ABC Radio.

“If they’re not doing the right thing, the regulator will take appropriate action.”

• Power companies accused of engineering gas crisis

Mr Bowen said he had made it clear the government supported “any action [AEMO] chooses to take to effectively manage the situation in the best interests of Australian consumers, whether they be big industrial consumers or residential consumers”.

Mr Westerman said price caps, coupled with significant unplanned outages and supply chain challenges, were prompting generators to remove capacity from the market.

He said this was understandable, but with the high number of units out of service and the early winter cold snap, the reliance on directions has made it impossible to continue normal operation.

“We are confident today’s actions will deliver the best outcomes for Australian consumers, and as we return to normal conditions, the market-based system will once again deliver value to homes and businesses,” he said.

Australian Energy Regulator chair Clare Savage said there would be talks on Wednesday to ensure there was enough power supply.

Despite shortages in some of the market, Ms Savage said generators were doing everything they could to keep the power running.

“Supply is very tight right now, but we do know there is more generation available that is being bid into the market,” she told the Seven Network.

Ms Savage said she wrote to every generator in the east coast on Tuesday to make sure they understood their responsibilities.

Australian Energy Council chief executive Sarah McNamara said the crisis in the sector was unprecedented.

“It’s very challenging for generators to be expected to bring supply online,” she told ABC Radio.

“It’s costing them $400/MWh. If they’re only going to get paid $300/MWh, that’s running at a deep and significant loss.”

-with AAP