Transcript An Overview of the National Electricity Market

Experiences of the Australian Electricity
Market under power disturbances and
financial stress
Dr Brian Spalding
Chief Operating officer
Overview
 Overview of Australia’s National Electricity
Market (NEM)
 Recent major events in the NEM
 Power System
 Financial
 Recent Trends in Reform
2
Australia’s National
Electricity Market
covers the Eastern and
Southern interconnected
electricity system
Scale
0
1,000km
3
NEMMCO – Market and System Operator
 NEMMCO is the Market and System Operator for
the Eastern and Southern Australia (92% by
energy)
 NEMMCO
• Operate the Market, determines prices and
settles the physical spot market
• Operate the Power System, responsible for
power system integrity
• Co-ordinates inter-regional transmission
planning
• Facilitates the operation of the retail market
4
NEM – The Electricity Market
 Gross pool (Compulsory)
 Generator production levels and prices are set each 5 minutes by
NEMMCO on the basis of offer prices from Generators within a
constrained optimisation
 30 minute trading interval (Spot) price in each of 6 regions
 No physical delivery contracts as financial instruments (over the
counter CFDs or hedging contracts, futures contracts) between
participants manage the physical spot price risk
 NEMMCO settles the cash spot market but does not settle the
financial instruments
 Annual spot market settlement transactions in 2006/2007 of about
AU$11B (US$9.6B)
 Settlement is weekly, 4 weeks in arrears (about 33 days
accumulation)
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NEM - Cash Overview
Financial Market
(hedging contracts)
Generators
Settlement for
100% of energy
Generated
Retailers
Settlement for
100% of energy
Consumed
Spot Settlement
(NEMMCO)
Physical (Spot) Market
6
NEM - Market Pricing
 The NEM is a constrained real time (5 minutes exante) priced spot market
 During disturbances prices will be volatile
 Real time pricing generally aligns with dispatch of generation
 Some aspects of NEM design have been developed
to drive long term investment but in an emergency
can break the linkage of pricing and dispatch
 When load is shed and cannot be all restored the Market Rules
have the price being set to the Value of Lost Load ($10,000/MWh)
 There are few reasons to direct generators that are not responding
to Power System needs but when generation is directed – the
market is priced as if the direction had not been given
7
NEM Regions
6 Price Regions
Generators Paid Regional Price
QLD
Customers Pay Regional Price
NSW
SA
S
Vic
Tas
8
Recent NEM Events
 NEM performance has been sound over last 9 years.
 Investment forthcoming
 Competitive wholesale prices
 Fierce retail competition
 The IEA reported that the NEM is a competitive competitive and
effective electricity market
 Survived two significant events this year – but not without
opportunities for improvement
 16 January 2007 – 2,200 MW of customer load interrupted
following bushfire transmission line faults
 June 2007 – major increase in prices leading to the
suspension of a retailer and the invocation of the Retailer of
Last Resort process
9
16 January 2007 – Bushfire Event
 Bushfires in Victoria for the previous 40 days
 Maximum demand for year in Victoria – about 9,200 MW
 All interconnectors were at maximum flow into Victoria
 Generation reserves adequate
 Power System operated to cover for any single contingency
 Two single circuit 330kV lines (same easement) from
NSW/Snowy to Victoria tripped and locked out of service
 Six other transmission lines tripped out of service
 System separated into three island systems
 Victorian “island” had a major generation deficit
 Automatic under-frequency relays interrupted 2,200MW of
customer load in Victoria and averted a major disturbance
10
Before the event
QLD
S/NSW
SA
$190/MWh
1690MW
300MW
Vic
$9,500/MWh
$8,500/MWh
484MW
Tas
$70/MWh
11
After the event
QLD
S/NSW
SA
$90/MWh
400MW
Vic
2200MW shed
$12/MWh
$8,500/MWh
200MW
Tas
$60/MWh
12
16 January 2007 – Outcomes – System
 All transmission line protections operated as designed
 The automatic under-frequency load shedding effectively
controlled the Victorian low frequency and averted major
Victorian collapse
 Most power stations maintained capability and
contributed to system management
 There were no issues with the control of transmission
voltages in Victoria during the stabilisation period
 South Australia reconnected to Victoria in 40 minutes and
all island systems were reconnected in 3 hours (delays as
the fire authorities would not give clearance for lines to
be restored for fire fighting and safety reasons)
 All load restored in 4.5 hours
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3:14:56 PM
3:14:28 PM
3:14:00 PM
3:13:32 PM
3:13:04 PM
3:12:36 PM
3:12:08 PM
3:11:40 PM
3:11:12 PM
3:10:44 PM
3:10:16 PM
3:09:48 PM
3:09:20 PM
3:08:52 PM
3:08:24 PM
3:07:56 PM
3:07:28 PM
3:07:00 PM
3:06:32 PM
3:06:04 PM
3:05:36 PM
3:05:08 PM
3:04:40 PM
3:04:12 PM
3:03:44 PM
3:03:16 PM
3:02:48 PM
3:02:20 PM
3:01:52 PM
3:01:24 PM
3:00:56 PM
3:00:28 PM
3:00:00 PM
Hz
16 January 2007 – Outcomes - Frequency
Frequency
51.5
51
50.5
50
49.5
NSW/Qld
Victoria
South Australia
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48.5
48
47.5
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16 January 2007 – Outcomes - Operation
 Review the process to determine when to operate the Power
System to withstand a multiple contingency event
 ie when to cover for the loss of two separate 330kV lines
 Man machine interface – Challenge to provide Operators with
rapid view
 8 lines tripped across a wide geographic area
 3 islands
 Took some minutes to be clear on system state
 Need to control multiple separate frequency control areas
 Looking to more flexible systems
 Market System flexibility
 Need to continue to function and dispatch appropriate generation in an
islanded environment
 Simulate these events for further training
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16 January 2007 – Outcomes - Market
 Real Time Pricing in emergencies
 Simplify Rules in an emergency – do not require power
system operators to be considering market impacts
during disturbances as they are focused on Power
System security
 Ensure incentives on generators align with Power
System need. By artificially setting a price to the
Value of Lost Load regardless of the generator offers
can create complex incentives and market outcomes.
16
16 January 2007 – Outcomes
 The power system responded well and the
event was contained
 Some processes can be improved
 Some Market design issues need to be
reconsidered
17
Financial Event – Drought
 Drought conditions had been worsening over the last 12
months






Some thermal generators put on standby to conserve cooling water
Most hydro generators with limited water
Greater gas fired generation
Spot and contract prices up by 80% since January 2007
High volume in futures contract trading
High wholesale prices made it difficult to source supply at
reasonable cost
 Retailer stress due to regulated retail tariffs
 NEMMCO commences publishing projected energy
assessments in addition to routine capacity (Supply/Demand)
assessments
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Financial Event – June 2007
 June 2007 (Winter) was cold in South and East Australia
 Some record electricity demands but within capability of supply
 Large Generator (13% of NEM, 35% of NSW region) bidding
behaviour
 Pricing a substantial portion of its capacity at near VoLL just for the
peak period of the day
 June 2007 prices in New South Wales
 $230/MWh for month (Jun 2006 was $31.47/MWh)
 42 half hours greater than $5,000/MWh
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NEM Market Outstandings
Current guarantee $3,055m
Market Outstanding / MCL since Jan 2007
$4,000
$1,200
$3,500
$1,000
$3,000
$2,000
$600
$1,500
$400
$1,000
$200
$500
01/08/07
25/07/07
18/07/07
11/07/07
04/07/07
27/06/07
20/06/07
13/06/07
06/06/07
30/05/07
23/05/07
16/05/07
09/05/07
02/05/07
25/04/07
18/04/07
11/04/07
04/04/07
28/03/07
21/03/07
14/03/07
07/03/07
28/02/07
21/02/07
14/02/07
07/02/07
31/01/07
24/01/07
17/01/07
$0
10/01/07
$0
Date
Aggregate of Outstandings
Aggregate of Guarantee
Market Trading Limit
Weighed RRP
20
Weighed RRP
$800
$2,500
03/01/07
Outstanding in $m
Current outstanding $1,161m
Futures Contract Prices
21
June 2007 Event
Consequences
 Small retailer suspended from trading as it could not honour its
customer contracts
 Two other retailers in obvious financial stress
 Retailer of Last Resort (RoLR) enacted transferring 6,000
customers to a new retailer following suspension
 Suspended retailer was co-operative
 Smooth processes experienced
Opportunities




More efficient cash and settlement processes
Review length of Settlement cycle
Review effectiveness of netting spot and contract settlement
Test RoLR for very large customers numbers
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Trends in Operation and Reform
 Renewable Generation
 Increasing wind generation – greater need for increased
wind generation forecasting, more complex reliability
assessment, and network management complexities
 Increasing gas generation
 Integration of Gas and Electricity
 Fuel balance implications under periods of heavy gas fired
electricity generation
 Emergency management of both gas and electricity
incidents
 Many Retailers involved with both fuels
 Trend to National market in both fuels
 Australian Energy Market Operator (AEMO) to be formed
from July 2009 to combine NEMMCO and Gas Markets
23
Trends in Operation and Reform
 National Approach to Transmission Planning
 State planners have clear state reliability obligations
 No clear obligations to benefit National trading
 AEMO as a National Transmission Planner
 Very large increases in data movement between the
industry
 Interval meter role out
 Retail customer churn – 25-30% in Victoria and South
Australia
 B2B transactions
24
Overview
 Overview of Australia’s National Electricity Market
(NEM)
 Real time constrained gross market
 Recent major events of the NEM
 Tested process and showed opportunities for improvement
 Recent Trends in Reform
 Closer linkages between electricity and gas
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