An Overview of the National Electricity Market

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An Overview of the National Electricity Market Powered By Docstoc
					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)

                                                                        5
NEM - Cash Overview
                 Financial Market
                 (hedging contracts)




    Generators                            Retailers




Settlement for                              Settlement for
100% of energy                              100% of energy
Generated                                   Consumed
                 Spot Settlement
                   (NEMMCO)

                 Physical (Spot) Market                      6
NEM - Market Pricing


 The NEM is a constrained real time (5 minutes ex-
  ante) 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
                                          $190/MWh

        SA                      1690MW
             300MW    Vic
                                    $9,500/MWh
$8,500/MWh
                            484MW

                              $70/MWh
                     Tas

                                                     11
After the event


                                      QLD


                              S/NSW
                                         $90/MWh

        SA                     400MW
                   Vic
                                        $12/MWh
                          2200MW shed
$8,500/MWh
                         200MW

                            $60/MWh
                  Tas

                                                   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

                                                           13
                                                               Hz




              47.5
                          48.5
                                                               49.5
                                                                                  50.5
                                                                                              51.5




                     48
                                 49
                                                                             50
                                                                                         51
 3:00:00 PM
 3:00:28 PM
 3:00:56 PM
 3:01:24 PM
 3:01:52 PM
 3:02:20 PM
 3:02:48 PM
 3:03:16 PM
 3:03:44 PM
 3:04:12 PM
 3:04:40 PM
 3:05:08 PM
 3:05:36 PM
 3:06:04 PM
 3:06:32 PM
 3:07:00 PM
 3:07:28 PM
 3:07:56 PM
 3:08:24 PM
                                                                                                     Frequency




 3:08:52 PM
 3:09:20 PM
 3:09:48 PM
 3:10:16 PM
 3:10:44 PM
 3:11:12 PM
 3:11:40 PM
 3:12:08 PM
 3:12:36 PM
                                                                                                                 16 January 2007 – Outcomes - Frequency




 3:13:04 PM
 3:13:32 PM
 3:14:00 PM
 3:14:28 PM
 3:14:56 PM
                                                        Victoria




14
                                                                   NSW/Qld


                                      South Australia
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


                                                                              15
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
                                                                   18
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




                                                                           19
                        NEM Market Outstandings

                                                                                                                                                        Market Outstanding / MCL since Jan 2007                                                                                                            Current guarantee $3,055m
                    $4,000                                                                                                                                                                                                                                                                                                                                                                 $1,200


                    $3,500
                                                                                                                                                                                                                                                                                                                                                                                           $1,000

                    $3,000
                                                                                                                                                                                                                         Current outstanding $1,161m
                                                                                                                                                                                                                                                                                                                                                                                           $800
Outstanding in $m




                    $2,500




                                                                                                                                                                                                                                                                                                                                                                                                    Weighed RRP
                    $2,000                                                                                                                                                                                                                                                                                                                                                                 $600


                    $1,500
                                                                                                                                                                                                                                                                                                                                                                                           $400

                    $1,000

                                                                                                                                                                                                                                                                                                                                                                                           $200
                     $500


                       $0                                                                                                                                                                                                                                                                                                                                                                  $0
                             03/01/07

                                        10/01/07

                                                   17/01/07

                                                                24/01/07

                                                                           31/01/07

                                                                                      07/02/07

                                                                                                 14/02/07

                                                                                                            21/02/07

                                                                                                                       28/02/07

                                                                                                                                  07/03/07

                                                                                                                                             14/03/07

                                                                                                                                                          21/03/07

                                                                                                                                                                       28/03/07

                                                                                                                                                                                  04/04/07

                                                                                                                                                                                             11/04/07

                                                                                                                                                                                                        18/04/07

                                                                                                                                                                                                                   25/04/07

                                                                                                                                                                                                                              02/05/07

                                                                                                                                                                                                                                         09/05/07

                                                                                                                                                                                                                                                    16/05/07

                                                                                                                                                                                                                                                               23/05/07

                                                                                                                                                                                                                                                                          30/05/07

                                                                                                                                                                                                                                                                                     06/06/07

                                                                                                                                                                                                                                                                                                13/06/07

                                                                                                                                                                                                                                                                                                             20/06/07

                                                                                                                                                                                                                                                                                                                        27/06/07

                                                                                                                                                                                                                                                                                                                                   04/07/07

                                                                                                                                                                                                                                                                                                                                              11/07/07

                                                                                                                                                                                                                                                                                                                                                          18/07/07

                                                                                                                                                                                                                                                                                                                                                                     25/07/07

                                                                                                                                                                                                                                                                                                                                                                                01/08/07
                                                                                                                                                                                                        Date
                                                              Aggregate of Outstandings                                                                              Aggregate of Guarantee                                                                    Market Trading Limit                                                                      Weighed RRP




                                                                                                                                                                                                                                                                                                                                                                                           20
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

                                                                   22
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




                                                               25

				
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