An Overview of the National Electricity Market

							An Overview of the Australian National
          Electricity Market

             Brian Spalding
         Chief Operating Officer
NEMMCO – Overview of Operations




   Framework of NEM

   Market Operation

   Power System Operation

   Successes and Issues




                                  2
The Framework
Australia’s National
Electricity Market
covers the Eastern and
Southern interconnected
electricity system




    Scale
   0        1,000km
                          4
NEM – The Parties in the NEM


  6 State jurisdictions

  100 Registered Participants
    • 5 main Transmission companies
    • 15 main Retailers
    • 20 main Generating companies
       - 260 generating systems totalling 36,700MW

  Approx. 7.7 million customers
  Maximum Demand 32,000MW and 190TWh




                                                     5
NEMMCO – Market Operator and System Manager



       NEMMCO the only Market and System Operator



       NEMMCO
         • Operates, determines prices and settles the physical spot
           market
         • Responsible for power system integrity
         • Co-ordinates inter-regional transmission planning




                                                                   6
                   Market


Market processes determine generators’ loading
      targets and prices each 5 minutes.
NEMMCO’s Core Task


            Power system security




         The Task
          To maximise the value of trade
          in electricity while managing
          the power system




            Power system reliability
                                           8
Wholesale Market Structure


     G      G   G      G        Generators


                                Generating Company


                Pool


                                  Market Customers
                R          R         (Retailers)
Wholesale
Customer
                               End Users
                                                     9
NEM – The Pool

   Gross pool (Compulsory)

   Generator production levels set each 5 minutes

   30 minute trading interval price in each of 6
    regions

   Annual settlement transactions about A$7B
    (US$5B)

   No physical delivery contracts as Financial
    instruments between participants manage pool
    price risk
                                                     10
NEM Regions

 6 Regions
 Participants lie within a Region
                                                     Qld
 Generators Paid Regional Price                           C
                                                 G
 Customers Pay Regional Price

                                                 NSW
                                             G
    SA                 Vic
G                                    Snowy
                                                      C
        C          C       G             G
                               Tas
                          G          C
                                                               11
Generator – NEMMCO – Retailer Relationships



                     Physical Electricity Flows


         Dispatch Instructions

                  Offers
  Generators                                          Retailers
                 Information            Information


         Settlement Payments          Settlement Payments


                Financial Contract Payments (hedges)



                                                                  12
Prices determined each 5 minutes

  $/MWh                                Price - all regions 5-min

                                                                                  NSW1
     45
                                                                                  QLD1
                                                                                  SA1
                                                                                  SNOWY1
     40                                                                           VIC 1
                                                                                  TAS1

     35



     30



     25



     20



     15



     10



      5



      0
          04   06   08   10   12         14       16        18     20   22   00         02
                                   Wed, 16 Aug 06                                 Thu, 17 Aug 06
                                                                                                   13
Wholesale Prices




                   14
              Power System Operation
NEMMCO maintains a secure power system,
NEMMCO facilitates a reliable power system,

by informing, constraining power flows, acquiring services or,
if necessary, directing the market.
 Dispatch and Power System Security


NEMMCO      Forecast
          consumption

                                      Dispatch
                                     Optimisation




                        Data

                                               Offers
              Transmission Coys
                                  Generators
                                                        16
 Dispatch and Power System Security


NEMMCO             Forecast
                 consumption

   Constrain to                              Dispatch
 System capability                          Optimisation




                               Data
 Technical
 limits
                                                      Offers
                     Transmission Coys
                                         Generators
                                                               17
 Dispatch and Power System Security


NEMMCO             Forecast
                 consumption

   Constrain to                                      Dispatch
 System capability                                  Optimisation
                                      Override
                                      process
             Check integrity

                               Data
 Technical
 limits
                                                              Offers
                     Transmission Coys
                                                 Generators
                                                                       18
 Dispatch and Power System Security


NEMMCO             Forecast
                 consumption                                             Prices
                                                                         to
                                                                         Market
   Constrain to                                      Dispatch
 System capability                                  Optimisation
                                      Override
                                      process
             Check integrity                         Dispatch
                                                     Loading
                                                     levels
                               Data
 Technical
 limits
                                                                Offers
                     Transmission Coys
                                                 Generators
                                                                            19
Successes
NEM - Successes


 Stable operation since 1998
 Efficient average wholesale prices and real
  reductions in most retail prices
 High generation availability
 Generation investment maintains reliable supply with
  few interventions
 Very active retail transfers (25% pa in Victoria)
 No financial failures of Retailers or Generators



                                                      21
Issues
Issues

 Power system security
      Accommodation of large scale Wind Generation
      Generator technical performance and compliance
      Incidence of multiple contingency events
      Setting appropriate reserve standards

 Industry Structure
    Vertical integration
    Horizontal integration
    Ownership (Government v’s Private)

 Prudential
    Risks of failure
    Availability of credit support
    Interest in netting off spot and contract transactions


                                                              23
Issues


 Market Mechanisms
    Lack of demand side response
    Transparency and short term liquidity in Financial markets

 Transmission
    Planning and operation as a National Grid
    Incentives on Transmission companies

   Data and Process
    Data volumes with increasing interval meters
    B2B transactions



                                                                  24
NEMMCO – Overview of Operations


    Framework of NEM – a competitive national
     approach

    Market Operation – which drives the power
     system operation

    Power System Operation – ensuring a secure
     and reliable system

    Successes and Issues – opportunities for
     further efficiencies


                                                  25