generator market power

Puzzling through three rule change requests

Some ideas that I have been puzzling over – about the overlaps and contradictions between 3 rule changes under consideration at the AEMC currently
1) The Demand Response Mechanism (better known as the Negawatt buyback mechanism)
2) The Bidding in Good Faith deliberation
3) The Requirement for Price-Responsive (large) Demand to bid into central dispatch

Our review of the heat wave in South Australia

With demand soaring, and interconnectors constrained, generators in South Australia and Victoria took what opportunity they had to force the price high. So successful were the South Australian generators that the Cumulative Price Threshold was reached in South Australia and, under NEM Rules, an Administered Price Cap was applied for a period of time.

Analysis of price volatility in the QLD region over summer 2007-08

Our Managing Director was asked to speak at the “Queensland Energy” conference in Brisbane on Wednesday 12th March – specifically addressing the topic of price volatility in the NEM.

To provide the basis of discussion during the conference, we focused our analysis solely on Queensland region (to make the topic more manageable).
In our review of volatility in the Queensland region, we focused specifically on 3 core attributes of the market: Queensland dispatch prices; NEM-Wide Instantaneous Reserve Plant Margin; and the concept of “Economic Islands”.

11th January 2007 – first spike in demand above 30,000MW

There was a temperature-driven spike in demand across the NEM later in the week beginning Sunday 7th January – culminating in the summer’s first demand peak above 30,000MW (on Thursday 11th January).

On this occasion, the spot price spiked above $1000/MWh in Queensland, NSW, Snowy and Victoria,

Winter 2002 – Generator Market Power

From the start of the NEM through until 2001, the NEM was typified by a pricing dichotomy with sustained rock-bottom pricing in NSW, Snowy and Victoria and high and volatile pricing in the extremities (Queensland and South Australia).

In 2001, the QNI interconnection and many generation projects were developed. This led to the convergence of prices between all regions, and the disappearance of price volatility – circumstances that were a real threat to generator profitability.

In response, generators adopted an approach that came to be known as “the economic withholding of capacity” to engineer volatility into the market throughout winter 2002 – and hence higher prices as a result., and generator behaviour.

24th February 2006 – price spikes in Victoria

Demand in Victoria peaked again, bringing with it high prices in Victoria and (to a lesser extent) South Australia.

Indeed, the demand experienced in Victoria (on Friday 24th February) exceeded the previous high level of 8,552MW for summer, set in January 2006.

Our analysis looked at generator behaviour on the occasions of these price spikes.

Weekly summary of events in Summer 2005-2006

Summer 2005-06 saw Australians sweltering in temperatures 40 degrees and above.

In the National Electricity Market, this led to new peaks in demand and (given the tight supply/demand balance) delivered high (and volatile) spot market pricing.

Here we have compiled a weekly summary of events in the NEM over summer 2005-06.