July 1999

As highlighted in the diagram above, July 1999 saw modest prices in all regions, with the exception of SA.

The chart above (generated in NEM-Review version 5.3) illustrates why this was the case.

In particular, note that prices in SA regularly reached $100/MWh (or slightly above) – which was enough to ensure an average price for the month almost double that of the other regions.

July 2000

The main chart (above) illustrates that prices rose significantly in all regions in July 2000 (compared with July 1999). As can be seen, the price in SA remained higher than the other regions, but not by as much margin.

The chart here (generated in NEM-Review version 5.3) illustrates why this was the case.

It can be seen that:

• The price shape for NSW and VIC shifted upwards, compared to the previous year;
• The price shape in SA was similar to the previous year, but with a few instances of prices above $1000/MWh helping to push the average higher;
• In contrast, QLD (connected through only the small Directlink interconnection) showed a wide range of prices – from consistently low prices overnight, to a higher incidence of high prices during the day.

July 2001

July 2001 saw prices subside in all regions from their levels in July 2000.

The chart below (generated in NEM-Review version 5.3) illustrates why this was the case.

As can be seen, there was not a single instance of spot prices being above $100/MWh, in any region – no wonder prices were low!

July 2002

July 2002 saw a substantial rise in average prices, for all regions, but most particularly in QLD.

We have previously prepared a more lengthy analysis of this issue – however the following chart (analogous to those above) clearly demonstrates the difference:

As can be seen, July 2002 shows a high number of volatile pricing events.

In summary, what emerged in winter 2002 was the wide-spread employment of a tactic that has become known by several terms:

• “Economic Withholding of Capacity”
• “Generator Strategic Bidding”
• “Generator Market Gaming”

Essentially, generators took advantage of a predictable spike in demand around 18:00 and 18:30 each evening, and changed their offers to the market (pricing some of their capacity more expensively in the knowledge that, on most occasions, it would still need to be dispatched).

Hence, generators engineered higher prices for winter peaks in demand – which offered them some relief from the many months of low prices they suffered prior to July 2002.

The following snapshot (Playback of Sunday 14th July 2002, taken from NEM-Watch version 4) illustrates an interesting case where QLD demand dropped approximately 900MW over a 40-minute period during the morning.

July 2003

As noted in the chart above, prices were lower across all regions in July 2003 (though prices in SNO, NSW and QLD remained higher than prices in VIC and SA).

The reason why this was the case can be seen in the above chart (drawn with NEM-Review version 5.3).

As can be seen, the evening peaks in price engineered in July 2002 continued in July 2003 (particularly in the northern regions), but to a lesser degree. Presumably, constraints out of Snowy limited the extent to which southern generators could also enjoy these spikes.

The following snapshot (Playback of 2nd July 2003, taken from NEM-Watch version 5) illustrates one of the occasions over the month when this was the case. Note that the SNOVIC interconnector is shown as red (denoting constraints) hence excluding the generators in VIC and SA from the high prices.

As noted in other articles on WattClarity, the inclusion of the dynamic calculations of the IRPM of Economic Islands in the Gold Model of NEM-Watch version 8 would have made it easier to see what the local supply/demand balance was in QLD+NSW+SNO at the time.

July 2004

As shown in the main chart (above) July 2004 saw prices in VIC and SA climb, whilst falls are seen in NSW, QLD and SNO.

The NEM-Review chart (shown above) highlights the reason for the difference (an increased incidence of price spikes in VIC and SA).

In contrast to the case of July 2003, we can see that the generators in VIC and SA enjoyed increased incidence of price volatility – not many more instances of prices above $1000/MWh, but enough to drive the average up somewhat.

An example of this can be seen below (Playback of 19th July 2004, taken from NEM-Watch version 5), where prices were high in NSW, SNO, VIC and SA to coincide with the peak in demand in NSW.

July 2005

As noted in the chart above, prices were lower across all regions in July 2005.

As can be seen:

• Mainland pool prices rarely even exceeded $100/MWh over the month; and
• Prices in Tasmania were fully independent (and relatively flat) over the month.

This was similar to what happened in June 2005 (indeed, prices were even lower in QLD in July 2005).

July 2006

As the main chart above shows, July 2006 showed prices kicked significantly, compared to previous – with prices in Tasmania converging on the mainland (given the commissioning of Basslink earlier in the year).

From the above NEM-Review chart, we can clearly see why prices in TAS averaged somewhat higher than the other regions.

An example of this can be seen below (Real-time view of 18:30 on the 20th July 2006 taken from NEM-Watch version 6), where prices were high in all regions simultaneously, at a time when the NEM-Wide IRPM was a healthy 18%.

July 2007

As shown in the main chart (above), average prices in July 2007 were absolutely huge!

Our review for April highlighted the reasons why the drought meant 2007 was a unique year, amongst the 10 years of NEM history to date.

The drought goes to explain some of what is shown in the chart for July 2007, below (produced from NEM-Review version 5.3 below).

As can be seen:

• There was a single evening when prices spiked (on a day when it appears some plant was a little late back from maintenance on the weekend);
• The rest of the high average can be seen to be attributable to the general shape of the price curve – where prices met, or exceeded, $100/MWh on most days over the month.

Also of interest in the diagram, above is the record of 4 days of very high evening demand over the month.

With respect to the following snapshot (Real-time view of 18:20 on the 17th July 2007 taken from NEM-Watch version 7), we would like to point out that:

• NEM-Wide demand reached 33,103MW;

Note that this exceeded, by more than 1000MW, the peak demand experienced the following summer 2007-08 (6 months later), which (coupled with what we saw in June 2006) really does call into question the tenet that the NEM is consistently summer peaking.

• At that point in time, the NEM-Wide IRPM dropped to a low of only 10% (which was still higher than what had happened a month earlier, when IRPM had plunged in June 2007);
• In contrast to the case in June, prices were only in the hundreds of dollars across all regions of the NEM.

As shown in the next chart (from NEM-Watch) demand actually peaked at 33,170MW only 5 minutes after this snapshot was taken.

July 2008

Finally, we see that prices subsided from their July 2007 high a year later (in July 2008).

The reason for the subsidence (little volatility plus the return of the price shape to more “normal” levels) can be seen in the chart from NEM-Review version 5.3 below:

Indeed, compared with previous winter months in previous years, this month might be termed “sedate”. We spoke about this at a conference on 22nd July 2008.

However, following that comment, 2 separate events occurred in the market that were particularly noteworthy – as shown in the diagram above.

1) Transmission outage creates drama (23rd July 2008)
Coincidentally, within 30 hours of publicly labelling July 2008 as “boring”, a major transmission outage in the Latrobe Valley in Victoria on Wednesday 23rd July 2008 caused plenty of excitement for everyone. We spoke to soon!

This incident is shown in the following snapshot (Real-time view of 18:00 on the 23rd July 2008 taken from NEM-Watch version 7):

2) Massive Peak Demand recorded (28th July 2008)
As shown above, on Monday 28th July 2008, the NEM-Wide Demand soared to a massive level that had not been seen before in the market (at any time).

From NEM-Review, we see that the Peak Trading Demand Target on the day was 34,292MW at 18:30 (we have not checked to see what the actual Dispatch Demand Target was, during the month – it is certain to be higher).

Even with that number, it should be noted that the demand was more than 2,000MW higher than the peak demand recorded over the whole of summer 2007-08.

Keep in mind what we found for July 2007 (above) and also what we saw in June 2006. In summary, the winter NEM-Wide demands in winter 2006, 2007 and 2008 all exceeded the peak NEM-Wide demand the previous summer, and the margin appears to be increasing.

Hence, it might be hypothesised that:

• Whilst each region has shifted (because of air-conditioning load) to have its own maximum demand occur each summer, the normal diversity of weather patterns that happens each summer moderates this impact, on a NEM-wide basis.
• In contrast, it may be (though we have not checked) that cold days align much more closely across the NEM over winter – hence meaning NEM-wide peak demands each winter exceed those set in summer.