2nd February 2006 – price spike in NSW and Queensland

As noted on the Summer 2005-2006 overview, there was a spike in price in Queensland and NSW (and Snowy) on Thursday 2nd February 2006.

These high prices did not transfer to Victoria and South Australia – because on constraints on the Victoria to Snowy interconnector.

It should be noted for a start that NEMMCO had been forecasting a tight supply-demand balance in the NEM for that day, as noted in our previous report, prepared a week before the day in question. With respect to this forecast (in relation to what actually unfolded), it can be noted that:

(a) Weather patterns (and hence demand levels) were much more subdued in Victoria and South Australia were much more subdued than was forecast for the extreme case of the 10% Probability of Excedence (POE) forecast in the MT PASA run;

(b) Even in Queensland and in NSW (where a new record demand was set) the actual levels of demand turned out to be lower than those assumed in the 10% POE forecast provided in the MT PASA run. Despite the actual demand levels being lower, we have seen (below) that the market was still very tight on the day.

The following is a brief synopsis of the event in each region:

---

2nd February 2006 in Queensland

The incident (in Queensland) can be seen in the following image:

(please click on the image for a better view)

From this illustration, the following can be seen:

(a) The high prices lasted from 13:00 to 16:30 (a total of four hours with prices well above $1,000/MWh).

(b) Despite the high prices in Queensland, generation output was always maintained above demand in Queensland to ensure an export of power into NSW over the QNI and Directlink interconnectors (which are also shown on the chart). This was the case as the prices were even higher in NSW.

(c) At 14:00 (a half-hour before the price reached its peak) the total generation in Queensland reached its peak of 8,500MW – which was only 1,000MW below the total available capacity in Queensland. This implies that a regional reserve plant margin would have been a low of just over 10% (which is a very low number when it is considered that NSW would have been relying on this capacity as well, as noted below).

(d) The three stations seen to be operating just during the period of the spike in price are the Wivenhoe pumped-storage hydro plant, and the Mt Stuart and Oakey OCGT plants.

(e) In further analysis, we have seen that some base-load plant did reduce output at time of peak price.

---

2nd February 2006 in NSW

The incident (in NSW) can be seen in the following image:

(please click on the image for a better view)

(a) The high prices lasted from 13:00 to 16:30 (a total of four hours with prices well above $1,000/MWh). This was the same as the case for Queensland.

(b) As is the case on most days:

(i) NSW relies on a constant import of power from Snowy and
Queensland at all times through the day. On this day, the minimum import was approximately 1,000MW in off-peak hours. This power is supplied more economically than could be supplied by NSW own capacity, even at off-peak times.

(ii) During peak demand times, NSW does not have sufficient local generation resources to meet the total demand in the state (regardless of price).

(c) On this particular day, it can be seen that NSW was required to import about 3,000MW of power from Snowy to meet the record demand in the region. These flows were near the maximum technical flow on the transmission network.

(d) Further to the note above, this would have meant total available reserves across Queensland and NSW of only 2,000MW or so. On top of total demand in the region of over 21,000MW this represents a reserve margin of only 9%, which is a low number.

(e) In further analysis, we have seen that (despite, or because of, the tight supply-demand balance), some base-load plant did economically withhold capacity to drive the price spike higher.

---

2nd February 2006 in Snowy

The incident (in Snowy) can be seen in the following image:

(please click on the image for a better view)

As can be seen in this chart, the Snowy facility was running very heavily through the day, but especially at the time of the price spike.

At 13:30 and 14:00, Victorian generators were able to export about 500MW of energy through Snowy into NSW, which helped to keep the Snowy price down during this period. Hence, the price spike did not
last as long in Snowy as it did in NSW and Queensland.

After this time, production at Snowy almost fully utilised interconnector capacity into NSW, at which times the price in Snowy rose (because of issues on the Victoria-Snowy line, as illustrated below).

---

This situation is well summarised in the following snapshot taken in NEM-Watch at 15:05 on the day (still in the lead-up to the record level of demand in NSW):

(please click on the image for a closer view)

Note that at this time the Snowy-Victoria interconnector was unable to transfer any power from Victoria north (and hence into NSW).