Background information to the shortage of capacity in winter 2007

The Instantaneous Reserve Plant Margin (IRPM) indicator has been included in NEM Watch for a number of years as a holistic, non-price-based indicator of the overall balance between supply and demand in the NEM.

This metric is explained in the Glossary contained within the NEM Watch portal.

Spurred by the remarkable events of recent days, we have performed some cursory analysis of historical IRPM figures for each 5-minute dispatch period since September 2002 (when it first became possible to provide calculate this indicator) and can display the following chart:

This chart highlights the trend in core statistical measures of IRPM over the period since that start date.

Data has been split into 6-monthly (rather than annual) divisions purely to overcome the size limitations within Excel.

As can be seen, the IRPM had not dropped below 12.2% prior to January 2007, and since that time had been below 10% only on two occasions – Monday 18th and Tuesday 19th June. On 19th June at 17:45 market time, an all-time low of 7.64% was set for the IRPM.

The following image highlights the pricing situation that occurred in the NEM as a result of the tight supply-demand balance.

As could be expected, prices were high across the NEM (close to VOLL in Queensland and NSW).

As noted in the Glossary (linked above), the IRPM is calculated with reference to NEM-wide available generation and demand. The difference between the two is the Surplus Generation (i.e. all that capacity bid into the market by generators, at any price, but not required to be dispatched to meet demand).

Some of this “spare” capacity would be spinning, waiting to be used in case of unforseen circumstances. The remainder of this capacity would be offline (i.e. not running, and sometimes requiring significant notice to restart, depending on the type of plant it is).

The following chart indicates a similar trend in the Surplus Generation Capacity over each of the 6-month periods since data first became available.

As can be seen, the minimum Surplus experienced prior to January 2007 was 3,098MW in the second half of 2004 (before Tasmania joined the NEM and hence was able to supply its surplus generation capacity).

On the 19th June, the Surplus Generation dipped as low as 2,473MW (which, as you can see, is more than 600MW lower than the previous lowest mark.

Further to the above, see the following chart of whole-of-NEM demand:

Also included is a similar chart on NEM-wide available generation capacity:

As can be seen, the available capacity has been increasing over time at slightly above the rate of increase in demand (as can be seen in an increasing surplus generation).

Hence, the issue is not really about capacity on the ground, in general terms, or even about capacity made available. What happened on 18th and 19th June was a remarkable and unique situation whereby available reserves dropped significantly below “normal” low levels.

The 19th June 2007 was clearly the day when the supply-demand balance was at its tightest (at least since September 2001) – and significantly so (due to the lower surplus generation AND record level of demand).

Attached is a chart showing a similar time on the following day, 20th June:

This is a more typical picture of a winter evening. Note:

  1. IRPM of 12.19% at 17:55 was as low as it went. Much more “normal” low levels.
  2. Note that prices are still pretty high, though, but not across the board – this has been par for the course on winter week nights since 2002 – which we analysed here: Analysis of Winter 2002. That is a separate issue in itself!
  3. Note that demand peaked at 32,254MW (dispatch target basis), which is 169MW lower than the demand peak was last night (32,423MW). It actually felt colder at our place, so perhaps there was more demand side response in the bigger users – maybe some of the clients we have using deSide (
  4. The bigger difference, however, is that the available capacity reached 36,311MW tonight as opposed to a peak of only 35,197MW so there has been a significant response from the market to make more capacity available (1,114MW of additional capacity available).

Within the current 6-month period, see the trend in half-hourly Available Generation and Demand (NEM-Wide) from NEM-Review, included below:

No time now to go into this in a load of detail, but please see the charts below where I have looked at the 18 months January 2006 to June 2007 and charted average available generation by station (one chart per region).

See in particular drops in availability in May-June 2007 at Tarong and Swanbank B (because of water), Millmerran, Bayswater, Vales Point, Tumut 3 (not sure if this decline in declared capacity available is wholly related to available water supplies or if there are maintenance reasons as well), Loy Yang A (but looks like this is back online now). Altogether, this is about 2,900MW difference from Jan/Feb 2007 to now.

About the Author

Paul McArdle
One of three founders of Global-Roam back in 2000, Paul has been CEO of the company since that time. As an author on WattClarity, Paul's focus has been to help make the electricity market more understandable.

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