Our review of the heat wave in South Australia

Beginning on the 3rd of March, 2008 residents of South Australia endured a lengthy 15 consecutive daytime Adelaide temperatures in excess of 35ºC (95ºF).

This was the longest recorded heat wave for an Australian capital city.

As could be expected, the heatwave caused a wide variety of issues for residents of, and businesses operating in, Adelaide (and beyond) – ranging from inconveniences to significant safety issues.

The heatwave was also significant for the South Australian region of Australia’s National Electricity Market (NEM), including the following:

  1. Demand for electricity in South Australia created a new all-time record on three separate occasions;
  2. ETSA had issues maintaining supply in the distribution system;
  3. The Instantaneous Reserve Plant Margin (IRPM) for the South Australian Economic Island dropped as low as 7%;
  4. Spot prices in the market jumped on six separate occasions over the period of the 15-day event:
    1. In total, 26 separate trading (30-minute) intervals experienced prices above $5000/MWh;
    2. South Australia’s average pool price for March increased to $353/MWh;
    3. These price spikes had the effect of raising the Cumulative Price Total (CPT) over $150,000 – at which point NEMMCO issued and Administered Price Cap (APC).

Of these the last is perhaps most significant.

The Cumulative Price Total is a running total of the pool prices over the previous 336 trading periods (i.e. 7 days of 48 half-hourly prices).

To put things in perspective, the following graph (figure 1) shows the trend in South Australia’s CPT since the beginning of 2007:

Figure 1 – Trend in the CPT within SA since January 2007

Trend in the CPT within SA since January 2007

Once the CPT passes $150,000 NEMMCO puts in place restrictions to prevent further high prices. By definition, the threshold is reached when the time-weighted average spot price for the week is above $892/MWh.

This occurred on the 17th of March at 17:00 (NEM time). This was the only time we have seen this occur since the NEM started in December 1998.

This report considers these effects in further detail.

Download the full article (pdf, 1.2Mb)

2 Comments on "Our review of the heat wave in South Australia"

  1. Your pictures above are very colourful and good for people who know nothing, but those of us in the industry know your analysis is extremely simplified and shallow (eg a)’with holding capacity’ is worng, as their available capacity remained the same – should say output instead of capacity, b) no mention of constrained off output from Tumut due to high import flows into Victoria constraining 65/66 lines etc).

    I commend you on taking electricity to the people because it will only become more ‘in their bface’ once CPRS commences. Keep it up, but to maintain industry credibility, please make sure it is correct and not sensationalised (which I know gets the media grabs).

    • 1)  You are correct in that we do try to simplify what’s a very complex industry, in order to make it more broadly understandable.  At times this does mean that we can omit certain details – whilst we try to ensure this is not the case (especially if the details are core to what we are discussing), we do apologise for cases (such as this) when it does occur.

      2)  I believe you are referring to what we wrote specifically about what happened on 17th March 2008 (from p19 of this report).  We tried to confirm this on email with you, but did not receive a response.  In this instance, we recognise that it is possible that the output of the Snowy capacity – moreso Tumut, on the north side of the 65/66 lines could have been restricted as a result of constraints on the lines between these stations – however this was not checked, as we were focusing moreso on SA at the time.  (For anyone else interested in learning more about this issue, there’s a mountain of reports and submissions on the issue on the AEMC’s Website, in the past couple of years, leading to their decision to abolish the Snowy region and allocate Tumut into NSW and Murray into Victoria for reasons related to Apol’s point – i.e. that constraints within the Snowy region could impact so dramatically on market outcomes and yet not be very understandable, except to those intimately aware of their detail).

      3)  We also appreciate your comment about the term, "withholding of capacity".We appreciate that that term is incorrect (because, as you say, the capacity is still offered to the market, just at a higher price).  It is for this reason that:
      (a)  we tried to make this clear in the report (such as on p11 of this report where we state that "about 70% of their generation appears to have been bid above $9900")
      (b)  we are very careful to use the different term "economic withholding of capacity" to clarify.  Based on our experience, this term is one of a few (others include "generator strategic bidding" and "generator market gaming") that have become widely used in the NEM, and more broadly internationally, over the past several years.  Though, we infer from your comment, the term is perhaps not as broadly used as we had first thought.

      Once again, we do appreciate your comments, as they help us to understand how others view the explanations and comments we provide.  We look forward to continuing to enhance the quality of the service we provide, into the future.


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