Prices depressed in the NEM – Winter 2008

  1. Background
  2. Our Managing Director spoke at the “Australian Energy & Utility Summit 08” in Sydney on Tuesday 22nd July 2008.

    In his presentation, Paul touched on a number of issues, including the following:

    As a bridge between discussions about the past and considerations of the future, Paul spoke briefly about what has been happening in winter 2008.

  3. Specific Comments
  4. Illustration was provided, in NEM-Watch, of the way in which prices have been very subduedover the winter period (to date):

    NEM-Watch screen: Example of low prices

    Although not much time was available to postulate, in detail, why prices have been subdued this summer, it was noted that the number of half-hours with prices above $100/MWh was very much reduced:

    Graph: Low levels of price volatility

    This would be due, at least in part, to the lower levels of (both peak and average) demand seen in the NEM over the past 9 months or so:

    Graph: Max and avg monthly regional demand

    Both of these reports are taken from the “NEM-to-date-Monthly” Report from within NEM-ReviewTM.

    Graph: Distribution of NSW dispatch price and NSW demand

    As can be seen, the situation is largely as expected, with prices increasing with increase in demand. However it is noted that some of the volatility occurred when NSW demand was significantly below the peaks achieved over the winter period.

    It was thought that the situation might be clearer if the NSW prices were correlated against NEM-wide dispatch demand, as shown here:

    Graph: Distribution of NSW dispatch price and NEM-wide demand

    However a similar situation is apparent in this chart.

    To understand further, we looked at the definition of Instantaneous Reserve Plant Margin, as used in the NEM-WatchTM product.

    Explanation of Instantaneous Reserve Plant Margin

    The following chart shows the correlation between price and IRPM:

    Graph: IRPM in winter 2007

    This was particularly of interest, given the situation uncovered in QLD in the previous analysis for summer 2007-08, whereby high prices had been engineered by QLD generators, when NEM-wide IRPM was high, and even when there was significant surplus of capacity available within the QLD region.

    In particular, it was noted that these high NSW prices in winter 2007 occurred across a broad range of interconnector constraint scenarios.

    Graph: Relative incidence of NSW dispatch prices greater than $1000/MWh

    This was unlike the situation in summer 2007-08 for QLD, when prices were only high on occasions when QNI was constrained flowing north (i.e. when QLD generators had local market power).

    During the presentation, the low reserve plant margins experienced in winter 2007 was highlighted as well:

    Graph: 'Zoom in' on winter 2007

    An illustration was provided of how these events were represented in NEM-Watch:

    NEM-Watch screen: High spot prices in the east

    Reference was made to the news article written in the Australian Financial Review to document this event.

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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