Volatility in the market over winter 2007

  1. Index
    1. Background
    2. Introduction
      1. Analysis of Summer 2007-08
      2. Previous Analysis of Winter 2007
    3. Sepcific Comments

  2. Background
  3. 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:

    To start this presentation, Paul spoke about the extremes of price volatility that were experienced over winter 2007.

  4. Introduction
  5. Comments made at this conference were grounded on two pieces of previous analysis:

    1. Analysis of Summer 2007-08
    2. Analysis had previously been performed (in conjunction with a presentation at the “QLD Energy” Conference in March 2008) of the level of volatility in the QLD region over summer 2007-08.

      The results of this analysis are summarised in this article:


    3. Previous Analysis of Winter 2007
    4. Furthermore, some analysis had previously been made of winter 2007, following some instances of very low Instantaneous Reserve Plant Margin (IRPM).

      The results of this analysis are summarised in this article:


  6. Specific Comments
  7. For this presentation, specific focus was provided of NSW prices (given the conference was in Sydney).

    The following slide shows the correlation between NSW dispatch (5-minute) prices over the notional “winter” period (May→August 2007), and NSW dispatch demand.

    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:

    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.

    Instantaneous Reserve Plant Margin

    The following chart shows the correlation between price and IRPM:

    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.

    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:

    'Zoom in' on Winter 2007

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

    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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