April in the NEM (a review of 10 years of history)

1) The NEM reaches 10

For those who are unaware, 13th December 2008 marked the 10th Anniversary of the inception of the NEM. We released a short review of NEM history on that day to commemorate.

Given the occasion, however, we thought it would be useful to have a look, in more detail, at what has happened over the past 10 years.

Taking a slightly different approach, we’ve opted to review each month at a time – hence, this is one of twelve articles posted on this site at the same time.

2) 10 years of April

Through the NEM-Review software, we have prepared this illustration of how (average and peak) NEM-Wide Demand for electricity has grown over the past 10 years.

Year-to-year comparison of demand/price for April

With respect to this chart, two things in particular need to be noted:

  • Tasmania only joined the NEM in May 2005 – hence the data for April 2006 shows the effects of Tasmanian region demand for the first time.
  • The measure of “demand” calculated in NEM-Review v5.3 is the (30-minute) Trading Demand Target, which is the time-weighted average of the (5-minute) Dispatch Demand Targets over the half hour:
    • Hence, the demand shown here is an output from NEMMCO’s NEM-DE (Dispatch Engine) and not a metered demand. In most cases, the numbers will be very similar, but they will vary from figures quoted elsewhere for “maximum demand”
    • This is further explained in the glossary on the NEM-Review portal.

3) Quick Links

As the following table is quite lengthy, we’ve included here Quick Links to each of the regional reports included in the table below:

4) Reports for each region

From this chart, it can be seen that, in most years, April has typically been a non-eventful month. Hence, in this article, we’ve opted to take a slightly different approach than the approach we’ve adopted for the other months.

In the “2009 NEM Wall Calendar” we highlighted how prices were substantially higher (in April 2007) than in the other 9 years features (1999-2006 and 2008). We highlighted, through a price distribution curve for NSW, how this was the case in NSW.

In the following table, we’ve expanded on this analysis to include some for each region:

QLD Region

The following chart (produced with our deSide® software) shows a distribution of QLD spot prices for each April month over the 10-year range (1999-2008).

QLD prices

From this chart, a couple of observations can be made:

  • Perhaps most significantly, we see how the shape of prices in the QLD region was fundamentally different in April 2007, with:
    • We can see that there was almost no instances of prices below $20/MWh (which was certainly not the case in any of the other years);
    • Indeed, we can see relatively few instances (only 20% of the time) when prices were below $40/MWh – which might typically be considered the Long-Run Marginal Cost of most coal-fired generation plant in QLD;
    • Instead, because of water constraints on plant in QLD, and further south, prices were above $40/MWh for the vast majority of the time, over the month;
    • Prices were above $100/MWh for about 15% of the time over the month.
    • Furthermore, we know that this situation persisted though much of 2007, and subsided only when water restrictions were eased following rain at the end of the year.
  • Apart from 2007, we see that the early years (1999 and 2000) show the highest incidence of prices above $100/MWh:
    • This happened because QLD was not (in 1999) and only barely (in 2000) connected to NSW in the early years, and had a relatively tight supply-demand balance (prior to the development of a number of new base-load generators);
    • This can be seen to explain why QLD prices are shown to be higher in the first 2 x April months in the main chart above.

NSW Region

A similar chart has been included (below) for the distribution of April prices in NSW:

NSW prices

A very similar situation can be seen with respect to NSW prices in April 2007.

Because of the different dynamics in the early years, however, we can see a higher incidence of lower prices in NSW in 1999 and 2000 than in most other years (the exception being 2003).

This goes a long way to explaining the low prices seen for NSW in April months of 1999, 2000 and 2003.

VIC Region

The analogous chart has been included for April spot prices in Victoria, below:

VIC prices

As can be seen, the situation is almost identical to that for NSW – both in terms of:

  • the very different price pattern in 2007, hence the higher average prices seen in April 2007; and
  • the lower average prices seen in April 1999, April 2000 and April 2003.

In addition, it can be noted that prices in April 2008 had reverted to previous “typical” patterns to a lesser degree than was shown to be the case in the northern regions of NSW and QLD.

We believe that this is due, at least in part, to the fact that water shortages persist to a greater degree in TAS than they do in QLD – hence Hydro Tasmania is still importing a higher amount of energy over the Basslink interconnector than was the case in April 2006, for instance.

Imports into VIC from TAS

Certainly, it can be clearly seen in the above chart (from NEM-Review version 5.3) that the exports from VIC to Tasmania have been increasingly steadily.

SA Region

The chart below (from deSide) for South Australia reveals a very similar story to that for QLD.

SA prices

In particular, we see:

  • Much higher incidence of prices above $40/MWh (and above $100/MWh) in April 2007 than in any other April month;
  • The highest incidence of prices above $100/MWh (apart from April 2007) occurring in the early years (1999 and 2000):
    • Unlike QLD, SA was connected to another region (VIC) in those years;
    • Like QLD, however, SA suffered from a tight local supply/demand balance, which tended to constrain the Heywood link and hence allow prices to rise in SA.
  • In addition, we see that a significant number of hours (around 20) in 2005 showed prices above $100/MWh:
    • This goes to explain the slightly higher average price in SA for April 2005;
    • This has not been further investigated.

TAS Region

A similar chart has been included for Tasmania, but for only the 3 April months in which it has been a part of the NEM.

TAS prices

Given the chart above (showing aggregate monthly Basslink flows) shows an increase import to Tasmania in April 2008, compared to April 2007, it is no surprise that prices in Tasmania have not subsided to anywhere near the same degree as they have in the mainland regions.

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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