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

Quick apology

For those who were expecting this review to appear much sooner than now (given that our reviews for January→September were published in January), we offer our apology.

It’s been quite a year (to date) and we have only managed to find the time to complete this analysis now.

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 October

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 October

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

  1. Tasmania only joined the NEM in mid-May 2005 – hence the data for October 2005 shows the effects of Tasmanian region demand for the first time.
  2. 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:
    1. 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"
    2. 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 10 years included in the table below:

  1. October 1999;
  2. October 2000;
  3. October 2001;
  4. October 2002;
  5. October 2003;
  6. October 2004;
  7. October 2005 (including Tasmania for the first time, from mid-October);
  8. October 2006;
  9. October 2007;
  10. October 2008

4) Each Year at a time

In the following table, we touch on the highlights of some of the October months that have passed, since the creation of the NEM.

October 1999

As highlighted in the diagram above, October 1999 saw very low prices in all regions, with the exception of South Australia.

October 1999 demand and price trend
The chart above (generated in NEM-Review version 5.3) illustrates why this was the case.

Note in the chart above that the price spiked high in South Australia on 4 occasions during the month, including one instance (Saturday 23rd October 1999) when the price spiked to VOLL (which was $5000/MWh at the time).

We don’t have a NEM-Watch snapshot of this event, as this occurred a few months prior to our company starting.

October 2000

The main chart (above) illustrates that prices rose in all regions in October 2000 (compared with October 1999) except SA, which softened slightly. The rise was particularly pronounced in QLD.

October 2000 demand and price trend
The chart here (generated in NEM-Review version 5.3) illustrates why this was the case.

As can be seen, there were price spikes occurring in both QLD and SA – but not to the extent of the spikes shown in SA twelve months earlier.

October 2001

October 2001 saw prices subside in all regions from their levels in October 2000 – with the exception of QLD.

October 2001 demand and price trend
The chart here (generated in NEM-Review version 5.3) illustrates why this was the case.

As can be seen, the pricing pattern for the southern regions followed on from the pattern of flat prices seen in September 2001, with volatility increasing progressively through the month.

In contrast, volatility in the QLD region occurred through the month.

October 2002

October 2002 saw average prices soften in QLD, and remain the same in the other regions.

The following chart (from NEM-Review version 5.3) provides more detail about what happened over the month.

October 2002 demand and price trend

As can be seen in this chart, there were fewer instances of price spikes in the QLD region (compared with 12 months prior).

However, of particular interest was what happened in QLD on Tuesday 22nd October 2002.

  1. Unfortunately, we could not find a screenshot taken from NEM-Watch at the time, but we were able to complete further analysis with NEM-Review;
  2. The following chart illustrates the trend of price, demand and regional available generation on the day:

Queensland prices - 22 October 2002

  1. The following chart shows the output of selected QLD generators over the day – with specific increases/decreases in capacity (coinciding with the spikes) highlighted.

Queensland generation - 22 October 2002

October 2003

As noted in the chart above, prices were lower across all regions in October 2003 (the lowest of all 10 x October-months).

October 2003 demand and price trend

This can be seen in the chart above (drawn with NEM-Review version 5.3).

It is noteworthy, however, to see that these low prices occurred despite a significant jump in demand (peak especially) in the 12 months to October 2003.

That prices would fall despite a sharp jump in demand is indicative of the large amount of low-cost new capacity that had been brought into the market through 2002 and 2003 (i.e. 1200MW at Millmerran and Tarong North). This is also why prices in QLD were the lowest of all NEM regions.

One of many instances when prices were low across all regions is shown in the following snapshot from NEM-Watch (v5):

2003-10-15 at 09-10 (with snovic constrained)

See in this snapshot that the Instantaneous Reserve Plant Margin (IRPM) is shown to be 37% across the whole of the NEM, indicative of the large surplus in capacity (especially around the time of the morning peak in demand).

October 2004

As shown in the main chart (above) October 2004 saw prices jump significantly.

The reason for this substantial change can be seen in the following chart (drawn with NEM-Review version 5.3).
October 2004 demand and price trend

As can be seen, several things occurred in October 2004 differently than was the case in October 2003:

  • We see that, on most days, the prices at peak demand times were consistently higher than twelve months before.
  • We also see the price spikes that occurred on 12th, 13th and 14th October;
  • We see some negative prices in Victoria at the end of the month, as well.

The following snapshot from NEM-Watch (v5) illustrates what was happening on the first of these days of price spikes (i.e. not even the day – shown above – when prices spiked the highest):

2004-10-12 at 16:55 with 12% IRPM

See in this snapshot that the Instantaneous Reserve Plant Margin (IRPM) is shown to be 12% across the whole of the NEM, indicative of the tight supply/demand balance (keep in mind that 12% was shown to be the lowest the IRPM had dropped to, up until winter 2007).

October 2005

As noted in the chart above, prices returned to more "typical" levels with the exception of NSW.

October 2005 demand and price trend
In the chart (drawn with NEM-Review version 5.3), we have highlighted three particular events of note:

  1. On the 11th and 12th October, we see price spikes in TAS as a result of local issues, in the absence of the Basslink interconnector;
  2. Over a period of several days in the middle of the month, we see prices in SA separate from VIC as a result of consistent constrained flow on the Heywood interconnector;
  3. On the last day of the month, we see prices skyrocket in QLD and NSW (but particularly NSW, resulting in the higher average for the month, as noted above).

The following snapshot from NEM-Watch (v6) illustrates what was happening during one of the many dispatch intervals on that day when prices were high:

2005-10-31 at 15-35 with VOLL in NSW

As can be seen (at 15:35), transmission capacity into NSW from the Snowy region was constrained, and at a level considerably below the maximum technical limit on the line.

Twenty minutes later, this second snapshot (below) highlights how prices in QLD had dropped to almost nothing – perhaps as a result of generators in QLD and NSW seeking to optimise their positions.

2005-10-31 at 15-55 with 85c price in QLD

Note in both of the snapshots above that the NEM-Wide IRPM (Instantantaneous Reserve Plant Margin) is shown to be a very healthy 35-37%.

Hence, this clarifies that the issue forcing prices up in NSW and QLD were localised ones. Had we had NEM-Watch v8 operational at the time (complete with its real-time display of Economic Islands, and local IRPM), we would have seen this much more clearly.

October 2006

As the main chart above shows, October 2006 showed that prices continued to trend downwards, compared to previous years – with prices in Tasmania converging on the mainland (given the commissioning of Basslink earlier in the year).

October 2006 demand and price trend
From the NEM-Review chart here, we can clearly see why prices in TAS were still slightly higher than the other prices, whilst prices in QLD were lower.

2006-10-13 at 10-25 wth low price in QLD

The snapshot above, from NEM-Watch v6, illustrates one dispatch interval when prices in QLD were substantially lower than those in the other regions.

October 2007

As shown in the main chart (above), average prices in October 2007 jumped sharply for QLD and NSW (most sharply in QLD), whilst climbing only slightly for VIC, SA and TAS.

This occurred despite the fact that demand in October 2007 was almost identical to the levels seen for October 2006 (the peak demand actually declined).

October 2007 demand and price trend

From the above chart (drawn with NEM-Review version 5.3), we can see a number of things in particular:

  1. A "drought effect" can be seen, as was the case in other months during 2007:
    1. We can see that the energy limitations on hydro (and some thermal) stations had the effect of shifting the overall shape of prices upwards.
    2. Our review for April highlighted the reasons why the drought meant 2007 was a unique year, amongst the 10 years of NEM history to date.
  2. We can also see a large number of incidences of negative prices in TAS;
  3. On top of the upwards-shift in prices generally, we also note a large number of price spikes in QLD – we have included NEM-Watch snapshots of two such events:
    1. At 11:45 on Wednesday 24th October, we see QLD prices high. Note, in this instance, that:
      1. QLD is importing (as would be expected) but that
      2. QLD also appears to have a significant surplus of capacity. We have not investigated further to understand why prices were high, in this instance (despite the surplus of capacity).

2007-10-24 at 11-45 with QLD price 9000

    1. The second instance (16:20 on 29th October) shows QLD prices at VOLL. In addition, note that:
      1. As with the case on the 24th, we see a significant surplus of capacity in QLD;
      2. In addition, we see that QLD was actually exporting (having been constrained to do so by NEMMCO), but below its minimum export limit (i.e. flow of 334MW whereas NEMMCO had the constraints set to a minimum of 669MW export).
      3. As a result, the half-hour price in QLD ended up being $3374/MWh.

2007-10-29 at 16-20 with QLD at VOLL

October 2008

Finally, we see that prices rose (in all regions except QLD) from the high levels experienced twelve months earlier – most significantly in NSW.

This chart from NEM-Review  (v5.3) shows more:

October 2008 demand and price trend

From this chart, see two things in particular:

  1. A large number of instances of negative pricing occurring in SA and TAS early in the month; and
  2. A large price spike for NSW and QLD on the last day of the month (31st October 2008):
    1. The following snapshot from NEM-Watch (an early BETA of version 8) highlights what was happening on this day:
      1. See how the IRPM of the NSW Economic Island was only 2% at the time the snapshot was taken (12:20 on Friday 31st).
      2. In other words, NSW had just 99MW of spare, unused (but available) capacity to meet its demand requirements – because of constrained flows in from QLD and VIC.

2008-10-31 at 12-20 with nsw local reserve only 1pc (NEM-Watch v8)

    1. We have previously posted several articles relating to the interesting events of this day.

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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