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NDSC, South Stephen van der Mye, Managing Director, NEMMCO APEX 2000 Australian Market Update.

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Presentation on theme: "NDSC, South Stephen van der Mye, Managing Director, NEMMCO APEX 2000 Australian Market Update."— Presentation transcript:

1 NDSC, South Stephen van der Mye, Managing Director, NEMMCO APEX 2000 Australian Market Update

2 Achieving a World Class Market nCompetitiveness ÞInvestment signals and outcomes so far nReliability ÞManaging supply shortfalls nOperational Highlights Þ1999-2000 Key Projects ÞNEMMCO’s performance and strategic focus nChallenges and Emerging Issues ÞConnection of Queensland ÞIncrease in VoLL ÞRetail Competition

3 Competitiveness n Substantive evidence exists that the NEM is operating to design by providing economic signals to encourage efficient resources allocation across the energy sector. n It is important to remember that prior to the industry’s liberalisation, investment decisions were largely made within vertically integrated, State owned monopolies. The costs of poor investment decision were ultimately and often blindly borne by customers.

4 Competitiveness n Experience over the past 18 months points to significant resource allocation toward the regions (States) in the NEM, specifically Queensland and South Australia, where wholesale electricity prices have been consistently higher. n Conversely in New South Wales, where prices have been low and existing generation reserves are high, resources have been committed and projects proposed which aim to provide higher priced regions access to lower cost primary energy sources through augmentation of the electricity transmission network.

5 Competitiveness n A further potentially significant development is the proposed under-sea interconnection of Tasmania and Victoria, known as Basslink. If it proceeds, the Basslink project would enable Tasmania to join the NEM and allow hydro-generated electricity to be exported to the mainland at times of peak demand. In off-peak periods, lower priced Victorian electricity could be sent across the Bass Strait to Tasmania.

6 Reliability nThe ability of the electricity supply industry to effectively manage supply shortfalls impacts greatly on business and consumer confidence in the sector. n February 2000 was the first time in seventeen years that Victoria has faced a serious supply deficit and the first time ever the new industry structures have had to manage the impact of widespread customer interruptions.

7 Reliability n The February incident crystallised some serious issues that need to be addressed in the future development of the National Electricity Market: ÜNeither the operation of the NEM nor the respective roles and responsibilities of its participants are well understood outside the industry ÜDeliberate entry into a load shedding scenario is unacceptable to public, commerce, industry etc ÜHence situation is unacceptable to Governments

8 Reliability ÜGovernments will intervene with some form of restrictions ÜRestrictions significantly reduce demand and pool prices and consequently impact on economic investment signals

9 1999-2000 Key Projects nNew Structure for Participant Fees ÝPreviously 100% borne by retailers ÝFrom 1 July 2000 split between retailers and generators nMarket and System Operations Insurance Advisory Committee ÝOn 13 December 1999 NEMMCO’s immunity from liability lapsed and following a Jurisdiction review liability caps were introduced ÝAnnual aggregate cap of $100 million, $2 million cap per event, nominal $1 cap on Directors and officers of NEMMCO

10 1999-2000 Key Projects nMarket and System Operator Review ÝJurisdictional Governance and Liability Steering Committee project managers report mid 1999 raised questions on present allocation of MSO responsibilities within the Code. ÝNEMMCO & TNSPs agree that Code is ambiguous and that there are omissions. ÝNEMMCO believes significant cost savings will be achieved compared to existing TNSP agency agreements. ÝFinal report is due at the end of October

11 1999-2000 Key Projects nAncillary Services Review ÝReview to consider the development of market based arrangements for the provisions of Ancillary Services ÝNew regime implemented on a transitional basis from 1 January 2001 ÝFirst steps: ÝSpot Market for Frequency Control Ancillary Service ÝNo change for the procurement and dispatch of Network Control and System Restart Ancillary Service ÝCauser pays approach to cost allocation

12 Operations - NEMMCO Performance nIn the period following NEM commencement, NEMMCO’s focus has been on bedding down systems and processes to ensure smooth market operations: Ýthe availability and reliability of the NEM system has exceeded expectations; Ýmetering and settlements on time with high accuracy; and Ýthe successful assumption of Power System Security functions in all regions.

13 Operations - NEMMCO Performance nWhile maintaining systems and process reliability, NEMMCO has also undertaken a number of projects all designed to elicit from our stakeholders what challenges they saw ahead for the NEM and NEMMCO: ÝStrategic Thinking and Operational Planning workshop; ÝKey Performance Indicator Project; ÝRisk Management Project; and ÝStakeholder Satisfaction Survey.

14 NEMMCO Strategic Focus nIn summary, eight key challenges that have been identified from the four specified projects: Ýthe commercial and prudential aspects of the power Market to be operated in a competent manner with data provision that is accurate; Ýthe power system to be operated in a pragmatic manner ensuring minimum disruption to the community; Ýthe NEM systems including communication links, to have a high level of availability and reliability; Ýthe financial and operational management of NEMMCO to be carried-out in a demonstrably commercial manner;

15 NEMMCO Strategic Focus ÝNEMMCO be structured in such a way that allows the full intellectual capital of its employees to be utilised; Ýthe day-to-day operations of NEMMCO to be conducted in such a transparent manner so as to minimise the opportunity for dispute; Ýthe communications with all stakeholders of NEMMCO to be undertaken with a view to projecting ourselves as independent while seeking to deliver real value; and Ýthe information provided to directors, on both a strategic and operational basis, to leave no doubt as to the integrity of NEMMCO employees.

16 NEMMCO Strategic Focus n In order to best meet these challenges a new organisational structure was developed: ExchangeOperations Market Development Metering Settlements Settlement Residue Registration Prudentials Power Exchange Bidding PASA Optimisation (SPD) Communications Real time monitoring Market Administration Systems Market Systems Board and Executive Corporate Services Business Systems Management and Support Services ParticipantsJurisdictions End Users Stakeholders Power System Operation Power System Dispatch Power System Planning Ancillary Services Reserve Trader System Operations Services

17 Challenges and Emerging Issues nInterconnection of Queensland ÜThe Queensland-New South Wales Interconnector (QNI) is scheduled to be progressively placed in service in the last quarter of 2000 with a commercial service capability of at least 350MW in both directions by the end of 2000. ÜThe nominal design capability of QNI is 500MW from New South Wales to Queensland and 1000Mw from Queensland to New South Wales.

18 Challenges and Emerging Issues ÜWhen Queensland is connected to the NEM, the resulting transmission system will stretch some 4500 km from North Queensland to South Australia. ÜAn system of the length of the NEM presents significant technical challenges both for the maintenance of power system security and the operation of the network.


20 Challenges and Emerging Issues n Increase in Value of Lost Load (VoLL) ÜAs result of the Reliability Panel’s Review, the level of VoLL will be increased to $10,000/MWh on 1 September 20001 and then $20,000/MWh on 1 April 2002 from the current $5,000/MWh. ÜThe change allows for both increased investment incentives and financial risk. ÜIncentive - peaking plant investment and demand side response. ÜRisk - management of financial exposure and physical availability.

21 Challenges and Emerging Issues nRetail Competition ÝThe next big ticket reform upon which the community will judge the benefits of the restructured industry. ÝNEMMCO is actively working with industry and the jurisdictions toward the next tranche of retail deregulation. ÝAn important lesson learnt from the implementation of the NEM is the need for an integrated industry project plan - NEMMCO believes that it is critical that both national and participant systems are in place before full retail competition can be rolled out

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