1. Perspectives from Abroad Sustainable Energy Ireland, Dublin 13 June
Wind Farms in a Gross Pool Market: Australian National Electricity Market
Hugh Outhred
School of Electrical Engineering and Telecommunications
The University of New South Wales
Sydney, Australia
Tel: ; Fax: ;

2. Outline Scope & design of the Australian NEM
Managing supply-demand balance
Ancillary service, spot & derivative markets
Renewable energy certificate trading
Network connection issues
Conclusions

3. Electricity industry structure in SE Australia
Financial instrument & REC (emission) trading
Gen 1
Gen 2
Gen X
Generation
Sector:-
large generators
Gen 3
Retailer Z
Retailer 2
Retailer 1
Retail
sector
Intentions bids &
payments
Contestable
customers
Franchise
Retail
Markets
Embedded generators
Multi-region
National
Electricity
Market
(NEM)
Intentions offers &
payments
Distributor 1
Distributor 2
Distributor Y
Distribution
sector
Electricity
End-use
Equipment
&
Distributed
resources
Electricity
End-use sector
Transmission
Sector
NSW
Victoria
South Aust.
Queensland
& possibly Tasmania
Electricity
Tx network pricing
Tx network pricing
Network access

4. Key NEM features NEM covers all participating states:
A multi-region pool with intra-regional loss factors
Ancillary services, spot market & projections
Auctions of inter-regional settlement residues
Operated by NEMMCO (owned by states)
Compulsory participants in NEM:
All generators & dispatchable links > 30 MW
Network service providers & retailers
Contestable consumers may buy from NEM

5. Region boundaries & inter-connectors
Regions boundaries selected so that:
Transmission constraints are rare within a region
Frequently-occurring constraints are placed on region boundaries
Region boundaries to be reset as required:
Whenever a constraint occurs > 50 hours/year
Unregulated inter-connectors are allowed:
If dispatchable so that it can bid like a generator:
‘Directlink’ the first (operating since July 2000):
180 MW DC link between NSW & Queensland regions

6. Scope of the NEM Queensland New South Wales & ACT Victoria
South Australia
Tasmania (on connection to the mainland)
NEM regions are indicated, and their boundaries need not be on state borders (e.g. two regions in NSW)

7. NEM regional spot market model (Based on NEMMCO, 1997)
Queensland
750 MW
Directlink
180 MW
(unregulated DC)
Murraylink 220 MW (unregulated DC)
& possibly SANI (regulated AC)
1,500 MW
NSW
Snowy
Victoria
850 MW
3,000 MW
1,100 MW
thermal or stability flow limits
South Aust
500 MW
250 MW
300 MW
Tasmania
480 MW
Basslink

8. Supply-demand balance in the electricity industry
Generator input power
Load electrical power
Thermal
Power stations _ +
Industrial
Hydro generators
Commercial
Wind farms
Residential
Frequency is a measure of supply-demand balance
always varying due to fluctuations in power flows
Wind farms will make frequency more variable:
Does this matter & if so, who should pay for additional control action?

9. Managing supply-demand balance in Australian NEM
increasing uncertainty
Spot market forecast & derivative markets
Spot market for period t
Spot market for period t+1
time
spot
period t
period t+1
Physical issues
Commercial issues
Frequency control ancillary service markets for period t
Supply/demand projections & FCAS derivative markets
FCAS markets for period t+1

10. NEMMCO processes for managing supply-demand balance
Power system reliability & security standards
NEMMCO Forecasts of supply & demand
10 year (annual)
2 year (weekly)
1 week (hourly)
day-ahead spot price & dispatch (30 min)
NEMMCO operation:
Participant bid/offers
Network data
Demand forecast
Reserve threshold
Security constraints
Reliability safety net
Spot
& FCAS
Markets
Derivative
Markets

11. Bidding & dispatch (source: NEMMCO)
Commitment
notices
Initial Offers/Bids 1230hrs then re-bids until dispatch time
Capacity
Energy/RoC
Day Day Day Day 1
ST PASA
1400hrs
1st Pre-dispatch
1600hrs
Updated 3hrly
Dispatch Day
5-minute & 30-minute prices as set; previous days data at 0800hrs

12. Dispatch, Pre-dispatch, PASA & SOO
SOO (10 yr)
Medium Term PASA
Short Term PASA
Pre-dispatch, re-bid & final dispatch schedule
0 day 1 day 2 week month year year 2

13. Registration of available capacities
PASA & reserve trader
(long term expected USE < 0.002%)
Invitation to provide
more capacity
NEMMCO
Expected inadequacy
Settlements
Payment for purchased capacity
Purchase of
more capacity
Purchased capacity
offered to market (usually at VOLL)
Energy constraints
Demand forecasts
Network capacity
PASA
Available capacity
Registration of available capacities
Day-ahead
Offers & bids
Pre-dispatch
then
dispatch

14. Spot market offers & bids
Generators, retailers & consumers:
Price-quantity curve (sell/buy) for each half hour:
≤ 10 daily prices, quantities changeable until dispatch
Demand forecasts ‘bid in’ at $10000/MWH (VoLL)
Dispatchable links between regions:
Flow offer curve based on price difference
Bids & offers ranked to give dispatch stack:
Considering loss factors & inter-tie constraints
5 minute prices set by economic dispatch:
Half-hourly averages are calculated in ‘real time’

15. NEM Pre-dispatch, Dispatch & AGC
Day-ahead bids from
participants
Forecast
spot prices
Pre-dispatch
(half-hourly)
Bid Database
Current
spot prices
Continuous
re-bid quantities from participants
NEMMCO data (e.g. operating constraints)
Economic Dispatch
(5 minutes)
Instructions to
participants
AGC
(2 second cycle)
SCADA

16. Modelling regulated interconnectors & intra-region location
Regulated interconnector between 2 regions
Modelled by a linearised marginal loss function:
A ‘dynamic’ network loss factor that depends on flow
Flow limits (security or thermal criteria)
Locational effects within regions
Modelled by ‘static’ network loss factors (LFs)
Annual average of estimated half-hour marginal losses for each generator node & group of consumer nodes
Intra-regional constraints not modelled but a ‘constrained-on’ generator cannot set price

17. Financial instrument trading in support of NEM
Trading in swap & cap contracts:
Bilateral trading
Over-the-counter instruments
Exchange-traded CFDs (swaps)
Inter-regional hedges:
Specialised form of financial instrument:
to manage regional price difference risks
funded by interconnector settlement residues
NEMMCO inter-regional settlement residue auctions:
Commenced in 1999

18. Monthly average NEM Regional Ref Prices (RRPs) since market inception (NECA, 03Q1 Stats, 2003)

19. Cumulative spot prices (7-day moving sum) (NECA, 2003)

20. Ave, Max & Min RRP in SA region (truncated at 300 $/MWH) (NECA, 03Q1 Stats, 2003)

21. Histogram of RRPs, Jan-Mar 03 (NECA, 03Q1 Stats, 2003)

22. Cumulative duration curve, SA RRP, Jan-Mar 03 (NECA, 03Q1 Stats, 2003)

23. Spot price as a function of demand SA,02 Q4 (NECA, 03Q1 Stats, 2003)

24. Key derivative markets
Forward contracts (futures)
Expected spot price for a defined load shape & period (eg flat annual demand)
Either OTC or exchange traded
Call options
Renewable energy certificates
Available to qualifying generators
Increasing to 9,500 GWH pa at 2010 then constant to 2020

25. Flat forward contract prices, 1999-2006 (NECA, 02Q4 Statistics, 2003)

26. Premium ($/MWH) for all spot prices above strike price for year to 4/02 (Reliability Panel, 2002)

27. Renewable Energy Certificate Prices - forecast to 2020 (A$/MWH) (ORER, 2003)

28. NEC Grid connection process (NEC, Chapter 5, p 9)
Code participant
Network service provider
Preliminary enquiry
Assess network suitability
Try another NSP
Prepare:
Preliminary program
Performance specification
Technical data lists
Application fee estimate
Commercial requirements
Advise applicant
Connection does not guarantee market access under all conditions
Prepare application
Apply & pay fee
Investigate application:
Technical & economic studies
Liase with other NSPs
Seek additional information
Provide additional information
Make offer to connect
Finalise connection agreement

29. National Electricity Code (NEC) connection requirements for generators
Reactive power & voltage control capability
Quality of electricity injected into network
Protection requirements
Remote control arrangements
Excitation system requirements
Loading rates
Ride-through to avoid cascading outages:
Loss of largest generator; 175ms network fault

30. NEC categories of generators
Either market, non-market or exempt
Market implies sell to NEM
Can then also sell ancillary services
Non-market or exempt implies sell to retailer
Either scheduled or non scheduled:
Scheduled implies centrally dispatched:
Must then participate in the NEM processes of bidding, pre-dispatch & PASA
Default category for generation projects > 30 MW
Not appropriate for “intermittent” generation, eg wind

31. Future directions for NEM COAG Energy Market Review (2002) Recommendations
Create a National Energy Regulator
Improve control of generator market power
Improve operation of derivative markets
Give NEMMCO a NEM-wide planning function
Increase number of NEM regions & aim for full nodal pricing
Phase in interval metering & retail competition for all end-users
Enhance competition and network scope for gas
Replace existing climate cahnge policies by emission trading

32. Key web sites COAG Energy market review:
National Electricity Market Management Company:
National Electricity Code Administrator:
Electricity Supply Association of Australia:
University of New South Wales - Sustainable energy research group: