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The impact of Weather on the Australian Energy Markets What can go wrong….seems to

The impact of Weather on the Australian Energy Markets What can go wrong….seems to. James McIntosh June 2008. Background Information for WRMA. The Australian Electricity Market. Structure of the National Electricity Market.

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The impact of Weather on the Australian Energy Markets What can go wrong….seems to

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  1. The impact of Weather on the Australian Energy MarketsWhat can go wrong….seems to James McIntosh June 2008. Background Information for WRMA

  2. The Australian Electricity Market

  3. Structure of the National Electricity Market • Market is a Gross Pool System based on Regional (State) Boundaries, that are linked by Interconnectors • Generators bid all volume into the pool and Retailers buy all volume from Pool. • All generators receive (and all retailers pay) the marginal price for meeting the last MW of demand • Participants enter Contracts for Difference (CFDs) that are cash settled against the Regional Reference Price • Price of electricity is published every 5 Minutes, and settled every half hour (based on the average of the 5 Mins) • Market ceiling price is $10,000/MWh, and floor is-$1000/MWh, but usually averages $40-$50/MWh • Most popular Financial products traded are Swaps and $300/MWh Caps (a series of half hourly call options struck at $300/MWh)

  4. Structure of the National Electricity Market

  5. Impacts of Weather on Demand • All regions in Australia are summer peaking market (due to Air Conditioning Load), and experience a large amount of load flex between average demand and maximum demand • Using only the financial instruments available within the market is expensive, and creates a large amount of hedge inefficiency • Weather derivatives (temperature linked electricity products) are ideally suited to manage the risk of financial exposure due to extreme weather events in Australia

  6. Impacts of Weather on Supply • Australia is the driest continent on Earth (excluding Antarctica), yet Hydro generation forms a crucial component of the supply mix in Australia. Hydro storages are now at an historical low and the lack of rain is impacting the electricity price • Graph: Hydro Tasmania Storage levels • The extreme drought has even caused thermal power stations to cut back output in order to conserve cooling water

  7. Impacts of Weather on Forward Curve Solid rainfalls in QLD alleviate cooling water issues for generators Lack of water in hydro storages becomes apparent QLD Generators announce withdrawal of thermal capacity due to low cooling water

  8. The Australian Gas Market

  9. Structure of the Australian Gas Market • Market is not as advanced on a trading basis, with participants concentrating on physical delivery of commodity (as opposed to managing financial risk) • States are connected via pipelines from hubs, enabling the wheeling of gas across regions • Whilst there is plenty of natural gas in Australia, tight pipeline capacity and limited storage facilities near major load centres means that once line-pack is depleted, some suppliers have monopoly pricing power. This can see the price of gas jump from $3.50/GJ to $100/GJ • This scenario generally occurs when the South Eastern States experience cold weather, causing a rise in use of gas for domestic heating, as well as gas fired generation (for electric heating)

  10. South Eastern Australia Gas Map QLD QSN Sydney Moomba Canberra Adelaide Melbourne LNG Longford Iona

  11. Background The Australian Climate and its effect on the Economy

  12. Climate Regions of Australia-Temperature

  13. Climate Regions of Australia-Rainfall

  14. Australia Elevation

  15. Australia Population • Population 21 million

  16. Tropical Cyclones risk

  17. Drought

  18. El Nino

  19. National Electricity Market

  20. Diversity across regions

  21. Effect of the drought on the Australian Economy • Reserve Bank of Australia (RBA) estimated that the drought would subtract one half of one point of growth in GDP for the 06/07 Year, with grain production being heavily affected

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