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Wind Farms in a Gross Pool Market: Australian National Electricity Market

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

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Wind Farms in a Gross Pool Market: Australian National Electricity Market

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  1. Perspectives from AbroadSustainable 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: +61 2 9385 4035; Fax: +61 2 9385 5993; Email: h.outhred@unsw.edu.au www.sergo.ee.unsw.edu.au

  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. Retail sector Embeddedgenerators Generation Sector:- largegenerators Retailer 1 Multi-region National Electricity Market (NEM) Contestable customers Retail Markets Intentionsoffers & payments Intentionsbids & payments Retailer 2 Gen 1 Franchise customers Gen 2 Retailer Z Distribution sector End-usesector Gen 3 Transmission Sector NSW Victoria South Aust. Queensland & possiblyTasmania Distributor 1 End-use Equipment & Distributed resources Gen X Distributor 2 Electricity Electricity Electricity Distributor Y Electricity industry structure in SE Australia Financial instrument& REC (emission) trading Tx networkpricing Tx networkpricing Networkaccess

  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 theirboundaries need not be on state borders(e.g. two regions in NSW)

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

  8. _ + Supply-demand balance in the electricity industry Generator input power Load electrical power • 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? Thermal Power stations Industrial Hydrogenerators Commercial Wind farms Residential

  9. Spot market forecast &derivative markets Spot marketfor period t Spot marketfor period t+1 Commercial issues spot period t spot period t+1 time Physical issues Frequency controlancillary servicemarkets for period t FCAS marketsfor period t+1 Supply/demandprojections & FCASderivative markets Managing supply-demand balance in Australian NEM increasing uncertainty

  10. 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 NEMMCO processes for managing supply-demand balance Power system reliability & security standards

  11. Commitment notices Initial Offers/Bids 1230hrs then re-bids until dispatch time Capacity Energy/RoC Day -2 Day -1 Day 0 Day 1 Dispatch Day ST PASA 1400hrs 5-minute & 30-minute prices as set;previous days data at 0800hrs 1st Pre-dispatch 1600hrs Updated 3hrly Bidding & dispatch(source: NEMMCO)

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

  13. Invitation to provide more capacity NEMMCO Settlements Purchase of more capacity Payment for purchased capacity Expectedinadequacy Purchased capacity offered to market (usually at VOLL) Availablecapacity Pre-dispatch then dispatch Registration ofavailable capacities Day-ahead Offers & bids PASA & reserve trader (long term expected USE < 0.002%) • Energyconstraints • Demandforecasts • Networkcapacity PASA

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

  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. Preliminary enquiry Assess network suitability • Prepare: • Preliminary program • Performance specification • Technical data lists • Application fee estimate • Commercial requirements • Advise applicant Try another NSP Prepare application Apply & pay fee • Investigate application: • Technical & economic studies • Liase with other NSPs • Seek additional information Provide additionalinformation Finalise connectionagreement Make offer to connect NEC Grid connection process(NEC, Chapter 5, p 9) Network service provider Code participant Connection does notguarantee market accessunder all conditions

  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: • www.energymarketreview.org • National Electricity Market Management Company: • www.nemmco.com.au • National Electricity Code Administrator: • www.neca.com.au • Electricity Supply Association of Australia: • www.esaa.com.au • University of New South Wales - Sustainable energy research group: • www.sergo.ee.unsw.edu.au

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