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NDSC, SouthStephen van der Mye, Managing Director, NEMMCO
APEX 2000APEX 2000Australian Market UpdateAustralian Market Update
Achieving a World Class Market
Competitiveness Investment signals and outcomes so far
Reliability Managing supply shortfalls
Operational Highlights 1999-2000 Key Projects
NEMMCO’s performance and strategic focus
Challenges and Emerging Issues Connection of Queensland
Increase in VoLL
Retail Competition
Competitiveness
Substantive evidence exists that the NEM is operating to
design by providing economic signals to encourage efficient
resources allocation across the energy sector.
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.
Competitiveness 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.
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.
Competitiveness
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.
Reliability
The ability of the electricity supply industry to effectively
manage supply shortfalls impacts greatly on business and
consumer confidence in the sector.
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.
Reliability
The February incident crystallised some serious issues that
need to be addressed in the future development of the
National Electricity Market:
Neither the operation of the NEM nor the respective roles
and responsibilities of its participants are well
understood outside the industry
Deliberate entry into a load shedding scenario is
unacceptable to public, commerce, industry etc
Hence situation is unacceptable to Governments
Reliability
Governments will intervene with some form of
restrictions
Restrictions significantly reduce demand and pool prices
and consequently impact on economic investment
signals
1999-2000 Key Projects
New Structure for Participant Fees
Previously 100% borne by retailers
From 1 July 2000 split between retailers and generators
Market and System Operations Insurance Advisory Committee
On 13 December 1999 NEMMCO’s immunity from liability
lapsed and following a Jurisdiction review liability caps were
introduced
Annual aggregate cap of $100 million, $2 million cap per
event, nominal $1 cap on Directors and officers of NEMMCO
1999-2000 Key Projects
Market and System Operator Review
Jurisdictional Governance and Liability Steering Committee
project managers report mid 1999 raised questions on
present allocation of MSO responsibilities within the Code.
NEMMCO & TNSPs agree that Code is ambiguous and that
there are omissions.
NEMMCO believes significant cost savings will be achieved
compared to existing TNSP agency agreements.
Final report is due at the end of October
1999-2000 Key Projects
Ancillary Services Review
Review to consider the development of market based
arrangements for the provisions of Ancillary Services
New regime implemented on a transitional basis from 1
January 2001
First steps:
Spot Market for Frequency Control Ancillary Service
No change for the procurement and dispatch of Network
Control and System Restart Ancillary Service
Causer pays approach to cost allocation
Operations - NEMMCO Performance
In the period following NEM commencement, NEMMCO’s focus
has been on bedding down systems and processes to ensure
smooth market operations:
the availability and reliability of the NEM system has
exceeded expectations;
metering and settlements on time with high accuracy; and
the successful assumption of Power System Security
functions in all regions.
Operations - NEMMCO Performance
While 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:
Strategic Thinking and Operational Planning workshop;
Key Performance Indicator Project;
Risk Management Project; and
Stakeholder Satisfaction Survey.
NEMMCO Strategic Focus
In summary, eight key challenges that have been identified from the
four specified projects:
the commercial and prudential aspects of the power Market
to be operated in a competent manner with data provision
that is accurate;
the power system to be operated in a pragmatic manner
ensuring minimum disruption to the community;
the NEM systems including communication links, to have a
high level of availability and reliability;
the financial and operational management of NEMMCO to be
carried-out in a demonstrably commercial manner;
NEMMCO Strategic Focus NEMMCO be structured in such a way that allows the full
intellectual capital of its employees to be utilised;
the day-to-day operations of NEMMCO to be conducted in
such a transparent manner so as to minimise the opportunity
for dispute;
the communications with all stakeholders of NEMMCO to be
undertaken with a view to projecting ourselves as
independent while seeking to deliver real value; and
the information provided to directors, on both a strategic and
operational basis, to leave no doubt as to the integrity of
NEMMCO employees.
NEMMCO Strategic Focus
In order to best meet these challenges a new organisational
structure was developed:
ExchangeOperationsMarket Development
MeteringSettlements
Settlement ResidueRegistrationPrudentials
Power Exchange
BiddingPASA
Optimisation (SPD)Communications
Real time monitoringMarket Administration
Systems
Market Systems
Board and ExecutiveCorporate ServicesBusiness Systems
Management and Support Services
ParticipantsJurisdictions End Users
Stakeholders
Power System OperationPower System DispatchPower System Planning
Ancillary ServicesReserve Trader
System Operations Services
Challenges and Emerging Issues
Interconnection of Queensland
The 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.
The nominal design capability of QNI is 500MW from New
South Wales to Queensland and 1000Mw from
Queensland to New South Wales.
Challenges and Emerging Issues
When Queensland is connected to the NEM, the resulting
transmission system will stretch some 4500 km from
North Queensland to South Australia.
An 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.
Challenges and Emerging Issues Increase in Value of Lost Load (VoLL)
As 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.
The change allows for both increased investment incentives
and financial risk.
Incentive - peaking plant investment and demand side
response.
Risk - management of financial exposure and physical
availability.
Challenges and Emerging Issues
Retail Competition The next big ticket reform upon which the community will
judge the benefits of the restructured industry.
NEMMCO is actively working with industry and the
jurisdictions toward the next tranche of retail deregulation.
An 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