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Renewable generation in the National Electricity Market, and related environmental marketsIain MacGill, Research Coordinator, CEEMCIVL4815, University of Sydney Tuesday, 11 October 2005
Renewable generation in the NEM and related environmental markets
CEEM established …– to formalise growing interest + interactions between UNSW
researchers in Engineering, Commerce + Economics, Arts + Social Sciences, Science, AGSM, IES…
– through Research Centre undertaking research in interdisciplinary design, analysis + performance monitoring of energy + environmental markets, associated policy frameworks
– in areas ofPhysical energy markets (with an initial focus on ancillary services, spot market + network services for electricity + gas)Energy-related derivative markets (financial + environmental including interactions between derivative and physical markets)Policy frameworks and instruments in energy and environmentExperimental market platforms and AI ‘intelligent agent’ techniques to aid in market designEconomic valuation methodologies
– www.ceem.unsw.edu.au
Renewable generation in the NEM and related environmental markets
Some dimensions of technological changeTechnology
‘hardware’ + ‘software’ + ‘orgware’
Technological innovation
Invention↓
Commercial-isation↓
Diffusion/adoption
Typical technological
change
(IIASA)
Renewable generation in the NEM and related environmental markets
The need for innovation policyTechnological change is too important to leave to:– Imperfect markets: currently have severe climate externality
failings, generally under-deliver R&D, more systemic problems too..
– Technology ‘champions’: dangers of undue techno-optimismGovernment policy roles in:– Invention: support R&D into promising socially beneficial yet
unproven technologies– Commercialisation: support demonstration and initial
deployment of promising, technically proven, technologies
– Diffusion/Adoption: ensure markets reflect societal prefs
Renewable generation in the NEM and related environmental markets
Federal Government technology assessmentNot clear what criteria applied, process by which established
Renewable generation in the NEM and related environmental markets
Australia’s current innovation policyClimate change + energy initiatives White Paper, 2004– $500m low emissions technology demonstration fund– $100m renewable energy development initiative– $75m solar cities– $27m on low emission technology and abatement– $13m on local greenhouse action– $20m on advanced energy storage technologies for
electricity from intermittent sources– $14m to develop wind forecasting system– Improving grid accessibility– Continue with present MRET– No Emissions Trading or Carbon taxes
Renewable generation in the NEM and related environmental markets
The market for demonstration funds…REDI Merit Criteria– management capability of the customer– commercial potential of the project– technical strength of the project and the
technical capability and resources available to the customer
– extent to which the project is likely to provide national benefits
– the need for funding– potential for greenhouse gas abatement.
Renewable generation in the NEM and related environmental markets
Electricity Spot Market Derivatives Markets
Carbon markets…..Renewable Energy
Markets
2% target for retailers or $40/MWh penalty by 2010
For commercial renewables, potentially many markets…
Renewable generation in the NEM and related environmental markets
Australia’s National Electricity MarketNEM covers all participating states:– A multi-region pool– Ancillary services, spot market & projections
NEM doesn’t formally include forward markets
– Operated by NEMMCO (owned by states)Compulsory participants in NEM:– All dispatchable generators & links > 30 MW– Network service providers & retailers– Contestable consumers may buy from NEM
Renewable generation in the NEM and related environmental markets
Scope of the NEM
• Queensland• New South Wales & ACT• Victoria• South Australia• Tasmania (on connection
to the mainland)
Renewable generation in the NEM and related environmental markets
Physical context for intermittent renewables - power system integration
Shared,distributed,time-varying,non-storableenergyFluxes(wind/wave/solar)
Independentlyowned generation
Sharedelectricitynetwork
&Powerstationsof other
types
End-useequipmentproviding
energyservices
Renewable generation in the NEM and related environmental markets
Commercial context for intermittent renewables -power system integration in NEM
Renewablegenerators& other power stations(sellers)
National Electricity MarketCommercial activities:• Spot market• Derivative markets• Ancillary services markets• Network charges• REC market• Carbon markets?Subject to constraints:• Connection requirements• Security requirements• Regulatory requirements
Retailers&
largeend-users(buyers)
Renewable generation in the NEM and related environmental markets
Installed capacity mix
(ESAA, Electricity Supply Australia, 2004)
0
2
4
6
8
10
12
14N
SW VIC
QLD SA W
A
TAS
NT
Sno
wy
Other renewableHydro (incl. Pump storage)OtherOilGasCoal
Renewable generation in the NEM and related environmental markets
Equal consideration – National Electricity Code
Objectives – Market should be competitive– Customers should be able to choose with which supplier they
trade– Any person wishing to do so should be able to gain access to
the interconnected T&D network– A person wishing to enter the market should not be treated
more or less favourably than incumbents– A particular energy source or technology should not be
treated more or less favourably than another energy source or technology
However, hard to achieve in practice
Renewable generation in the NEM and related environmental markets
The competition - generator costs in Australia
Estimated electricity costs of different generating options COAG (2002) Draft Energy Review Report
Renewable generation in the NEM and related environmental markets
Gen. costs for baseload, intermediate + peak
(Origin, 2003)
Renewable generation in the NEM and related environmental markets
Weekly avg. NEM spot prices since market inception (NECA, 05Q1 Stats, 2005)
Renewable generation in the NEM and related environmental markets
Flat contract prices, Q1 2005(NECA, 05Q1 Statistics, 2005)
Renewable generation in the NEM and related environmental markets
Economics: International elec. prices (industrial)
15.914.9
11.511.0
10.3 10.39.8 9.8 9.7 9.6 9.4 9.4 9.2 9.1 8.9
8.4 8.1 7.8 7.76.8 6.7 6.7 6.4 6.2
3.1
18.6
0
5
10
15
20
Japa
n
Italy
Sin
gapo
re
Net
herla
nds
Bel
gium
Por
tuga
l
Uni
ted
Kin
gdom
Irela
nd
Arg
entia
n
Cro
atia
Spa
in
Cze
ch R
epub
lic
Taiw
an
Kor
ea
Gre
ece
Fra
nce
Ger
man
y
Pol
and
Hun
gary
Luxe
mbo
urg
Uin
ted
Sta
tes
(NC
)
Cze
ch R
epub
lic
Can
ada
AU
STR
ALI
A
Fin
land
Sou
th A
frica
(ESAA, Electricity Supply Australia, 2004)
Renewable generation in the NEM and related environmental markets
Prices for energy commodities (BP 2005)
Renewable generation in the NEM and related environmental markets
Mandatory Renewable Energy Target
Renewable generation in the NEM and related environmental markets
Present MRET is just about finishedThe Federal Govt. has rejected key review finding of a higher target to 2020BCSE estimates only approx. 700-800MW of new (post Jan04) projects required to meet existing target, and……project commitments > 500MW in 2004 leaves < 300MW new projects reqd
Renewable generation in the NEM and related environmental markets
Some international renewable energy targets
Renewable generation in the NEM and related environmental markets
Prediction of REC Prices (A$/MWH) (ORER, 2003)
0
510
15
2025
30
3540
45
5055
60
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Year
REC
pric
e
average price
Renewable generation in the NEM and related environmental markets
NSW Scheme – a ‘designer’ carbon market
Liable parties
NSW Retailers obliged to acquit NGACs equiv. to NSW elec. mktshare X ‘excess’ NSW emissions
NGACproviders
Deliver certified emission reductions to create NGACs
NGA Certificate
tradingArrangements to be provided by
private enterprise
NGA Certificatesrepresenting 1MWh emission reductions from BAU
Certify Certificates Maintain register Ensure liable parties obligeScheme administrator (NSW IPART)
Create NGACS viaLow-emission generation (gas, new coal)
Demand Side Abatement
Sequestration
Renewable generation in the NEM and related environmental markets
Current prices for NGACs (AMFA, 2005)
70.39$15.58$14.90Cal 09
70.28$14.49$13.92Cal 07
70.18$12.85$12.59Cal 05
70.14$12.59$12.21Spot
Number of Contributions ReceivedStd Dev of Mids (All)Mean All OffersMean all BidsTerm
NSW Greenhouse Gas Abatement Certificate (or equivalent)
Non-Quorate (<5 contributors) on SOME contracts.
Renewable generation in the NEM and related environmental markets
Possible role of carbon tax / ETS
Renewable generation in the NEM and related environmental markets
Many of our publications are available at www.ceem.unsw.edu.au