Providing insights to explain why Queensland energy prices soared close to record levels

After energy prices in Queensland soared close to near record level, even though there was enough spare generating capacity to meet the demand spike, there was much confusion and outrage among major energy users.

Seeking insights to help explain the situation, our CEO, Paul McArdle was quoted by journalist Duncan Hughes from the Australian Financial Review:

“The managing director of market monitor NEM-Watch, Paul McArdle, said major Queensland companies with retail electricity contracts but some spot-price exposure such as Smorgon Steel, OneSteel, zinc smelters and magnesium producers, managed the risk by winding back operations during the peaks.”

Paul went on to explain how recent events in the industry were affecting prices:

“Demand across the National Electricity Market was very modest and there was oodles of capactiy, more than 38,000 MW, available. But with the demise of state-owned Enertrade there are only four significant generators in the state and they have no problems keeping the price above $9000. They are doing their shareholders a good service.”

“Attempts to top up supply from generators in NSW were constrained because the interconnector between the states could only export 200MW, which would have been insignificant for managing prices.

Helping explain why Queensland power prices surged

In December 2007, wholesale electricity prices hit the maximum of $10,000 per megawatt hour for supplies into the national electricity grid from Queensland. Journalist, Nigel Wilson from The Australian sought insights from Global-Roam to explain the situation to his audience:

According to electricity industry monitor Global-Roam, the high Victorian demand resulted in the instantaneous reserve capacity margin in the NEM falling to 11.7 percent. While the margin has not dropped below 12 percent since the NEM was established in the 1990s, in June it dropped to about 7 percent on two successive evenings, meaning there was little spare capacity in the system.

With our CEO, Paul McArdle commenting on might have caused the price to surge:

Global-Roam’s Paul McArdle said the surge in demand this week might have been caused by the market being surprised by an earlier than expected peak in demand, with generators offline for maintenance to prepare for the anticipated peak of 33,000MW or so expected in January/February.

He noted also that lightning strikes in Queensland and South Australia on Friday meant NEMMCO downgraded transmission capacity from South Australia and from Queensland and reduced the flow into the NSW-Snowy-Vic transmission interconnector by about 700MW.

Mr McArdle said this made the shortage of generating capacity in Victoria more significant — and as a result, prices shot up until generators could respond.

Helping explain why electricity prices hit maximum level allowed

Nigel Wilson reporting for The Australian newspaper in November 2007 sought insights from Global-Roam on why electricity prices had recently hit the maximum of $10,000 a megawatt hour, prompting an urgent investigation from energy industry authorities:

“The National Electricity Market Management CO (Nemmco) yesterday confirmed the price spike – almost unprecedented for a weekend – but was unable to provide a reason.”

“Electricity market monitor Global-Roam reported that at 2pm on Saturday electricity in Victoria was bid to $10,000 for a five-minute dispatch period. As precisely the same time, the wholesale price quoted for South Australia reached $9670.28/MWH.”

Providing clarification as an ‘industry expert’ on upcoming winter demand

Duncan Hughes writing for the Australian Financial Review in July 2007 has identified Global-Roam as an ‘industry expert’ in seeking insights on the outcomes after state regulators reduced peak electricity forecasts by more than 5 per cent, despite recent winter’s repeatedly breaking records.

Mr Hughes wrote:

But industry experts warned that overall demand for energy remained at record-breaking highs from cold winters and hot simmers, more household appliances and population increases.

The managing director of energy market monitor Global-Roam, Paul McArdle, said “If demand was to continue to grow at the winter rates, this would have big implications on the amount of new capacity that would need to be constructed each year, just to keep up with growing demand, over and above any replacement of plant required under and emissions trading”.

NEM-Watch used to explain peaking spot prices to a wider audience

Duncan Hughes from The Australian Financial Review has sought clarification using NEM-Watch to explain why the national electricity market was a “whisker short of a blackout” on a Tuesday night in June 2007.

Using a snapshot of NEM-Watch, Mr Hughes was able to illustrate how spot prices peaked:

According to NEM-Watch, a specialist software provider, a snapshot of the eastern seaboard and South Australia on Tuesday at 5:45pm, revealed spot prices paid by retailers hit more than $9400 MWH in Queensland, $9100 MWH in NSW, $7500 MWH in Victoria and more than $4500 MWH in South Australia.

NEM-Watch managing director Paul McArdle said at the peak of demand, national reserves were about 7 percent of capacity, or half of the typical back up of the national electricity market.

Providing insights to help explain why smart electricity meters are being encouraged

In his article in February 2006, Nigel Wilson from The Australian has quoted our CEO, Paul McArdle in his article “Smart new meters to cut power” in February 2006. Mr Wilson sought insights from Paul in relation to news that Australian household would be encouraged to use smart electricity meters to cut electricity bills and reduce pressure on governments to build new power stations:

Queensland company Global Roam, which monitors electricity generation, said last week total demand for electricity in Queensland and NSW was 21,079 megawatts, while total available generation was 20,090MW.
Managing director Paul McArdle said the only reason lights were not going out was that the Snowy hydroelectric scheme was generating at near capacity and sending all its production into NSW.

Journalist refers to Global-Roam to provide an explanation for supply shortage

Rod Myer from The Age has sought insights from Global-Roam to help explain the fragility of Australia’s power supplies after electricity prices in New South Wales and Queensland spiked to nearly the limit – $10,000 per megawatt hour. In his article, he refers to Global-Roam to explain the reason for the supply shortage:

Generation cuts in very hot conditions led to record demand levels for the second day in a row.

So dire was the situation in NSW that in mid-afternoon generation output, at just over 10,000 megawatts, was over 200 megawatts below demand.

The shortage appears to have been caused by plant failure and planned outages in NSW and Queensland. About 700 megawatts of production appeared to drop out in both states, according to information from power market software producer Global-Roam.

Helping facilitate demand response by commenting on emerging opportunities

In the height of summer 2005-06 a journalist at The Age, Rod Myer, wrote this article “Power to cut out the middleman” to highlight a different approach a number of large industrial energy users were adopting to lower their average cost of energy consumed, whilst at the same time providing a valuable service to the market in helping to mitigate peak demand.

The article begins:

SEVERAL Australian businesses are choosing to manage their exposure to the national electricity market directly rather than contract with retailers. And many who choose to go down this path are providing much needed backup for the power system by turning their plant off when power prices spike.”

Given that our company has been active in facilitating Demand Response for a number of years, it made sense that our comment was sought about this emerging opportunity for energy users.

The author notes our CEO, Paul McArdle, as commenting that:

“… companies using Global Roam software had added about 200 megawatts of demand-side response to the market by cutting use at certain trigger power prices.”