"Cold snap overheats electricity market"

24th June 2008

Following up on some SMS alerts received (via NEM-Watch) at 17:10 on Sunday and 07:10 on Monday, Duncan Hughes (from The Australian Financial Review) spoke to our Managing Director, Paul McArdle.

These high prices coincided with an front-page article ("Power prices put business on back foot") co-authored by Duncan Hughes in the FinReview on Monday 23rd (the previous day).  In Monday's article, the comment was made that:

"As well as focusing on energy efficiency, companies are also adopting strategies to ease pressure of high prices.

Some companies are believed to have negotiated contracts that give them a partial exposure to spot prices on the NEM.   One major company is believed to have negotiated such a contract after it was asked to pay about double the price per megawatt hour when it recontracted for power." (our emphasis added)

Using a number of our software packages, we identified several things with respect to the price spike that occurred on the morning of Monday 23rd June 2008:

1)  The QNI interconnector was constrained flowing north at the time, which meant that southern generators could not provide a moderating impact on prices in QLD.

2)  In the period 07:05 to 07:10, NEMMCO's dispatch instruction indicated the QLD demand was forecast to rise by 100MW over the 5-minute period (20MW/minute).  Whilst this has not been investigated in detail, we believe that this might have been a high rate of growth in demand which necessitated NEMMCO calling on more expensive (peaking) plants to generate for an interim period in order that the Queensland morning demand could be met (the lower cost black-coal plants that were operating at the margin may not have been able to increase load quickly enough).

3)  At 7:15 we saw the dispatch demand drop, and subsequently the price drop as well, as a result of about 150MW of Demand Side Response from large energy users in Queensland curtailing demand in response to the high price signal at 7:10.  With reference to other data to which we have access, it appears likely that most of this reduction was provided by some clients we have who use our deSide® product to manage their spot price exposure in their energy contracts.

Duncan mentioned this Demand Side Response in his article "Cold Snap overheats electricity market":

To read the article, please see either:
1)  The news release at the AFR online; or
2)  A PDF copy of the release.

Note that some pictures of (and further analysis about) what was happening in the market at the time of the price spike on the morning of Monday 23rd June is to be included in an article included on our electricity market blog:

WattClarity.com.au