The National Electricity Market: This post will probably leave you more confused
Unless you actively work across all layers of Australia’s national electricity market (NEM) there’s a high likelihood that this blog post will make you less confident in understanding the dynamics of the NEM.
I’ve worked at a aluminum smelter (one of the biggest energy loads you can find on the grid), a energy distributor and a power station. My first introduction was an aluminum smelter. The smelter wanted to change its load based on the spot power price. This dabbling in the NEM lead me to investigating the NEM’s open data and I eventually setup a website to visualise it. For a long time it was one of the only free and accessible ways of seeing the spot price, generation / demand and station generation. The websites long shutdown now. Often I had requests from people thinking I was from the AEMO/NEM which was concerning…
Even with this knowledge I still made bad assumptions and mistakes when talking about the NEM. From a high level it seems simple, you have loads and generators, people bid, you get a power price. There are soooooo many more variables to it than that though. It’s highly likely that I’ll still make mistakes in this post. Also the rules, requirements and the dynamics of the market change frequently.
Complication 1 - Interconnectors
The NEM currently has the following regions, VIC, QLD, NSW, TAS and SA. I say currently as the Snoy Hydro used to be its own region. Each Interconnector has its own limitations based on technology (AC, or HVDC).
It’s easy to simplify this as each region is its own market and the interconnectors are just generators and loads. This gets you so far. However where this starts to break down is that the interconnectors pass power through them, not cash. All going well power flows from low price region to high price region. However there’s a variety of factors that cause the fiscal model of the NEM not to match the actual model - for example data errors could cause the interconnector to fiscally run the opposite way to physically. This makes people sad.
Bonus complication
Interconnectors aren’t necessarily a single physical interconnector and could be made up of multiple connectors. This is called a notional interconnector. A directional interconnector is all the interconnectors flowing in a single direction to another region.
So you have to consider not just the limits of a single interconnector but all the interconnectors between the regions
Complication 2 - Regional losses
Lets make a simplified version of the NEM with a single generator and a single load. The load will be in Melbourne and the generator will be in Townsville. The loss in power from cabling will be significant.
The NEM “solves” this by using regional reference nodes and marginal loss factors to help calculate how much the power is worth.
Complication 3 - Grid constraints
Every piece of equipment has limits. The amount of current it can handle. How much can it handle at $x temperature. Best case when equipment hits its limit, it will trip, worse case it will be damaged.
Given the risk it’s important that these are modelled so that the grid can’t put a single piece of equipment at risk of hitting these limits.
What does this mean? Well even if we have plenty of generation, if its in the wrong place or other equipment is fault AEMO might need to request changes to ensure power system security, which includes things like voltage and frequency.
Check Out Constraints
The AEMO publish a constraint library to check out.. Might take awhile to get through. (Correction, the link provided here is for the WEM however it gives you an idea of the types of constraints and how many there can be)
Complication 4 - FCAS
Frequency Control Ancillary Services. FCAS. A very important part of keeping the grid at 50hz. This is an extra set of rules that are followed to bring the grid back to 50hz. More recently it was discovered that we needed even faster recovery from faults. So we also have Very Fast FCAS.
Bonus complication
Understanding AEMOs 3d FCAS trapezoid
Complication 5 - RERT
Reliability and Emergency Reserve Trader. This is effectively AEMO having their own contracts with companies to provide generation or load reduction for when the market isn’t able to respond.
Complication 6 - Time scales
So I haven’t talked about much about bidding. Bidding happens every 5 minutes. So we have Very Fast FCAS and FCAS that happens in seconds to a minute, the spot price at every 5 minutes, RERT that happens at much longer. Forecasting also happens at different time scales. At any one time there are lot of different processes happening to determine who pays what and how much.
Watt Clarity has a good overview.
Bonus complication
You can nag the ACCC to make the 5 minute rule not apply to you.
Complication 7 - Demand
There’s a lot of demand we don’t see. There’s a lot of contracts we don’t see. It’s hard to know why a generator is bidding at a specific price.
Demands and loads often change based on spot price as well.
Funnily enough while doing some research here I found Watt Clarity’s explainer on demand which includes many more complexities!
Bonus Complications - Demand and generation in other contracts
Many contracts existed before the NEM. . See also Long-term Energy Service Agreements.
Complication 8 - Administered Pricing
When the sum of the price intervals equals a fixed amount administered pricing kicks in. This is a damage control system to prevent the spot price from bankrupting everyone.
Complication 9 - Outages are complex
A single unplanned outage can enforce a whole bunch of new constraints and limits. Suddenly the model has to reconfigure itself and make the network safe by imposing the correct constraints. Often outages are multi-faceted - eg a storm impacting multiple transmission lines, generators and loads. Or an under frequency / over current event could cause generators to tripped in parallel unexpectedly. You might lose six units at a powerstation due to a workers strike.
Complication - Closing….
The NEM is complex. I’ve only just scratched the surface here. Like the very very very surface. If you want to learn more much of the NEM is documented by AEMO and publish online. WattClarity also have very good learning resources and explain interesting events.
Bonus complication
Understanding Infoserver DB format