At the end of the last week, AEMO flagged the possibility of extreme temperatures for the following week in South Australia, Victoria and New South Wales.
Weather forecasts were showing a large uncertainty in the predicted temperatures. Predictions ranged from mid to high 30s for Victoria, low to mid 40s for South Australia and high 30s for New South Wales. The key risk in these forecasts was the possibility of temperatures exceeding 40 degrees in two or more regions simultaneously.
On 11 January, AEMO published a market notice highlighting the forecast extreme temperatures in South Australia and elevated temperatures in Victoria and New South Wales. In this notice, AEMO provided forecast temperatures and generation capacity reference temperatures for generators to consider when updating their generation levels. Temperature and humidity have significant impacts on the performance of coal and gas powered generation.
On the back of this, AEMO updated its demand forecast and the resulting higher demand caused a lack of reserve to be triggered. The lack of reserve was forecast between 15:00 and 18:00 on 15 January. AEMO requested a market response from generators to make generation available to fulfil the shortfall.
Between 11 January and 15 January AEMO published further market notices updating the expected lack of reserve for 15 January and requested further generation response.
Pre-dispatch prices and demand for 15 January were published by AEMO the day prior. Spot prices were forecast to reach $14,500/MWh based on a demand of 8,800MW, which is significantly higher than normal levels.
As the afternoon approached, temperatures were high but a cool change was also approaching.
At 11:57 on 15 January, AEMO issued a market notice cancelling the lack of reserve.
As a result of the increased availability of generators and the cool change, AEMO revised their demand forecast down 800MWs. The resultant shift in supply and demand drove forecast prices down from $14,500 /MWh to $300/MWh.
Contract market prices are influenced by the outcomes of the spot market. As a result of the forecast high prices in South Australia,Victoria and New South Wales, the contract market prices increased in the build-up to 15 January; however, as the forecast spot prices and actual spot prices reduced, the contract market also reduced.
Retailers and large industrials are provided cover from the volatility of the spot market by purchasing contracts at a fixed price. However, the impact of the spot market can influence when volume is purchased to achieve the desired outcome for a business.
If you have any questions regarding this article or the electricity market in general, call Edge on 07 3905 9220 or 1800 334 336.
