In May 2023, the Energy Security Board (ESB) published a consultation paper addressing transmission congestion. The paper proposed a voluntary congestion relief market (CRM) and a priority access mechanism. The priority access mechanism tends to incentivise generators to sit in non-congested areas to avoid further congestion. The CRM model also aims to achieve more efficient dispatch by reducing the curtailment of lower-cost generators and incentivising cost-reflective bidding instead of disorderly bidding behaviour.
Following the latest consultation paper, the ESB has now released a prototype model to run different operational examples for the CRM and the priority access mechanism. The prototype includes a full NEM CRM model based on historical data and a seven-node transmission network model based on hypothetical data. In this Chart of the week, we look at the results of these simulation runs[1] to better understand the effects that the CRM and priority access mechanism can have on the operation of the NEM.
The chart below shows two important outcomes that we picked up from the full NEM CRM prototype:
1) An increase in battery charging in the presence of the CRM (left-hand side chart), and
2) a reduction of counter-price flows on the VNI, which was a result of congestion and disorderly bidding (right-hand side chart).
As seen in the left-hand side chart, QLD, SA, and VIC batteries have additional charging volumes during the selected interval due to the CRM dispatch creating room for available generation and reducing congestion. This was the most expected scenario with the CRM, as batteries are an effective option for reducing congestion and unlocking cheaper generation.
Another expected event we discussed in the latest edition of our Energy Market Perspective is the reduction of counter price flows, especially in heavily congested areas where disorderly bidding is observed the most (refer to the right-hand side chart). During the simulation interval, NSW’s regional reference price (RRP) was $120/MWh, while the RRP for VIC was $17/MWh. Having the power flowing from NSW (higher priced region) to VIC (lower priced region) indicates counter-price flows. As a result of the CRM adjustments in generation, we see that the VNI flow has reduced by 146 MW, which means less counter-price flow and, accordingly, less cost to be passed to customers.
As mentioned before, the ESB also had a 7-node prototype to show how the priority access model can affect dispatch outcomes. In the priority access model, each generator is assigned a priority for dispatch. The priority is determined on a first-come, first-served basis. While the priority access mechanism seems pretty straightforward, its combination with the CRM results in some unexpected outcomes. Our analysis of the results of the prototype shows that:
- Higher priority for dispatch does not necessarily result in higher net benefits, as the dispatch outcome for generators (if soft priority[2] is in place) would be affected by their coefficients and CRM adjustments.
- Generators might be able to gain revenue even if not physically dispatched. Example: the CRM adjustment reduces output to zero while the CRM price is less than the RRP.
For more information on the CRM model, please refer to our recent webinar here. For more information on priority access and CRM models, please refer to our Energy Market Alert on transmission access reform.
In this Chart of the week, we benefited from our Energy Market Alert service, which provides a comprehensive and up-to-date analysis of the major regulatory, policy and market developments. Please contact us at enquiries@cornwall-insight.com.au for more information.
[1] Chart reflects the full NEM CRM prototype, historic data of 09/02/2023 13:50:00. 7-node analysis is given towards the end of this report.
[2] Soft priority is a policy lever in priority access and means coefficients can still be a decisive factor in dispatch. In contrast, a hard priority ignores the coefficients if bids bind.
