Assessing the Feasibility of the Interconnected Power Market in Australia

Transcription

1 Assessing the Feasibility of the Interconnected Power Market in Australia Ze Ya Wang, Student Member, IEEE, Zhao Yang Dong, Senior Member, IEEE, Jun Hua Zhao, Member, IEEE, and Xin Zhang, Student Member, IEEE Abstract Take into account the unique geographical location of Australia, there is a time difference of two hours between east and west coasts of the country. This means the peak of energy usage in the two regions will occur in two different time periods. This paper studies the feasibility of building a transmission line to connect the energy markets in both east and west Australia. A simplified market simulation model is developed to investigate the operation of the interconnected market. The market prices in different regions with and without the proposed interconnection will be calculated by the proposed simulation model. Index Terms Interconnection, economic benefits, system reliability, market simulation. I I. INTRODUCTION n the early 1990s, deregulation and privatization of the power system in Australia created an open and efficient electricity market. In December 1998, the generation, transmission, distribution and retailing of electricity in the four states of the country including QLD, NSW, VIC and SA (Tasmania in 2005) has been separated under The National Electricity Market (NEM). By the year of 2013, the NEM has incorporated approximately 40,000 kilometers of transmission lines, and 11.4 billion dollars were traded in according to the data of AEMO [1]. Unlike the eastern coast, the electricity market in Western Australia has not been operated as a part of NEM due to the long distance between two networks. Due to the issues of the geography, industry and population distribution, the electricity infrastructure in Western Australia is generally separated into three systems: the South West Interconnected System (SWIS), the North West Interconnected System (NWIS) and 29 regional, non-interconnected power systems [2]. Among them, the SWIS is the major network in the state. In September 2006, the Wholesale Electricity Market (the WEM) was introduced and served about 840,000 customers in the SWIS with 4,200 megawatts of installed generation capacity [2][3]. Meanwhile, the NWIS has a generation capacity of approximately 400 megawatts which is obviously smaller compared with the Z.Y. Dong, X. Zhang and Z.Y. Wang are with the University of Sydney NSW 2006, Australia ( zydong@ieee.org; xin.zhang@sydney.edu.au; zeya.wang@sydney.edu.au). J.H. Zhao is with the Centre for Intelligent Electricity Networks, University of Newcastle, Callaghan NSW 2308, Australia ( andy.zhao@newcastle.edu.au). SWIS. Thus, there will not be a wholesale market in the NWIS in the foreseeable future. There have been three main differences between the NEM and the WEM [2]: 1. In the NEM, all energy are traded in a spot market. On the contrary, most trading transactions in the WEM are in the form of bilateral contracts. The IMO (Independent Market Operator) receives information about the quantity of electricity to be traded from the generators and then arrange the supply There is a capacity market in the WEM. It aims at giving incentives to encourage generators to meet demand during peak hours. In the NEM, there is no such capacity market. Generators only get paid for sending out energy and a high price cap provides incentives to invest in generation and establish demand side responses. 3. Ancillary services in the NEM are traded through eight ancillary service markets where every participant bids to provide their services. In the WEM, System Management, a segregated business unit within Western Power, schedules the requirements and get the services from the generators who have contract with it. So we would like to answer an important question: can the NEM and the WEM be connected? Currently, the SWIS is geographically isolated from the eastern and southern interconnected system and being separated by a distance of over 1,500 kilometers. Nevertheless, once the interconnection is established both networks would gain significant benefits [3][4][5]. As the number of participants increased, there will be a price falling and the public could benefit from it. Competition in this larger power market will be enhanced simultaneously. II. EXISTING CASES There has been some long distance interconnectors constructed or being constructed around the world. Some are listed in this section to be observed as successful examples. A. The NorNed cable The NorNed cable between the Netherlands and Norway was put into operation in May 2008 [6][7]. The cable is the longest high-voltage cable in the world with a length of 580 km and a capacity of 700 MW. It is built for transmitting electricity between both the two countries. This cable benefits approximately 200 million consumers. The demand in Dutch differs from that in Norway. In the Netherlands, the major electricity usage is non-residential (such as industry), while in Norway, residential use is in dominant especially in winter for heating [7][8]. So the cable makes it

2 possible that Norwegian hydro power could be exported to meet Dutch daytime peak and during nighttime Dutch gas and coal-fired power could be exported to Norway [7][9]. B. The BritNed cable BritNed is a HVDC submarine power cable with a capacity of 1000 MW between the Isle of Grain in the UK and Maasvlakte near Rotterdam in the Netherlands. It was put in operation in April 2011 and aimed at forming a single European electricity market. The link is a commercial interconnector which allows customers buy capacity through implicit or explicit auctions and thus price difference in both countries will lead to power transmission [10][11]. The cable benefits the security and diversity of energy supply in both the two countries making the market operation more efficiently. Meanwhile, it also contributes to the integrating European electricity market by providing extra opportunities and renewable energy production. C. The Basslink interconnector The Basslink is currently the world s second longest submarine HVDC cable project connecting the island of Tasmania and Victoria on the Australia mainland. It aims at supplying some peak load capacity of the mainland and taking some base load capacity to supply Tasmania [12][13]. As the generation type in Tasmania is mainly hydro power, it can meet the rapidly changed demand. When the capacity in Victoria is inadequate, the Tasmanian generators can provide energy to Victoria. When energy price in Victoria is low and Tasmanian generators are constrained by rainfall in hydro catchments, Victoria will export energy to Tasmania. This synergy makes the whole system operated more efficiently. The cable is also used as a part of the Connect Tasmania Core infrastructure as it includes a run of dark fiber [14]. III. AFFECTING FACTORS The factors affecting the interconnector vary. In this paper, main consideration is transmission system capacity, supply and demand level, and generation types. period of time until demand or supply changes. Figure 1. Operational load in Australia on 1/9/2014. The figure above shows the operational load curve in four states in the NEM and SWIS in WA. It indicates that the peak demand in NEM comes with about one or two hours earlier than that in WA. This interesting phenomenon is because the time zone in eastern Australia is two hours earlier than WA. Due to this, an interconnector could transmit extra power in the east when the peak demand passes to meet the coming western peak demand. C. Generation type The factors affecting the electricity various, one of the most fundamental one is the price of fuel. The major types of fuel of power plants in Australia are black coal, brown coal, oil hydro and gas [17][18]. The figure below shows the fuel cost in different states. This makes the electricity price in different states varied. Figure 2 shows the differences of fuel cost in different states. It is clear that the price difference between different fuel types should be considered carefully [5]. A. Transmission system capacity When power is transmitted through transmission line, the amount is limited. There is no doubt that the attribute of wire is the major influential factor, the amount of supported power by connected power plants also takes effect. In general, to improve the capacity of transmission line between regions there is two methods: extending the current interconnectors and building new interconnectors [15]. Both of the above methods are considerably cost efficiency compare with building new power plants. B. The quantity of supply and demand To have a comprehensive view of the effects taken by interconnection, the quantity of supply and demand must be observed. When supply of electricity from power plants meets with the operational demand of consumers in the market, it reaches the market equilibrium. If we assume that the market is a fully competitive one [15], this equilibrium will lasts for a Figure 2. Fuel cost in most states. IV. BENEFITS OF INTERCONNECTION The installation of interconnector would bring benefits to the system operation. Some major benefits is discussed in the

3 following section. interconnection. We can see that the total surplus is increased. A. Capital deferment Install more interconnections in the WM-NEM system can not only improve the system reliability, but also could put off the capital expenditure. As a result of interest rate, the value of money grows over time. If the expenditure of a project is delayed, huge amount of money would be saved [18]. Compare with the cost of constructing power plants, the cost of building interconnectors is significantly low. Therefore, the difference in cost of those two constructions would become the benefit [19]. B. Total welfare increase In the field of economics, the concept of surplus or Marshallian surplus (named after Alfred Marshall, 26 July July 1924, British economists), refers to two quantities: consumer surplus and producer surplus [20]. Consumer surplus is the benefits gained by consumers when they bought a product at a lower price compare to the highest price they can accept. Similarly, producer surplus is the benefits that producer gains by selling with market price minus the lowest price he would like to sell. To figure out the complexities of monopoly capital, Paul A. Baran (25 August March 1964, American Marxist economist) put forward the concept of economic surplus. With the help of Paul Sweezy (10 April February 2004, American economist), Baran gave a detailed description of the importance of this concept and its correlationship with Karl Marx's labor theory of value. In a common trading circumstance, consumer surplus is the area above the equilibrium price and below the demand curve. This indicates that consumers would be willing to buy a single unit of product at a higher price above the equilibrium price, a second unit at a price below but still above the equilibrium one [21]. In fact, they just pay for each unit at the equilibrium price. Similarly, producer surplus is the area below the equilibrium price and above the supply curve [21]. This indicates that producer will be willing to sell the product at a price lower than the equilibrium price, a second one at a price above that but still below the equilibrium price. In fact they sell the all units at the equilibrium price. Figure 3 shows the influence of interconnection within an isolated region. Before interconnected with other regions, the equilibrium is A and the demand is Q1 with a market-clearing price of P1. The total surplus is the area surrounded by the supply curve before interconnection, the demand curve and the Y axis. When this isolated region is interconnected with other regions, the equilibrium will changes to B as generation capacity of other regions could be used and price goes down to P2. With this kind of circumstance, the total surplus becomes the area surrounded by the supply curve after interconnection, the demand curve and the Y axis. The shaded part in the figure is the difference of the total surplus before and after Figure 3. Consumer surplus and producer surplus. Let us define this with the following formula: Changes of consumer surplus = Consumer surplus after interconnection - Consumer surplus before interconnection = The area of quadrangle ABP 2 P 1 = Changes of producer surplus = Producer surplus after interconnection - Producer surplus before interconnection = [ ] Changes of total surplus = Changes of consumer surplus + Changes of producer surplus = + { [ ]} C. Improvement of power system reliability The reliability of power system measures the ability of energy supply to meet the demand of the consumers which composed of adequacy and security. When there is insufficient supply of electricity in the power system, the load may be cut to guarantee the system has a stable operation [15][22]. However, this could cause huge damage to consumers. To achieve the aim that power system should be in a stable status there must be enough generation capacity installed. One method is to build more power plants. Therefore more generation capacity can meet the increasing demand but the cost of project could be extremely huge let alone the construction fee [23]. For this reason, interconnection is a far better choice. Interconnection does not increase actual capacity in any region but it does improve system reliability by introduce excess capacity from other regions to meet the demand. Obviously, the cost of building interconnection is less expensive than that of power plants. This would benefit both the economy and environment. D. Congestion release Congestion occurs mainly because some parts of the network reach the limit and could not carry more power. It may affect the power system stability and creates risks to both the buyers

4 and sellers. More expensive generators may have to run to cover the shortage of energy supply and this results higher electricity price. If there are more interconnectors in a system, some cheaper generators in other regions may be dispatched when congestion occurs in one region. These generators could rapidly cover the vacant capacity and the whole system would keep a stable operation. E. Enhanced competition If a firm has the ability to profitably raise the market price of a good or service over marginal cost, we say it has the market power. In markets with perfectly competitive, participants have no such power [24]. A firm with total market power can raise prices without losing any customers to other participants. Those who have market power are therefore sometimes referred to as "price makers", while those without are sometimes called "price takers". Significant market power is when prices exceed marginal cost and long run average cost so the firm makes economic profits. Once an interconnector is constructed, market power in both regions will be crippled owing to the increase of participants. Generation companies in one region will be able to bid in the other regions and there could see a fall of the wholesale price [5]. In addition, the benefit would pass onto consumers since lower price could bring down the cost of production. Enhanced competition always results in better production efficiency and both the producers and consumers will benefit from it. V. MARKET SIMULATION To simulate the operation of the interconnected NEM-WEM market more accurately, it is essential to build a model and compare the market efficiency with and without interconnection. Daily load and generation data are collected from the AEMO and IMO daily reports to forecast the future requirements. In this section, a PLEXOS simulation is made and the changes of electricity price and demand will come out in the form of graphs. A. Assumptions Figure 4: hypothetical interconnected system in Australia. 1) Perfectly competitive market In this simulation, the market is assumed to be a perfect one with perfect competition [7][15]. Under this circumstance, producers sell products at the clearing price without any intervention of market power. Though this kind of market does not exist in real world, it is convenient to simplify our research. 2) Fixed capacity In the real market, there will be new plants in construction every year. In our study, the changes in generation capacity are ignored as the time of large generation projects is greater than that of interconnectors. So it stays the same and varies only when there are forced outages. 3) Single generator In our simulation, we assumed that there is only one generator in each region and it is an integrated one with all the generation capacity within a region. Though it is a poor representation of the real system, it allows us to observe the market operation clearer. 4) Inelastic demand Inelastic demand means that the demand of electricity of consumers will not changes a lot. The consumers are unlikely to change their usage of electricity when there is change in price [15]. Thus the demand curve will have an infinite slope. B. Simulation To discover the cost and changes of price due to interconnection, first we should observe the system without interconnector. The original price before interconnection in each region is calculated [15]. To do so, the generation and operational load data in each region is needed. After interconnected, when the electricity price that a market accepts is higher than the generation cost, the generator will transmit electricity to that market. Figure shows the hypothetical interconnected system in Australia. Based on the assumptions above, the demand is inelastic so the price is only determined by generation cost instead of affected by consumers. The difference of the clearing price multiplied by the quantity of transmitted electricity and the short run marginal cost of the generators would be the income of producers. The simulation outcome is based on the Cournot equilibrium [7] which different producer finds its expectation about the other firm to be confirmed [21]. The first step of the simulation is to find the equilibrium under the current scenario which there is no interconnection in the system. Each isolated region will then find its clearing price and there may be some unused generation capacity exists. Then the algorithm allows interconnection in the system and this will make energy flow between different regions. The algorithm is following the rule that electricity will always be transmitted from a lower price region to a higher price region and as a result a generator with lower cost may be available to another region. This process will not stop until the algorithm finds the lowest price in the system and there is no more benefit could be gain. C. Results The simulation of both isolated and interconnected systems is performed for one year. Figure 5 shows the electricity price of NSW on 9 Jan before and after interconnection. There is an obvious fall of price: the highest price in the day drops from 88 $/MWh to 56 $/MWh as cheaper WA electricity is

5 imported. Figure 5. Simulated electricity price in NSW before and after interconnection on 1/9/2014. VI. CONCLUSION In this paper, we discussed the possibility and benefits of building interconnectors to make Western Australia and The NEM an integrated market. The theoretical research and market simulation indicate that such infrastructure would bring benefits to both the economy and system reliability. Meanwhile, the cost of building such infrastructure will be huge. It is necessary to make a more complicated model of the whole system to investigate the cost and benefit. (POWERCON), 2012 IEEE International Conference, Auckland, New Zealand. Oct. 30-Nov. 2, [14] Basslink information from Wikipedia. [Online]. Available: [15] J. F. Colquhoun, Z. Y. Dong and D. Bones, Needs costs and benefits to install interconnectors to the National Electricity Market of Australia, the Sixth International Power Engineering Conference, Singapore. pp , Nov , [16] NEMMCO, Statement of Opportunities, 2002, Australia. [17] Inter Regional Planning Committee (IRPC), SNI Stage 1 Report, 26 October [18] A. Frino, T. Cusack and K. Wilson, Introduction to Corporate Finance, 2001, Pearsons Education Australia. [19] C. Horngren, G. Foster and S. Datar, Cost Accounting, A Managerial Emphasis, 10th Edition, 1999, Prentice Hall. [20] Introduction of Economic surplus on Wikipedia. [Online]. Available: [21] Hal R. Varian, Intermediate Microeconomics A Modern Approach, Seventh Edition, W. W. Norton & Company. [22] Zhao Yang Dong, Kit Po Wong, Xun Zhou and C. Ziser, New issues on reliable and efficient operation of the National Electricity Market of Australia, Electric Utility Deregulation and Restructuring and Power Technologies, 2008, Nanjuing, China. pp Apr. 6-9, [23] XUE Yusheng, XIE Yunyun, WEN Fushuan and DONG Zhaoyang, A Review on Cascading Failuresin Power Systems, Automation of Electric Power System, [24] Vatiero Massimiliano, "The Ordoliberal notion of market power: an institutionalist reassessment", European Competition Journal, 6(3): REFERENCES [1] An Introduction to Australia s National Electricity Market, Australian Energy Market Operator, Melbourne, VIC. ISBN , Jul [2] State of the energy market 2007, Australian Energy Regulator, Melbourne, VIC. ISBN , Jul [3] J. R. Stewart, Electricity Industry Reform in Western Australia, 2004 IEEE International Conference on Electric Utility Deregulation, Restructuring and Power Technologies, Hong Kong, Apr [4] B. Malladi and A. Berner, PJM generation and Merchant Transmission Interconnection procedure, Power and Energy Society General Meeting, 2011 IEEE, San Diego, CA. Jul , [5] Yaowu Wu, Suhua Lou, and Siyu Lu, A Model for Power System Interconnection Planning Under Low-Carbon Economy With CO _{2} Emission Constraints, Sustainable Energy, IEEE Transactions on (Volume:2, Issue: 3 ), pp Feb. 22, [6] NorNed, the Longest Electricity Cable in the World, is Operational, T&D World Magazine, May 8, [Online]. Available: ble-world-operational [7] S. Taggart, G. James, Zhaoyang Dong and C. Russell, The Future of Renewables Linked by a Transnational Asian Grid, Proceedings of the IEEE vol. 100, pp , Jun [8] Paul Giesbertz and Machiel Mulder, Economics of Interconnection: the Case of the Northwest European Electricity Market, International Association for Energy Economics, [9] Jan-Erik Skog, Kees Koreman, Bo Pääjärvi, Thomas Worzyk and Thomas Andersröd, The NorNed HVDC cable link A power transmission highway between Norway and the Netherlands, JICABLE 2007, Versailles, France. Jun , [10] S. P. Teeuwsen and R. Rössel, Dynamic performance of the 1000 MW BritNed HVDC interconnector project, presented at Power and Energy Society General Meeting 2010 IEEE, Minneapolis, MN. Jul , [11] BritNed homepage. [Online]. Available: [12] T. Weseterweller and J.J. Price, Basslink HVDC Interconnector-System design Considerations, IEEE International Conference on AC and DC Power Transmission, pp: , Mar [13] K. Malla and A. Wood, Economic significance of Basslink in the Australian National Electricity Marke, Power System Technology