Agree re your last footnote and IMHO🤔 the fact that virtually from the start of the market it was broken because the market operator had to step in and construct the “wholesale” demand stack. So from the start we have been adding more and more rules to fix the various shortcomings of the “ broken” market. Looking forward to the demand article😁
You guys are doing great. Keep it simple as it allows the real problems to surface. I see Tim has also commented. What has been niggling me for the last decade of my working life & was annoying in the years immediately following the market commencement was do we keep applying gaffer tape and fencing wire to the rules or do we do a redesign and rebuild a more suitable “market”. Unfortunately, I can’t see a way forward with the current market management and participants other than perhaps if some DNSPs went rogue. Which thrn makes me wonder where the rogues will emerge? Gov owned, private or local councils staging a hostile takeover of what was once theirs. Cue Monty Python https://vimeo.com/111458975
Looking back at the way the market was developed in those heady days following the implementation of the Wholesale Electricity Market it seemed to me that the powers that be made a huge mistake leaping into a Retail Market before sorting out the Wholesale Market. I have always felt that the introduction of the Retail Market; of needing to break up the RetailerDistributors due to their market dominance being a barrier to entry of competitive Retailers and customer choice led to the Wholesale Market being ill-formed. They should have focused on how do we get the demand side functioning at the Wholesale level.
By this time I had relocated from NSW to QLD just prior to QLD entering the NEM. At the time I thought Qld were heading in the right direction as to the restructuring of the GOCs that were the QLD electricity industry under K Hilless, et al. Needless to say it all went awry in Qld when certain CEOs of the GOCs managed to convince the pollies of a different structure.
In the end though it didn’t matter that much because of the introduction of the Retail Market. Or rather it did matter because we ended up with a very disfunctional National Electricity Market that IMHO had a lot of promise but has been continually undermined by everybody; incumbent and entrant generators and retailers to Regulators and politicians.
No wonder the punters are disengaged, frustrated and confused.
Hi Troy, I wrote a comment earlier but it appeared twice so I deleted one of them and lost both! Anyway, you are right that wholesale electricity markets were incomplete when they were implemented, for understandable reasons. The expectation was that the additional bits would be added to finish the job within a few years. Instead, the momentum was lost and, as you say, the focus instead has been on altering the existing compromised arrangements.
Capacity markets extend central buying in real time into the investment domain, due to compromises around wholesale offer and price caps and an unwillingness to consider reliability as a service (ie levels of supply assurance). In the NEM, many millions of dollars of effort have been expended since market start to find any alternative to LMPs to manage congestion that isn't an unholy mess (surely, we can agree to end this snark hunt?).
And then you refer to the other unfruitful distraction around cost-reflective tariffs. Everyone can agree with the term and objective but no one can agree on what it looks like! This is because costs in the long run are imaginary and so there are as many views of what tariffs should be as there are people inclined to do the imagining. Even economists can't agree (yes, that is a joke).
I think the simple point that your explanation is missing is that “AEMO is the collective buyer of all demand”
The problem with that it explicitly thinks it’s the best buyer - and possibly WAS - the best buyer of INSTANTANEOUS demand and consequently has no perception, let alone exercise Demand Agency to temporally shift loads.
This is the biggest flaw of the NEM in the New Energy Paradigm (high VRE, CER, EIoT, Flexibility).
Thanks for the feedback Tim! I agree with where you're coming from but I felt that what you're raising in a whole topic by itself. Trying to explain this alongside the fundamentals of how the wholesale market is meant you work didn't feel like the right call so it'll be covered off in a subsequent post instead.
Agree it’s challenging! In fact AEMO doesn’t seem to understand it either ; )
That said … AEMOs role IS as the collective buyer for us all … and it’s supposed to successfully deliver the cheapest energy as that “cooperative” buyer.
Yes it was an easy row to hoe for AEMO when the market formed. The market was seen as successful because prices to consumers fell even in the face of the consumer/producer ( I can never tell which it was) that accrued because AEMO never priced what they were prepared to pay for their collective load. After that price rises were all the fault of the monopoly T&D ( not without some justification) but not the retail market introduction shortly followed by the rule change to allow Gentailers.
My understanding, perhaps incorrectly, is that ultimately the states each hold responsibility for ensuring energy is supplied to their consumers? If so, they could elect to abandon the NEM, or even create an alternative one, at any moment! How much of a risk is this in reality given that this is a contrived market (it didn't come into existence naturally, it was mandated) and there's never been a successful contrived market?
Hi Nigel - yes, electricity markets are contrived in the sense that they are deliberately designed but they have been very successful at signalling the cost/value of electricity, which is very important, given how much it varies. Being able to see this variation and respond to it is becoming increasingly important as the share of electricity generated by renewable resources rises.
Also, some states may have slackened their hold on the reins in the 2000s, but they are tightening their hold on them now to help accelerate the pace of the energy transition and to maintain satisfactory reliability levels.
Agree re your last footnote and IMHO🤔 the fact that virtually from the start of the market it was broken because the market operator had to step in and construct the “wholesale” demand stack. So from the start we have been adding more and more rules to fix the various shortcomings of the “ broken” market. Looking forward to the demand article😁
Thanks Troy - I think it's a post that will interest a lot of people. Feeling the pressure to make sure I do it justice!
You guys are doing great. Keep it simple as it allows the real problems to surface. I see Tim has also commented. What has been niggling me for the last decade of my working life & was annoying in the years immediately following the market commencement was do we keep applying gaffer tape and fencing wire to the rules or do we do a redesign and rebuild a more suitable “market”. Unfortunately, I can’t see a way forward with the current market management and participants other than perhaps if some DNSPs went rogue. Which thrn makes me wonder where the rogues will emerge? Gov owned, private or local councils staging a hostile takeover of what was once theirs. Cue Monty Python https://vimeo.com/111458975
Looking back at the way the market was developed in those heady days following the implementation of the Wholesale Electricity Market it seemed to me that the powers that be made a huge mistake leaping into a Retail Market before sorting out the Wholesale Market. I have always felt that the introduction of the Retail Market; of needing to break up the RetailerDistributors due to their market dominance being a barrier to entry of competitive Retailers and customer choice led to the Wholesale Market being ill-formed. They should have focused on how do we get the demand side functioning at the Wholesale level.
By this time I had relocated from NSW to QLD just prior to QLD entering the NEM. At the time I thought Qld were heading in the right direction as to the restructuring of the GOCs that were the QLD electricity industry under K Hilless, et al. Needless to say it all went awry in Qld when certain CEOs of the GOCs managed to convince the pollies of a different structure.
In the end though it didn’t matter that much because of the introduction of the Retail Market. Or rather it did matter because we ended up with a very disfunctional National Electricity Market that IMHO had a lot of promise but has been continually undermined by everybody; incumbent and entrant generators and retailers to Regulators and politicians.
No wonder the punters are disengaged, frustrated and confused.
Hi Troy, I wrote a comment earlier but it appeared twice so I deleted one of them and lost both! Anyway, you are right that wholesale electricity markets were incomplete when they were implemented, for understandable reasons. The expectation was that the additional bits would be added to finish the job within a few years. Instead, the momentum was lost and, as you say, the focus instead has been on altering the existing compromised arrangements.
Capacity markets extend central buying in real time into the investment domain, due to compromises around wholesale offer and price caps and an unwillingness to consider reliability as a service (ie levels of supply assurance). In the NEM, many millions of dollars of effort have been expended since market start to find any alternative to LMPs to manage congestion that isn't an unholy mess (surely, we can agree to end this snark hunt?).
And then you refer to the other unfruitful distraction around cost-reflective tariffs. Everyone can agree with the term and objective but no one can agree on what it looks like! This is because costs in the long run are imaginary and so there are as many views of what tariffs should be as there are people inclined to do the imagining. Even economists can't agree (yes, that is a joke).
Super informative gents, keep em coming!
Thanks, Declan - this is a great summary and thanks for the very generous shout out!
Alex/Declan re DSM. AKA #9
I think the simple point that your explanation is missing is that “AEMO is the collective buyer of all demand”
The problem with that it explicitly thinks it’s the best buyer - and possibly WAS - the best buyer of INSTANTANEOUS demand and consequently has no perception, let alone exercise Demand Agency to temporally shift loads.
This is the biggest flaw of the NEM in the New Energy Paradigm (high VRE, CER, EIoT, Flexibility).
Thanks for the feedback Tim! I agree with where you're coming from but I felt that what you're raising in a whole topic by itself. Trying to explain this alongside the fundamentals of how the wholesale market is meant you work didn't feel like the right call so it'll be covered off in a subsequent post instead.
Agree it’s challenging! In fact AEMO doesn’t seem to understand it either ; )
That said … AEMOs role IS as the collective buyer for us all … and it’s supposed to successfully deliver the cheapest energy as that “cooperative” buyer.
It now doesn’t : (
Yes it was an easy row to hoe for AEMO when the market formed. The market was seen as successful because prices to consumers fell even in the face of the consumer/producer ( I can never tell which it was) that accrued because AEMO never priced what they were prepared to pay for their collective load. After that price rises were all the fault of the monopoly T&D ( not without some justification) but not the retail market introduction shortly followed by the rule change to allow Gentailers.
My understanding, perhaps incorrectly, is that ultimately the states each hold responsibility for ensuring energy is supplied to their consumers? If so, they could elect to abandon the NEM, or even create an alternative one, at any moment! How much of a risk is this in reality given that this is a contrived market (it didn't come into existence naturally, it was mandated) and there's never been a successful contrived market?
Hi Nigel - yes, electricity markets are contrived in the sense that they are deliberately designed but they have been very successful at signalling the cost/value of electricity, which is very important, given how much it varies. Being able to see this variation and respond to it is becoming increasingly important as the share of electricity generated by renewable resources rises.
Also, some states may have slackened their hold on the reins in the 2000s, but they are tightening their hold on them now to help accelerate the pace of the energy transition and to maintain satisfactory reliability levels.