YOUR ASSET IN THE NEM, HOW TO MAXIMISE VALUE AND MINIMISE RISK - WHITEPAPER BIDDING - Overwatch Energy
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
WHITEPAPER YOUR ASSET IN THE NEM, HOW TO MAXIMISE VALUE AND MINIMISE RISK PART THREE BIDDING
2 OVERWATCH ENERGY: WHITEPAPER
BIDDING
THIS WHITE PAPER IS THE THIRD IN A FOUR-PART SERIES BY
OVERWATCH ENERGY THAT HELPS YOU MAXIMISE YOUR VALUE
AND MINIMISE YOUR RISK IN THE NATIONAL ELECTRICITY
MARKET OR NEM. IN PART 1 WE LOOKED AT THE RULES -
WHAT THEY SAY ABOUT OPERATING PLANT AND WHAT THAT
MEANS YOU NEED TO DO. IN PART 2 WE CONSIDERED ASSET
PERFORMANCE AND HOW YOU CAN MAXIMISE THE VALUE OF
YOUR INVESTMENT.
IN THIS PART 3 WE LOOK AT BIDDING IN MORE DETAIL WHILE IN
PART 4 WE WILL EXAMINE WHAT CHANGES ARE COMING UP IN
THE MARKET THAT YOU NEED TO BE AWARE OF.
Photos courtesy of Lincoln Gap Wind Farm, with thanks to Nexif Energy.
PART 3 - BIDDING
You’ve done the hard work - found a great site, developed the project, got the key contracts and finance
sorted, battled through construction, registration and commissioning - now sit back and enjoy your rewards
for the next 20-25 years.
Unfortunately, it’s not that easy and not something that can simply be done by a piece of software
automatically all the time under all circumstances! You are now operating a power station in a wholesale
market which is getting more complex by the month and will continue to evolve. How do you turn those
assumptions in the financial model into reality and make sure you don’t fall foul of the rules?
1. YOUR OBLIGATIONS 3.7B: “… submit…in accordance with the
Before diving into the different aspects of bidding, timetable, the plant availability…notify…as
it’s important to understand your legal obligations soon as [you become] aware of any changes”
as a NEM participant, which for bidding can be 3.8.2(a): “…submit generation dispatch
categorised into two types: availability bidding offers…for each trading day”
and commercial bidding. For these, clauses 3.7B,
3.8.22A(a): “…not make a dispatch
3.8.2(a) and 3.8.22A of the NER should always
offer, dispatch bid or rebid that this false,
be front of mind which indicate you need to:
misleading or likely to mislead.”
BIDDING: PART THREE 3
As we noted in this recent article, these Rules
come with large civil penalties so the consequences
of not understanding or following them can be
Key Points
very costly. Bearing this in mind, we now look at
• A
vailability bidding is not a ‘set availability bidding, bidding for commercial reasons,
and forget’ activity. It requires rebid reasons and the role of automation.
communication with onsite O&M
providers to inform AEMO of 2. AVAILABILITY BIDDING
planned and unplanned outages. In this section, we consider the three types of
availability bidding that together comprise the
• D
aily offers of energy price and Projected Assessment of System Adequacy
volume must be submitted before bids or PASA. These cover three different time
the next trading day. If you don’t horizons: pre-dispatch (PD), short-term (ST) and
submit a daily offer then AEMO uses medium term (MT). See Table 1 for a summary.
the last energy bid you submitted. The PASA is the main method AEMO uses
Relying on the rollover of your to forecast the adequacy and reliability of the
availability bids can cause you errors. power system, but it also helps you make smarter
decisions for spot trading and outage planning.
• U
nderstanding the do’s and don’ts
when it comes to rebidding is AEMO uses the information you provide to
crucial, as rebids are an area of great prepare an Unconstrained Intermittent Generator
focus from AEMO and the AER. Forecast or UIGF for dispatch, pre-dispatch and
PASA forecasts. So, if that changes by any more than
6MW below the nameplate rating then as a semi-
scheduled generator you should inform AEMO.
Table 1: AEMO must prepare a UIGF for the purpose of
dispatch, pre-dispatch and the PASA. This table summarises
the scope, responsibility and AEMO timelines for semi-
scheduled generator availability obligations.
RESOLUTION/ UPDATE METHOD TO
TYPE TIME HORIZON GRANULARITY FREQUENCY UPDATE
Dispatch The next 5 minutes 5 Min Dispatch Interval Every 5 minutes SCADA/Self Forecast
5 Minute
The next hour 5 Min Dispatch Interval Every 5 minutes SCADA/Self Forecast
Pre-dispatch
30 Minute Current and following EMMS – intermittent
30 Min Trading interval Half-hourly
Pre-dispatch trading day generation availability bid
EMMS – intermittent
STPASA 6 trading days ahead 30 Min Trading interval Half-hourly
generation availability bid
Generally 4 times EMMS – MTPASA
MTPASA 24 months Trading day
per day availability bid
4 OVERWATCH ENERGY: WHITEPAPER
BIDDING
Photos courtesy of Lincoln Gap Wind Farm, with thanks to Nexif Energy.
Common Misunderstandings
The intermittent generation availability bid through the EMMS Portal is used to calculate
UIGF for the 30-minute pre-dispatch, STPASA and MTPASA timeframes. However, in the
dispatch and 5-minute pre-dispatch timeframes AEMO uses only your SCADA or self-
forecasting feed to determine availability.
This means that you cannot influence your availability in dispatch through availability
bidding. Instead, you must ensure that your SCADA accurately reflects your availability or
that an Energy Offer is submitted to accurately represent what the plant can/will do in the
future.
This is important. Overwatch often finds errors in SCADA, turbine and inverter set-ups that
lead to errors in availability that only get picked up by careful monitoring or detailed analysis
by experienced NEM operators.
Furthermore, the resulting FCAS regulation costs that mount up each month are sometimes
wrongly attributed to other matters such as AWEFS or ASEFS – prompting further expense
in self-forecasting when the problem and solution could well have been closer to home.
BIDDING: PART THREE 5
2.1 Keeping Up to Date For this you should consider things like plant lifecycle
Within the Electricity Market Management works and various reasons for de-rating when
System or EMMS Portal, Participants must update establishing this forecast; and when the timing of site
the Energy Availability section when there are works changes, make sure you have systems and
expected changes in plant events, such as: processes in place to update your availability bid.
• Changes in the number of available turbines
or inverters
• Planned or unplanned outages of the
semi-scheduled generator as a whole unit
• Changes in environmental conditions, for
example de-rating due to high temperatures Availability Bidding –
or wind speeds Who Should Do It?
• Generator specific requirements from the Whilst O&M contractors often know
Network Service Provider or AEMO – about plant availability, they do not
for example Hold-Point levels always have the necessary knowledge
• Transformer, DVAR or synchronous condenser or experience with AEMO market
outages systems to submit availability bids.
It is clear that lots of things can cause changes in It can also be a frustrating activity
availability so regular communication between your which means it simply doesn’t get
bidding team and your site staff or O&M contractors done as frequently as it should.
is critical to meet the requirements of clause On the other hand your trading team
3.7B(b), Note that with the increasing penetration
are familiar with the AEMO systems
of renewables the UIGF is becoming more and
and can provide valuable market
more important for AEMO’s system adequacy
planning on a short-term horizon and failure to intelligence about the best times to
inform AEMO of any changes to your PASA is a schedule any maintenance works – which
civil penalty that attracts a fine with a $10m cap. can reduce your cost of down-time.
Both teams have a part to play and
Overwatch works hard with its clients to
2.2 Intelligent Planning improve understanding, communication
For commercial reasons it also pays to make and co-ordination with asset managers,
sure your plant operations staff discuss planned owners and O&M contractors to achieve
maintenance and outages with your trading staff the best results for scheduling downtime.
so they coincide with market prices that suit your
commercial arrangements. For example, if you have
some merchant exposure you may not want to have
your asset out of service during high spot prices just
because it suits the schedule of an O&M contractor.
Thinking further ahead, for semi-scheduled
generators the time horizon for MTPASA is 2 years.
6 OVERWATCH ENERGY: WHITEPAPER BIDDING 3. COMMERCIAL BIDDING As discussed in our prior papers, there are many In addition to keeping your availability bidding factors that impact your BEP and your gross margin. correct you must submit daily energy offers The important ones are generation volume, regional and maintain rebidding standards in accordance reference price, regulation FCAS costs (and so with guidelines. In practice, AEMO uses the CPF), contingency FCAS costs, and constraints. last energy bid you submitted and will roll this As PPAs become more complex, including multiple forward if you fail to submit a bid - which could off-takers across an asset and with some merchant be costly if that is not what you intended. exposure as well, it can be challenging to establish You could do nothing more than a static ‘set your best BEP. Furthermore, as market conditions and forget’ energy bid. However, if you want to change with more renewable generation, factors meet forecast returns you will almost certainly you may previously have ignored such as constraints, need to regularly adjust your bid in response contingency FCAS costs and negative pricing may to market conditions. This approach is also need to come into play to preserve your margin. likely to be in breach of clause 3.2.8(a). Overwatch increasingly sees bidding strategies To help describe commercial decision making we use being regularly revised for these kinds of reasons, the term breakeven price or BEP. The value of your so next we look in more detail at three of these BEP is influenced by the financial contracts you have key factors: negative prices, FCAS and constraints. in place and the specific terms of those contracts but condensing these into a BEP guides how your asset should be dispatched to maximise commercial value.
BIDDING: PART THREE 7 3.1 Negative prices To complicate matters many recent PPAs have Figure 1 shows the increasing frequency of clauses that shift negative price risk back to the negative pricing over the last 21 years, providing generator. And, whilst you could bid at your a clear signal that your generation costs are negative LGC value, you would still be vulnerable no longer always ‘free’. With a Market Price to costly FCAS and revenue-eroding constraints. Floor of $-1,000/MWh, the NEM can be a A set-and-forget approach is fraught with danger. dangerous market for unwitting Participants. Figure 1: Increasing frequency of negative priced trading intervals in the National Electricity Market over the last 20 years (Jan 2000-April 2021).
8 OVERWATCH ENERGY: WHITEPAPER
BIDDING
Photos courtesy of Lincoln Gap Wind Farm, with thanks to Nexif Energy.
3.2 FCAS liability This recent Queensland event shows how volatile
The two FCAS costs incurred by generators are and costly contingency FCAS costs can be, with
regulation FCAS - recovered by AEMO using a some wind and solar generators incurring huge
causer-pays methodology and raise contingency bills if they did not already have the systems
FCAS - recovered from generators in proportion in place to respond quickly and intelligently.
to their share of generation in each trading interval. Different to contingency costs, regulation
Therefore, avoiding contingency FCAS costs is FCAS costs depend on your causer-pays factor
often a trade-off with energy price. If your share (CPF) and how accurately your asset follows its
of contingency FCAS cost per MWh is greater dispatch target. An operator with a good CPF
than your PPA or energy price, then you may has a variety of things in place including well-
want to reduce your generation by rebidding commissioned plant, good quality SCADA, data
– maybe even to the Market Price Cap. and communications, good self-forecasting and a
constant and careful eye on dispatch outcomes.
Interestingly, for semi-scheduled generators no
explicit mechanism exists other than rebidding If an asset is not following its dispatch target – for
to higher price bands, to allow you to reduce example a SCADA problem, then a temporary
your generation where FCAS costs outweigh and last resort can be to rebid the asset in a
PPA revenue. This can lead to some interesting manner that reflects its actual output. Whilst
outcomes during times of high contingency not a permanent solution, the underlying
FCAS and high energy prices – as observed causes of deviation should be urgently rectified.
in Queensland in late May 2021. This is another example of how quick and
intelligent rebidding can improve your profit.
BIDDING: PART THREE 9
In Figure 2 Global Roam have ranked solar
farms for their FCAS costs in 2020. The high
variability shows that some do a better job
than others in managing these costs – with
direct consequences for their investors.
Figure 2: A plot
comparing the estimated
proportion of FCAS costs
to AEMO spot revenue
for solar farms within
the NEM in 20201 .
3.3 Rebidding to Manage Constraints dispatched ‘out of merit order’ means. If you don’t
Having considered how to avoid having to pay to rebid to manage this then other generators may
transmit your product and how to avoid excessive be exporting ahead of you and at your expense.
costs in your production, managing constraints
could be regarded as how to avoid blockages in
getting your product to market. Congestion or
system strength constraints can lead to curtailment
Knowing Where to Look
or uneconomic dispatch of generation out of You may wish to rebid generation
merit order. What can you do about this? below the nodal price – as opposed to
As the network becomes more congested and the RRP, to improve the likelihood of
AEMO needs to maintain system security, your being dispatched. If your trading staff
generation may be constrained ‘on’ or ‘off ’ if a are not watching the nodal price then
constraint comes into force or ‘binds’. This creates you will not be able to control this.
a separate price signal called a nodal or local price
in addition to the Regional Reference Price (RRP).
Crucially, it is this nodal price that determines 1Source: Marcelle Gannon, 2021. WattClarity by Global-
whether you get dispatched even though you Roam. Ranking solar farm FCAS costs in the NEM in
will be paid based on the RRP. This is what being 2020. URL: https://wattclarity.com.au/articles/2021/04/
ranking-solar-farm-fcas-costs-in-the-nem-in-2020/
10 OVERWATCH ENERGY: WHITEPAPER
BIDDING
3.4 Five-Minute Dispatch and Figure 3 highlights the volatility that can occur in
Thirty-Minute Settlement dispatch prices for both energy and contingency
In Part 2 we alluded to the skills needed to FCAS markets and how this variability can
understand how energy revenues and FCAS costs heavily impact settlement outcomes.
are calculated under the 30-minute settlement In this example for the 16:30 dispatch interval,
process. The transition to 5-minute settlement energy prices start very high - close to the market
for energy will change this skill but that does not cap in the first dispatch interval - good for spot
happen until October. Irrespective, aspects of market energy revenue - but so do FCAS prices – bad
volatility that drive the 5/30 challenge still make for generator costs. Both markets then diverge
it worth examining for bidding post October. significantly over the following five dispatch
intervals to arrive at the final settlement prices.
Figure 3: Screenshots of
Ez2View (Global Roam)
showing volatility in QLD
dispatch prices and
corresponding trading
prices for Energy, Raise
60 second and Raise 6
second markets for trading
intervals 16:30 and 17:00
on the 10th of April.BIDDING: PART THREE 11
Knowledgeable and experienced traders look In our experience, good ABS will assist your trading
for and understand the underlying market team and will handle most situations that occur in
dynamics that shape these types of situations the NEM most of the time. It does not replace
and how best to respond. This might mean not the legal or commercial requirement to have an
rebidding at the first price signal and avoiding experienced human operator to communicate
action that might itself change market prices with AEMO or to intervene when it fails.
or cause large on/off swings in plant output.
In summary, good owners understand in detail 5. REBID REASONS
how they earn revenue and incur costs not just in As rebidding is likely to remain a focus of
their commercial contracts but also in their NEM the AER we finally want to emphasise the
operations. They then put arrangements in place importance of good rebidding practices. The
to take greater control of these NEM revenues NER has strict rules that must be followed
and costs, in turn improving their profitability. such as following a specific format, providing a
clear and valid rebid reason and keeping good
records of circumstances related to the rebid.
4. AUTO-BIDDING SOFTWARE
Whatever your reason for rebidding – plant
You can bid by updating AEMO’s EMMS portal, outage, avoiding negative energy prices or
which should only be done by someone high FCAS costs, you need to understand and
who understands the NER requirements for follow the NER and the AEMO Guidelines.
bidding. However, there are also now several
options for so-called auto-bidding software
(ABS), where algorithms determine and submit
your bids without human intervention.
We do not compare ABS vendors here but highlight
two very important points. Firstly, not all algorithms
are created equal so it is essential to understand
what any software does and more crucially, does
not do. If you are contemplating deploying ABS,
be sure to ask lots of questions about what inputs
the software uses and how the algorithm treats the
ever-increasing variety of asset and market-driven
commercial scenarios you will need it to manage.
Secondly, remember that ABS only rebids for
commercial reasons. It provides no compliance
function and does nothing to monitor or correct
any deviations from any dispatch instruction.12 OVERWATCH ENERGY: WHITEPAPER
BIDDING
6. BIDDING AND THE FUTURE
Hopefully this paper has given you some flavour
Don’t Mislead the Market of how bidding is important for compliant
and profitable operations. The challenge is
In 2015 the requirement to make offers
not in how to type some text in the AEMO
“in good faith” was updated to include
portal but rather to understand the rules and
the prohibition against making false or the commercial drivers behind that text.
misleading offers, as well as introducing
the requirement that changes to offers Bidding is likely to remain important for years
be made as soon as practicable after to come. In our last paper in this series we
will delve more into this future – covering not
changes in material circumstances.
just 5 minute settlement but other changes
on the horizon that a successful power
station owner will need to understand.BIDDING: PART THREE 13 GET IN TOUCH Jonathon Dyson James Tetlow Jonathon.Dyson@OverwatchEnergy.com.au James.Tetlow@OverwatchEnergy.com.au +61 438 411 295 +61 429 972 077 Level 14 88 Phillip Street Sydney NSW 2000 www.overwatchenergy.com.au ACKNOWLEDGEMENTS This White Paper has been written by Jonathon Emerick and the team at Overwatch Energy who spend a lot of their time bidding for their clients. Thank you also to Global Roam, providers of ez2view, for reproduction of their images.
81300/0721 For further information call 1300 636 669 or visit overwatchenergy.com.au
You can also read
