Y T H T H E U E U N N I V V E R E R S I T Y S I T Y O F O F N E W E W S O S O U T U T H H W W A A L E S E S S Y D N Y D N E E Y A U A U S S T T R A L R A L I A A Centre for Energy and Environmental Markets AUPEC’04 Brisbane, September 2004 A new UNSW Research Centre for Energy and Environmental Markets Iain MacGill Centre for Energy and Environmental Markets (CEEM) and School of Electrical Engineering and Telecommunications The University of New South Wales Sydney, Australia Email: i.macgill@unsw.edu.au www.ceem.unsw.edu.au
Y T H T H E U E U N N I V V E R E R S I T Y S I T Y O F O F N E W E W S O S O U T U T H H W W A A L E S E S S Y D N Y D N E E Y A U A U S S T T R A L R A L I A A Centre for Energy and Environmental Markets The question… and answer up front • Q Why establish such a Centre? • A Because energy and environmental markets are important, yet challenging… • When might market-based approaches be appropriate? • How might such markets be designed? • How might we try and fix markets that aren’t working? and answering these questions seems likely to require a focussed inter-disciplinary approach AUPEC’04 – UNSW Centre for Energy and Environmental Markets 2
Y T H T H E U E U N N I V V E R E R S I T Y S I T Y O F O F N E W E W S O S O U T U T H H W W A A L E S E S S Y D N Y D N E E Y A U A U S S T T R A L R A L I A A Centre for Energy and Environmental Markets The electricity industry – models to aid understanding Main commercial markets Externalities Economic models Ancillary services & Regulatory actions Engineering models Physical electricity industry Social policies & priorities AUPEC’04 – UNSW Centre for Energy and Environmental Markets 3
Y T H T H E U E U N N I V V E R E R S I T Y S I T Y O F O F N E W E W S O S O U T U T H H W W A A L E S E S S Y D N Y D N E E Y A U A U S S T T R A L R A L I A A Centre for Energy and Environmental Markets The Australian NEM • Physical properties of electrical energy – No cost-effective storage – Instantaneous transmission & distribution – Energy flows according to network laws from all generators to all consumers => Implications – Supply & demand balance at all times – Electrical continuum - power station to end-use means can’t assign energy from particular power station to particular consumer AUPEC’04 – UNSW Centre for Energy and Environmental Markets 4
Y T H T H E U E U N N I V V E R E R S I T Y S I T Y O F O F N E W E W S O S O U T U T H H W W A A L E S E S S Y D N Y D N E E Y A U A U S S T T R A L R A L I A A Centre for Energy and Environmental Markets Engineering models for the NEM (Based on NEMMCO, 1997) Queensland 750 MW 750 MW SANI (proposed regulated AC) NSW Directlink 3,000 MW 180 MW DC Murraylink (MNSP) 850 MW 220 MW DC Snowy 1,100 MW 250 MW thermal South Aust 1,500 MW or stability flow limits Victoria 500 MW 300 MW Tasmania 600 MW pk Basslink proposed DC link MNSP (2005?) AUPEC’04 – UNSW Centre for Energy and Environmental Markets 5
Y T H T H E U E U N N I V V E R E R S I T Y S I T Y O F O F N E W E W S O S O U T U T H H W W A A L E S E S S Y D N Y D N E E Y A U A U S S T T R A L R A L I A A Centre for Energy and Environmental Markets Economic models for the NEM (from Bardak, “Pool prices in the NEM”, 2003) AUPEC’04 – UNSW Centre for Energy and Environmental Markets 6
Y T H T H E U E U N N I V V E R E R S I T Y S I T Y O F O F N E W E W S O S O U T U T H H W W A A L E S E S S Y D N Y D N E E Y A U A U S S T T R A L R A L I A A Centre for Energy and Environmental Markets Commercial models for the NEM uncertainty increases looking forward Financial instrument (derivative) trading & spot market projections Spot market Spot market for period t for period t+1 spot spot Commercial issues period t period t+1 time Physical issues ancillary service ancillary service “actuation markets” “actuation markets” for period t for period t+1 forward-looking ancillary service (AS) “acquisition markets” AUPEC’04 – UNSW Centre for Energy and Environmental Markets 7
Y T H T H E U E U N N I V V E R E R S I T Y S I T Y O F O F N E W E W S O S O U T U T H H W W A A L E S E S S Y D N Y D N E E Y A U A U S S T T R A L R A L I A A Centre for Energy and Environmental Markets Projected emissions from Stationary Energy sector, 1990-2020 The NEM and environmental externalities Australia has the world’s highest per- capita greenhouse gas emissions (Aust. Institute, 2002) Source: Australian Greenhouse Office (2002) AUPEC’04 – UNSW Centre for Energy and Environmental Markets 8
Y T H T H E U E U N N I V V E R E R S I T Y S I T Y O F O F N E W E W S O S O U T U T H H W W A A L E S E S S Y D N Y D N E E Y A U A U S S T T R A L R A L I A A Centre for Energy and Environmental Markets Enviro markets – Mandatory Renewable Energy Target AUPEC’04 – UNSW Centre for Energy and Environmental Markets 9
Y T H T H E U E U N N I V V E R E R S I T Y S I T Y O F O F N E W E W S O S O U T U T H H W W A A L E S E S S Y D N Y D N E E Y A U A U S S T T R A L R A L I A A Centre for Energy and Environmental Markets Centre for Energy + Environmental Markets (CEEM) Established… – to formalise growing interest + interactions between UNSW researchers in Engineering, Commerce + Economics… + more – through UNSW Centre providing Australian research leadership in interdisciplinary design, analysis + performance monitoring of energy + environmental markets, associated policy frameworks – in the areas of • Physical energy markets (with an initial focus on ancillary services, spot market + network services for electricity + gas) • Energy-related derivative markets (financial + environmental including interactions between derivative and physical markets) • Policy frameworks and instruments in energy and environment • Experimental market platforms and AI ‘intelligent agent’ techniques to aid in market design • Economic valuation methodologies AUPEC’04 – UNSW Centre for Energy and Environmental Markets 10
Y T H T H E U E U N N I V V E R E R S I T Y S I T Y O F O F N E W E W S O S O U T U T H H W W A A L E S E S S Y D N Y D N E E Y A U A U S S T T R A L R A L I A A Centre for Energy and Environmental Markets Tools for assessing market design + structure • Economics – eg. general competitive market theory • Experience with existing, similar markets • ‘Common-sense’ assessment • Mathematical analysis – Cournot + Bertrand paradigms, game theory… • Experiments – ‘Trial + error’ simulations to explore possible market outcomes – Simulations guided by ‘intelligent’ market participants Experimental subjects Software agents AUPEC’04 – UNSW Centre for Energy and Environmental Markets 11
Y T H T H E U E U N N I V V E R E R S I T Y S I T Y O F O F N E W E W S O S O U T U T H H W W A A L E S E S S Y D N Y D N E E Y A U A U S S T T R A L R A L I A A Centre for Energy and Environmental Markets Exploring a RECs market with experimental economics AUPEC’04 – UNSW Centre for Energy and Environmental Markets 12
Y T H T H E U E U N N I V V E R E R S I T Y S I T Y O F O F N E W E W S O S O U T U T H H W W A A L E S E S S Y D N Y D N E E Y A U A U S S T T R A L R A L I A A Centre for Energy and Environmental Markets Trial run for MRET experimental trading game 60 50 40 REC Purchase Price 30 20 10 0 28-Aug-99 15-Mar-00 1-Oct-00 19-Apr-01 5-Nov-01 24-May-02 10-Dec-02 28-Jun-03 14-Jan-04 1-Aug-04 17-Feb-05 5-Sep-05 Experimental Date AUPEC’04 – UNSW Centre for Energy and Environmental Markets 13
Y T H T H E U E U N N I V V E R E R S I T Y S I T Y O F O F N E W E W S O S O U T U T H H W W A A L E S E S S Y D N Y D N E E Y A U A U S S T T R A L R A L I A A Centre for Energy and Environmental Markets Using AI agents and evolutionary programming (eg. simple power system with 2 generators) SPOT MARKET OPERATOR thermal thermal Gen G Constant Gen BG gens gens Load bidding base, shoulder base plant with + peak plant at $120/MWh costs of with costs of $32.50/MWh $30-125/MWh NETWORK AUPEC’04 – UNSW Centre for Energy and Environmental Markets 14
Y T H T H E U E U N N I V V E R E R S I T Y S I T Y O F O F N E W E W S O S O U T U T H H W W A A L E S E S S Y D N Y D N E E Y A U A U S S T T R A L R A L I A A Centre for Energy and Environmental Markets 2.5 EP Results dispatch ('000 MW) 2.0 G 1.5 • Simple problems: 1.0 BG => EP + game theory agree 0.5 0.0 0 100 200 300 400 500 150 • Complex problems: Mkt. price ($/MWh) 120 90 => EP shows useful insights 60 beyond standard game theory 30 Eg: BG and G ‘fighting’ over 0 dispatch for Load that either can 0 100 200 300 400 500 200 fully meet: Go for dispatch volume 160 surplus ($'000/hr) or work together to increase price G 120 (no Nash equilibrium) 80 BG Range of market price $/MWh and G and 40 BG surplus (profit) outcomes if none, or 0 only one is attempting strategic behaviour 0 100 200 300 400 tournament round AUPEC’04 – UNSW Centre for Energy and Environmental Markets 15
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