AEMO Development Work
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As part of phase one of the supply hub project, Reference Group members indicated concerns relating to the availability of both transmission pipeline capacity and hub capacity. While long-term contracts have proved successful in delivering infrastructure investment in Australia and most other global markets, new participants (like retailers, generators or large users) face the challenge of augmenting infrastructure or negotiating access with existing capacity owners to enter the market. For Wallumbilla in particular, obtaining capacity can require investment or negotiation with multiple existing capacity owners and holders.
In Australia, capacity owners can sell their capacity to other participants but the transparency of capacity availability can be problematic for participants when faced with short-term needs. Without access to capacity the potential purchasers of gas at the supply hub could be limited, reducing liquidity at the exchange. AEMO is looking at options to make it easier for participants to trade capacity within the existing regulatory and contractual frameworks. A more efficient and timely mechanism for the bare transfer of capacity would complement the development of the gas supply hub, while facilitating gas trade at the hub and between regions.
Consistent with SCER recommendations, AEMO therefore also intends to develop two additional products for market-start, in consultation with the gas industry. These are:
- monthly forward product, which could manage the risk of outages and maintenance schedules while providing an initial forward-looking price for participants. The completion of this product by market-start will depend on AEMO having sufficient time to work with the gas industry to develop any specific terms and conditions for the product; and
- a mechanism for trading capacity that allows participants to advertise their trading interest (bulletin board approach). The development of standardised terms and conditions for secondary trading (in conjunction with a listed capacity product) will be explored for introduction at a later date.
The issues raised by industry in relation to pipeline capacity trading, although discussed in respect of the domestic situation here in Australia, are consistent with issues experienced by gas markets (and other physical commodity markets) internationally. Overseas solutions have evolved over time and vary depending on the nature and maturity of the market arrangements in question, ranging from use of voluntary measures through to mandated capacity release requirements.
In order to gain a better understanding of overseas models and approaches, AEMO commissioned research from The Brattle Group. This work involved developing an overview of how different offshore models have evolved in practice, and an independent assessment of their relative ‘successes’.
AEMO is intending that this research will be helpful in assisting industry as part of the Reference Group discussions with its task to develop an effective mechanism for short-term secondary trading of pipeline capacity at Wallumbilla.
AEMO has published this report in order that the research can be drawn on across the industry and also by government policy makers. The report and its findings have been developed by The Brattle Group for AEMO.
International Experience In Pipeline Capacity Trading Brattle Group August 2013
26 Aug 2013 | 420 KB (.pdf)