AEMO Market Development
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Overview of Australia’s Energy Markets
Since the early- to mid-1990s, energy supply deregulation and privatisation of some state-owned assets has led to the establishment of increasingly open and transparent trading markets, facilitating trading and the competitive supply of gas and electricity.
Since 1998 the generation, distribution and supply of electricity in eastern and southern Australia has been conducted under the framework of the National Electricity Market (NEM).
Privatisation and disaggregation of the state-owned Gas and Fuel Corporation led to the establishment of a gas spot market in Victoria in March 1999.
The adoption of retail competition also led all jurisdictions in eastern and southern Australia to introduce gas and electricity retail market arrangements in the early 2000s.
When they commenced, retail gas markets were jurisdictionally based, so until AEMO’s establishment in 2009, there existed the National Electricity Market Management Company (NEMMCO) and the following energy market management and planning entities:
- The Electricity Supply Industry Planning Council (ESIPC, South Australia).
- The Victorian Energy Networks Corporation (VENCorp, Victoria).
- The Retail Energy Market Company (REMCO, South Australia and Western Australia).
- The Gas Market Company (GMC, New South Wales/ACT).
- The Gas Retail Market Operator (GRMO, Queensland).
Gas pipeline investment in the early 2000s also led to the establishment of an interconnected gas grid connecting all eastern and southern states of Australia. This, together with the increasing integration of gas and electricity markets, led to the establishment in 2009 of a single operator, AEMO, to oversee and further integrate infrastructure planning and trading activities across different energy transmission systems.
With AEMO’s establishment in 2009 and commencement of the gas Short Term Trading Market at the Sydney and Adelaide hubs in 2010 (and Brisbane in 2011), Australia became one of the first countries in the world to establish highly competitive and transparent gas and electricity markets, underpinned by a common governance structure.
Market operations can now evolve based on a consistent framework of operational rules and underlying systems that ensure maximum efficiency and integrity, and better energy resource development.
AEMO’s roles in the energy markets
A wholesale market exists when competing generators or producers offer their gas and electricity output to retailers. The retailers then sell the gas and electricity and take it to end consumers creating a retail market.
AEMO operates the National Electricity Market (NEM) as well as the retail and wholesale gas markets of eastern and south-eastern Australia. This includes:
- The National Electricity Market (NEM).
- The Victorian Declared Wholesale Gas Market (DWGM).
- The Short Term Trading Market (STTM).
- Retail markets.
Energy markets grow and evolve as demand levels change, new infrastructure is incorporated and market participants come and go. AEMO manages these market developments through a collaborative process designed to ensure consistent and practical application of rules.
AEMO facilitates participation in market developments by obtaining and publishing input from stakeholders, and by administering rules and procedures for operation of the wholesale gas and electricity markets, the retail gas markets and the Gas Bulletin Board.
AEMO enables operating efficiencies for multi-sector, multi-jurisdiction market participants by providing streamlined rules and integrated processes.
The National Electricity Market (NEM)
The NEM interconnects five regional market jurisdictions (Queensland, New South Wales, Victoria, South Australia and Tasmania). West Australia and Northern Territory are not connected to the NEM.
The NEM involves both wholesale generation that is transported via high voltage transmission lines to electricity distributors, who deliver it to our homes and businesses.
The transport of electricity from generators to consumers is facilitated through a ‘pool’, or spot market, where the output from all generators is aggregated and scheduled at five minute intervals to meet demand.
The pool is not a physical thing but a set of procedures that AEMO manages in line with National Electricity Law and National Electricity Rules (the Rules).
The market uses sophisticated systems to send signals to generators instructing them how much energy to produce each five minutes so that production is matched to consumer requirements, spare capacity is kept ready for emergencies, and the current energy price can be calculated.
NEM infrastructure comprises both state and private assets managed by many participants.
- Supports 19 million residents.
- At over 5,000 km from far north Queensland to Tasmania, and west to Adelaide and Port Augusta, is the longest alternating current system in the world.
- Has about 40,000 km of transmission lines and cables.
- Supplies about 200 TWh of energy to businesses and households each year.
- Is long and linear compared with Europe and North America.
- Can be costly to upgrade because of the large distances.
Victorian Declared Wholesale Gas Market (DWGM)
The DWGM was established in 1999 to enable competitive, dynamic trading based on injections into, and withdrawals from, the transmission system that links producers, major users and retailers.
In addition to providing a mechanism to trade imbalances (the differences between the amounts of gas participants supply to the market and the amounts of gas they (or their customers) withdraw from the market) this structure also enables:
- Information gathering for efficient pipeline operations.
- Maintaining a reliable and secure system for gas transportation.
- Metering data management for operational and market balancing.
- A market-based balancing service that determines price and gas flow quantities.
- Market settlement and prudential risk management.
The DWGM arrangements apply to the DTS, used to transport natural gas to the majority of Victorian households and businesses. The DWGM supports:
- The highest residential natural gas usage in Australia
- About 1.8 million customers
- More than 220 PJ a year
The Short Term Trading Market (STTM)
The STTM is a wholesale market designed to facilitate short term gas trading using market-driven, short term (daily) prices. It allows retailers and other large customers to purchase gas from the market without having to enter into long-term contracts with pipeline providers or gas producers.
The STTM operates at demand hubs, currently located in Adelaide, Sydney and Brisbane. The hubs are transfer points through which gas is transmitted and then delivered to the distribution networks.
Although the DWGM operates on a different basis to the STTM, they meet similar objectives – providing price transparency and facilitating short term trading of gas to balance supply and demand variations.
AEMO manages the development and operation of retail markets for gas and electricity in Queensland, New South Wales, the Australian Capital Territory, Victoria and South Australia. In Tasmania we manage the electricity market only.
The retail markets underpin the wholesale markets by facilitating retail competition and enabling all customers to purchase energy from a supplier of their choice.
Since the commencement of the NEM, electricity consumers have progressively gained the right to choose their own supplier. This has meant that AEMO’s responsibilities have extended from managing the wholesale market to providing the systems and processes to support competition and choice for all end-users in the retail electricity market. Understanding both wholesale market and retail market design helps to provide systems that talk to each other effectively.
AEMO’s retail market systems and processes are integral to competitive energy markets as they:
- Allow people to choose or change their retailer and facilitate large volumes of customer transfers between retailers
- Manage the flow of business transactions between retailers and distributors in providing contestable services to customers
- Manage large volumes of metering data to ensure energy usage is properly measured, reconciled and allocated to the appropriate parties
- Make billing information and customer service easier.
Delivering full retail competition (FRC), or contestability, has required new information technology systems to process transfers of customers between retailers in the NEM.
The systems that facilitate this function contain one of the largest metering databases in the world. They accept data from a variety of electricity meter types and have the capacity to process information from up to 10 million meters.
By June 2009, approximately 6.3 million electricity customer transfers had taken place. As a result of the introduction of FRC, competition between electricity retailers continues to increase, creating new and unique products for their customers. Making energy purchasing easier and more efficient improves productivity generally and lowers costs.
Efficient energy trading and purchasing systems make investment in both the supply and consumer side of the market less risky and more attractive. This encourages economic growth.