The MCE commissioned NEMMCO to provide a report, "Potential Drought Impact on Electricity Supplies in the NEM". This report was presented to the MCE on 25 May 2007. MCE released the following communiqué in relation to the report:
Ministerial Council on Energy Communique
Australian Government, State Territory Energy Ministers met in Melbourne on 25 May 2007 for the 13th Meeting of the Ministerial Council on Energy. The meeting was chaired by the Hon Ian Macfarlane MP, Australian Government Minister for Industry, Tourism and Resources. The Council comprises Australian Government, State and Territory Ministers with responsibility for national policy and governance of the Australian energy market.
Drought Impact on the National Electricity Market
The impact of the drought on bulk electricity supplies in Eastern Australia and the operation of the National Electricity Market was discussed. Ministers recognised the potential impact of drought on the generating capacity of both hydro and coal-fired plant, and hence the potential impact on the national electricity market in terms of system security and prices. Ministers considered the findings of an analysis of these impacts, conducted by the National Electricity Market Management Company (NEMMCO) following a request in late 2006 from the MCE Standing Committee of Officials (SCO).
Mr Les Hosking, NEMMCO Managing Director, advised MCE that in regard to security of generation capacity (bulk supply) in the NEM jurisdictions (all jurisdictions excluding WA and NT):
- With average rainfall and normal demand, there is expected to be continued reliable supply, despite the drought-related capacity restrictions.
- With low rainfall and extreme events, the reserve margins will be reduced and there may be a need for additional action to maintain reliability of the system.
Ministers noted that there is always a possibility that extreme events, such as a heatwave combined with significant generator breakdowns or bushfires, may result in load shedding.
Mr Hosking advised Ministers that more recent data and the additional response measures taken by individual jurisdictions will improve the report. MCE has requested NEMMCO to update its first report on the "Potential Drought Impact on Electricity Supplies in the NEM" for consideration by the MCE in August 2007.
Ministers noted the upward pressure on spot and forward market prices as a result of generator capacity and energy restrictions due to the drought. These price outcomes were discussed with Mr Steve Edwell, Chair, Australian Energy Regulator (AER), who advised Ministers that "AER's market surveillance team has not identified any improper market activity and assured MCE that close market monitoring will continue".
Ministers reiterated their confidence in the market as the primary mechanism for dealing with supply, demand and energy constraint issues.
Ministers recognised the market's reliance on timely information to deliver efficient outcomes. Accordingly the MCE decided to:
- Publish the NEMMCO drought study:
- Request the MCE SCO to work, in conjunction with NEMMCO, to develop specific actions to ensure the timely provision of relevant information to industry, including information related to supply limitations; and
- Request the Australian Energy Market Commission (AEMC) Reliability Panel to review and advise on the effectiveness of current market arrangements in managing limitations due to input constraints.
These actions, will enable the market to respond with the best information available to it. Ministers noted also that a range of specific measures were also being developed and implemented in a number of jurisdictions.
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Potential Drought Impact on Electricity Supplies in the NEM - Final Report - 25 May 2007 |
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