Operation of The NEM Physical Market
Exchange between electricity producers and electricity consumers is facilitated through a spot market where the output from all generators is aggregated and instantaneously scheduled to meet demand through a centrally-coordinated dispatch process. This process is operated by the Australian Energy Market Operator (AEMO) in accordance with the provisions of Australian National Electricity Law and Australian National Electricity Rules.
Scheduled generators submit offers every five minutes of every day. From all offers submitted, AEMO’s systems determine the generators required to produce electricity based on the principle of meeting prevailing demand in the most cost-efficient way (see also Economic dispatch). AEMO then dispatches these generators into production.
A dispatch price is determined every five minutes, and six dispatch prices are averaged every half-hour to determine the spot price for each trading interval for each of the regions of the NEM. AEMO uses the spot price as the basis for the settlement of financial transactions for all energy traded in the NEM.
The Rules set a maximum spot price of $12,500 per megawatt hour. The maximum price was increased from $10,000 per megawatt hour on 1 July 2010. This is the maximum price at which generators can bid into the market. The maximum spot price - which was previously called the Value of lost load (VoLL) - is the price automatically triggered when AEMO directs network service providers to interrupt customer supply in order to keep supply and demand in the system in balance.
Read more about this topic: National Electricity Market
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