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Why energy markets are so interesting

by Jack Simpson

Something interesting happened this week – on Tuesday at 1:20pm the dispatch price of electricity was $15,000/MWh in NSW and -$1,000 (yes, negative 1k) in Queensland at the exact same time. When you consider that these two states are next to each other and connected as part of a single grid known as the National Energy Market, this event may not appear to make much sense.

Understanding why these events occur is exactly why I got so interested in the energy market while I was working in consulting. A few of the things you have to take into account when analysing events like these include:

– How the interconnectors that connect the states work and how their capacity can be maxed out, leaving more expensive local generators to pick up the slack.
– The role that unexpected outages in the transmission lines can play
– The bidding behaviour of generators – solar farms will often bid in at negative prices to ensure that they are dispatched at any price they can get since their short run marginal cost (SRMC) is effectively 0