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A winter peaking SWIS: how will you respond? lie; cry; deny

Peak electricity demand in Western Australia’s Wholesale Electricity Market (WEM) has historically coincided the very hot weather conditions experienced during the summer months. Indeed, for the purpose of allocating the cost of the $650 million Reserve Capacity Mechanism (RCM) to customers [1], the WEM Rules assume that peak demand events will always occur in the 'Hot Season', between 1 December and 31 March.

But times are changing....

On Monday 31 July 2017, we observed a new milestone:​

​ total generation in the WEM on a winter day reached the third highest daily maximum for the year, exceeding levels observed over the summer months.

Never before has winter electricity demand come close to matching summer electricity demand at peak times.​​

What factors are driving higher winter peak demand this year?

There are three key factors driving the proportionally higher winter peak electricity demand this year:

1. Mild summer weather

Relative to past years, Perth in 2016-17 didn’t experience the very hot or heatwave conditions that led to high electricity demand in many recent summers.

2. Increasing capacity of rooftop PV​​

The 670MW of rooftop PV installed in the South West Interconnected System (SWIS) [2] is helping to reduce peak summer electricity demand, but does little to offset peak winter electricity demand. Growth in rooftop PV installations continues unabated, with an additional 130MW (or 24 per cent) installed in the past year. ​​

As illustrated in Figure 2, summer peak electricity demand coincides with hot sunny days and high levels of rooftop PV generation. In contrast, shorter daylight hours and generally overcast conditions in winter reduce the significance of rooftop PV to winter peak demand. The disproportionate effect of rooftop PV on the summer versus winter peak will only increase as more rooftop PV is installed in the SWIS.​​​​​

3. Increased Individual Reserve Capacity Requirement (IRCR) response in the summer of 2016-17

The IRCR mechanism provides large electricity customers with a financial incentive to reduce electricity consumption during periods of high demand. A record reduction of 124 MW was observed last summer, a 65 per cent increase on the previous year. The significantly greater IRCR response is likely due to those customers who formerly provided Demand Side Management services switching instead to providing an IRCR response as a result of the Electricity Market Review process reducing payments to DSM providers. Unless the period over which IRCR is calculated is extended beyond the existing 'hot season' (from December to the end of March), these large customers will only have an incentive to respond to summer and not winter peak events.

The losers from a winter peaking system are renewables

A shift to a winter peak will likely reduce capacity payments to renewable generation facilities by approximately 8 per cent, as a consequence of how capacity credits are allocated to intermittent generators in the WEM.

To understand the impact of a winter peaking system on renewable generators, we’ve calculated the Load for Scheduled Generation [4] under the assumption of a winter peaking system. Doing so shows that renewable generation facilities in the WEM will tend to produce less energy on winter peak days than on summer peak days. We illustrate this effect via the seasonal generation profiles for WEM-based wind farms in Figure 3 below. Hence, should winter peaks dominate in future, the number of capacity credits allocated to each renewable facility in future years will also decrease.

A winter peaking system means an even bleaker future for large scale PV generation facilities. Similar to rooftop PV, shorter daylight hours and a higher probability of overcast conditions will reduce the output of large scale PV generators at times of peak electricity demand in winter. For example, the 10MW Greenough River PV facility was producing zero output at the time of the winter peak on 5 July 2017.

Are we in need of a re-design of the RCM?

Those bodies in charges of the design, administration and operation of the WEM have been developing and assessing changes to improve the RCM for over five years now, without a clear consensus on the best solution from stakeholders. This is because, for there to be winners, there are also losers (and no-one wants to be a loser!).

We now have evidence that one of the key assumptions underpinning the design of the WEM no longer holds true. While we can't deny there is a problem to be addressed, the real question is who has an incentive to correct the design of the RCM?

If there isn't anyone complaining will the Government ignore this fundamental flaw in our electricity market design?

A winter peaking SWIS: how will you respond? Lie; cry; deny?


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