History of IMO

The Independent Market Operator (IMO) was established on 1 December 2004 to operate Western Australia's Wholesale Electricity Market (WEM). In 2011, it was announced that the IMO's functions would expand to include the Gas Services Information, which commence in 2013.

A Reserve Capacity Mechanism was established in 2005 to attract new investment in capacity in the WEM.

The energy market (WEM) commenced in September 2006 after the Western Australian government split the state's single electricity utility into four separate agencies to generate, distribute and sell power.

Electricity industry reform in WA began in January 2003 when the government began moves to create a competitive market, encourage private sector investment, improve reliability of supply and promote efficient pricing.

Key components of the program were:

  • Development of a strong and independent regulatory framework, including measures to protect smaller customers. This led to the establishment of the IMO.
  • Establishment of a wholesale electricity market which would facilitate the entry of new competing generators and retailers.
  • Restructuring of Western Power into four government-owned entities.
  • Reduction of the minimum retail customer power usage required to qualify for contestable pricing, and,
  • Facilitation of options for sustainable energy generation.

 

Photo courtesy of Verve Energy
Photo courtesy of Verve Energy

Western Power was split into separate entities:

  • Verve Energy — responsible for power generation within the South West Interconnected System (SWIS), bounded by Kalbarri, Kalgoorlie and Albany.
  • Synergy — responsible for retail electricity sales within the SWIS.
  • Western Power — responsible for operating, maintaining and expanding the transmission and distribution network in the SWIS.
  • Horizon Power — responsible for generation, transmission and sale of electricity in regional areas outside the SWIS.

Establishing the IMO was essential for the proper operation of the wholesale market.

It was set up as the organisation through which wholesalers bought and sold both capacity and energy. The IMO was also responsibility for evolving the Market Rules and procedures governing the operation of the wholesale electricity market.

The IMO also has the task of ensuring sufficient capacity is available to meet peak demand.

One of the objectives of the wholesale market was to promote efficient pricing outcomes. The chart below shows how this has occurred.

Peak due to Varanus Island incident

NB. The peak in 2008 was due to the Varanus Island incident which disrupted WA gas supplies and had a significant effect on Market Prices.

The WEM has two main mechanisms for energy trading. The Short Term Energy Market (STEM) is the day-ahead trading mechanism in the WEM which allows energy trading around Market Participants’ existing contracts. This price is calculated before the actual delivery of the energy with the historical weighted average STEM trades shown by the blue line above.

The red line shows the balancing trades which represent the market value of the real-time delivery of energy and is calculated after the trading day. The balancing price is calculated after the date of delivery.

 

Photo courtesy of Verve Energy
Photo courtesy of Verve Energy
Key milestones in the history of the IMO are:

 

1 December 2004

The IMO is established to oversee WA’s WEM.

2005

The Reserve Capacity Mechanism (RCM) is introduced to deliver capacity to meet WA's load growth. Capacity Credits are awarded to existing and new generators and demand side management to meet demand forecasts for 2006/07.

2006

The Market Advisory Committee (MAC) is established to recommend changes to the Market Rules and procedures.

Western Power is disaggregated.

The WEM commences on 21 September 2006 (marking the beginning of the energy market in Western Australia).

2007

The WEM attracts investors with capacity of 700 MW, with a further 1100 MW under construction. Renewable energy capacity doubles to 250 MW.

The IMO offers industry training courses.

2008

WA’s reliance on coal fired generation since Market start reduces from 44% of the market to 34% with increased electricity generation from gas and renewable sources.

The MAC sets the direction of the WEM’s evolution via a Market Rules Evolution Plan which would pave the way for the Market Evolution Program (MEP) which would commence in 2010.

The WEM is thoroughly tested In June 2008 when an explosion at Varanus Island disrupts 30% of Australia’s natural gas supplies. The market reflects the constrained supply and higher costs in wholesale electricity prices.

The IMO launches a gas bulletin board in response to the Varanus Island incident and provides a gas trading platform for 15 weeks.

2009

A Market Rules Evolution Plan (prepared by the IMO) is endorsed by the MAC. It highlights and prioritises a number of areas for market improvement. The Verve Energy Review - commissioned by Government to assess why Verve Energy was in a loss-making position - critiques the market similarly. Both identify issues around the lack of competition in aspects of the WEM including:

  •   pricing and provision of balancing
  •   provision of load following ancillary services
  •   operation of reserve capacity refunds, and 
  •   operation of the STEM.

 In September, the IMO marks the third anniversary of the WEM.

2010

The IMO hosts the APEx (Association of Power Exchanges) Asia-Pacific meeting in April 2010.

Statistics reflect an efficient, robust and increasingly competitive market: the average short-term energy market (STEM) price decreases from $55.45/MWh in the period 21 September 2006 to 30 June 2007 to $31.30 at the end of June 2010.

The average balancing price also drops, from $67.45/MWh in the same period (21 September 2006 to 30 June 2007) to $32.57 at the end of June 2010.

At the same time, the volume exposed to the STEM and balancing prices rises from 5.5% to 11.3% of the total traded.

In June 2010, the Maximum Reserve Capacity Price Working Group (MRCPWG), formed by the MAC, held its first meeting for the five yearly review of the Market Procedure that determines the methodology and process for determining the Maximum Reserve Capacity Price (MRCP).

The wholesale market continues to mature and the IMO shifts its focus to working with Market Participants to make the WEM more competitive by implementing changes to rules approved by Market Participants and recommendations from the Verve Energy Review.

An industry working group - the Rules Development and Implementation Working Group (RDIWG) - is set up by the IMO in August 2010 to assess and advise on the issues around pricing and the provision of balancing; provision of load following ancillary services; operation of reserve capacity refunds, and operation of the STEM. This body of work is entitled the Market Evolution Program (MEP).

Work begins on rule changes to more closely align Capacity Credits for intermittent generators to their performance during peak periods.

The IMO increases its stakeholder engagement with an IT user group set up ahead of major system changes, regular Market Operations Stakeholder Forums and an investor roadshow to promote the WEM in Sydney and Melbourne.

2011

In February, gas supply from the Varanus Island processing facility was disrupted due to Tropical Cyclone Carlos. DSM contributed to maintaining security of supply in arguably DSM’s most significant test to date. The previous dispatch of DSM facilities had been in January 2008. Assessment of the aggregated performance of DSM facilities showed that the required curtailment was delivered successfully in all intervals of dispatch, supporting the relevance of DSM capacity in the WEM.

Following advice from the RDIWG and MAC in April 2011, the IMO Board approves new Balancing and Load Following Ancillary Services (LFAS) market arrangements. These new arrangements will enable greater competition in the provision of balancing and load following ancillary services and “cleaner” market-based pricing for these services.

A market trial for the new Balancing and Load Following Ancillary Services Market commences on 5 December 2011. The trial marks a significant milestone for the MEP as Market Participants have the opportunity to interface with the IMO systems and learn how the new Markets work.

The IMO is appointed to operate a "Gas Bulletin" Board and develop a "Gas Statement of Opportunities" for WA. This project is known as the Gas Information Services Project (GISP).

In October, the five yearly review for the MRCP concludes with the Market Procedure change being approved.

The IMO Board commissions a five yearly review of Outage Planning process and publishes the report in October 2011; with work to progress the recommendations scheduled to commence in 2012.

The IMO Board commissions a review of the Reserve Capacity Mechanism (RCM) and recommendations are published in September.

In October, the IMO marks the fifth anniversary of the WEM with a stakeholder function in Kings Park.

Rule Change 2010_25 is approved in December to improve the methodology that determines how capacity credits will be allocated to intermittent generators to more accurately reflect a facility’s actual contribution during peak periods.

The Gas Advisory Board (GAB) is established and the first meeting takes place in December 2011.

2012

The Reserve Capacity Mechanism Working Group (RCMWG) is established to consider the recommendations of the RCM Review.

The Gas Services INformation Act 2012 is passed, underpinning the establishment of the Gas Bulletin Board and Gas Statement of Opportunities.

Regulations to support the Gas Services Information Act are gazetted allowing the GISP to commence in earnest.

1 July 2012

The new Balancing and Load Following Ancillary Services Markets commence signaling the beginning of a new era for the WEM and the culmination of the MEP.

2013

The Gas Services Information Rules commence, providing for the operation of the Gas Bulletin Board and preparation and publication of the Gas Statement of Opportunities by the IMO.

 

Photo courtesy of Western Power
Photo courtesy of Western Power