Overview

The IMO has been pleased to drive the MEP - the large body of work focusing on improvements for the Western Australian Wholesale Electricity Market (WEM).

The MEP project team successfully implemented the new Balancing and Load Following Ancillary Services (LFAS) Markets on 1 July 2012.

A Transitional Operational Arrangement with System Management was put in place for a period of six months to relax the demands of the new markets. This arrangement ended on 5 December 2012.

Over time we look forward to seeing evidence of the full suite of anticipated benefits of the MEP being realised, including:

• cleaner and cost-reflective Balancing and LFAS prices
• a more ‘fit for purpose’ IT system with an extended life
• increased transparency and information in terms of load forecasts, outages, available
• price-based dispatch based on real-time market conditions, and
• enhanced volume of automated information exchange between System Management, the IMO and Market Participants.
  

While there will no doubt be some residual issues to tidy up in due course, the IMO has worked hard to meet all projected milestones and target dates and is pleased to have implemented such a significant structural improvement to the WEM. The success of this project could not have occurred without the continuing contribution and involvement of Market Participants over the life of the project. This truly has been an industry-wide effort and we appreciate the level of Market Participant collaboration, in at times, challenging circumstances. 

 

The WEM has been in operation for six years. In that time, it has achieved a significant reduction in the average wholesale electricity price and has resulted in increased private investment in generation capacity. However, the continuing strong growth in demand in Western Australia followed by the global financial downturn has clearly impacted on the electricity sector and the operation of the WEM. As a result, these circumstances have focused attention on some key aspects of the WEM.

The Market Rules Evolution Plan, endorsed by Market Participants on the Market Advisory Committee (MAC) in 2009, highlighted and prioritised 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 - critiqued the market similarly. Both identified issues around the lack of competition in aspects of the WEM.

An industry working group - the Rules Development and Implementation Working Group (RDIWG) lead by the IMO - was set up in August 2010 to assess these issues. The issues included the:

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

Following advice from the RDIWG and MAC in April 2011 the IMO Board approved 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 commenced on 5 December 2011. The trial marked a significant milestone for the MEP as Market Participants have the opportunity to interface with the IMO systems and learn how the new Markets will work.

If you have any enquiries, feedback, or are experiencing issues regarding the Market Trial, please email Market Operations at operations@imowa.com.au

For further information on how the MEP has progressed since commencement please refer to MEPWatch.

The original MEP plan and budget identified IMO project implementation costs of $8.9 million and a delivery date of April 2012, which was set in consultation with System Management.

The MEP budget and funding arrangements were approved by the then WA State Treasurer (the Honorable Colin Barnett) on 15 December 2010.

The IMO's project readiness was concluded by the due date; however, System Management identified various transitional arrangements needed to be put in place from April 2012 to December 2012 to allow for changes to its systems to be concluded.

The support of these transitional arrangements (not previously allowed for in the MEP plan and budget) adversely impacted the project budget and as a consequence, additional funding of $750,000 was required when the transitional arrangements were approved.

A further delay to the implementation timetable was approved in February 2012 to again allow System Management to conclude urgent system changes. The cost impact on the IMO project was an additional $750,000 which was required in 2012/13 to support a small MEP project team to assist System Management in the rollout of its systems and infrastructure and to ensure the IMO WEM systems underwent integration testing when System Management's systems were available. The IMO also maintained regular stakeholder engagements with Market Participants to ensure the preparedness for the full implementation in December 2012.

The overall financial impact of the two delayed implementations resulted in the total project cost being $9.8 million to 30 June 2012, with additional funding of $750,000 required to support the transitional market arrangements for the period 1 July 2012 to 30 November 2012.

 

The MEP will provide Market Participants with a more efficient and competitive WEM.  Key changes will include:

• more cost reflective balancing pricing and opportunities to provide competition for  balancing services
• a greater ability to use more accurate information in the operation of the Short Term Energy Market (STEM);
• more opportunities for  competition in the provision of  Ancillary Services; and
• a more adaptable IT system supporting the current WEM.

Decisions around all expenditure are subject to the IMO approval processes, including IMO Board approval where required.  The actual amounts will be capitalised and recovered from Market Fees over subsequent years.

The IMO Board met on 16 February 2012 to consider the Final Rule Change Report (RC_2010_10) that provides for the establishment of the new Balancing and Load Following Ancillary Service (LFAS) markets. This body of work represents the most significant evolutionary step in our Wholesale Electricity Market (WEM) since the WEM commenced in 2006.

The IMO Board approved the Final Rule Change Report for RC_2010_10, subject to minor editorial changes, and the report was published, along with the final rule amendments, on 23rd February 2012.

RC_2010_10 includes a small number of changes to the protected provisions in the Market Rules and is therefore subject to Ministerial Approval. The Final Rule Change Report will be provided to Minister Collier's office for his consideration.

As part of the rule change approval process the IMO Board also considered the appropriate date and time that RC_2010_10 would commence. IMO Management met with many Market Participants in the first two weeks of February to gauge their preparedness for the new Balancing and LFAS markets. These discussions were reported to the IMO Board.

In addition, the IMO Board invited System Management to provide an update in person on their preparations for the new Balancing and LFAS markets.

After considering the advice from the IMO, Market Participants and System Management, the IMO Board proposed a commencement date for RC_2010_10 of 1 July 2012.

Various events have been held throughout the Market Evolution Program.

Further details and presentations provided at the events, can be found at http://www.imowa.com.au/mep_presentations 

1. Market Procedures Workshops

The IMO held a series of workshops throughout November 2011 to discuss the Market Procedures necessary for implementing the new Balancing and Load Following Ancillary Service markets alongside the draft Rules.

2. General Information Sessions

To help explain the MEP, the IMO has held General Information Sessions for Participants and the wider electricity industry on a quarterly or as required basis.

The first two sessions were held in March and July and a third session will be held early in 2012.

3. Participant Site Visits

The MEP team has been offering individual site visits for key Participants. If you or your organisation would benefit from a site visit to provide information regarding the MEP, please contact Market Operations at operations@imowa.com.au

4. Trading Workshop

The IMO held a Trading Workshop on 21 November 2011 to discuss the logistics of trading in the new 24x7 market. The workshops focused on:

• The establishment of a trading desk (business hours) and the hand over to operational staff – the need for trading policies, escalation management, on-call requirements, training needs, etc;
• Trading strategy and opportunities that may make it easier to manage the logistics of market participations; and
• How to manage market deviations from the forecast.

5. IT Forum

The IMO held an IT Forum on 31 January 2012 to provide an update on how the Stage 2 Market Trials were progressing. 

The IMO has been publishing MEPWatch via email on a regular since the commencement of the Program. To subscribe, please email imo@imowa.com.au and we will add you to the list. To view previous issues of MEPWatch click here.