Overview
A key objective for the Wholesale Electricity Market is to ensure that electricity, and electricity services, on which modern society is so heavily dependant, are provided reliably as well as economically. This is a particularly significant issue in Western Australia because the electricity system is isolated and supplies cannot be drawn from neighbouring systems at times of high demand.
Reliability is achieved through the Reserve Capacity Mechanism (RCM). This is a set of processes through which the IMO determines the amount of generation and demand side management (DSM) capacity required to meet future demand and facilitates the provision of this to the market. The RCM operates in parallel with the various energy trading components in the market and is governed by Chapter 4 of the Market Rules.
Capacity Credits
The RCM is built around the concept of a capacity credit. This is a notional unit of reserve capacity provided by a generator or DSM provider. Each year, the IMO prepares an assessment of the amount of capacity that is required to meet the forecast demand. If, in a particular year, the IMO determines that 100 MW of capacity is required, it will seek to ensure that this is provided by offering to purchase 100 capacity credits from generators and DSM providers.
Capacity credits have significant value. Capacity credits can either be traded bilaterally or through the market. In return for receiving this payment, generators are required to offer their capacity into the market at all times (unless undergoing scheduled maintenance).
Statement of Opportunities Report
The IMO’s determination of capacity requirements is published annually in the Statement of Opportunities (SOO) report. This report provides aggregate forecasts of maximum peak demand and energy usage for all loads that form part of the South West Interconnected System (SWIS). It also provides information in respect to:
- Generation and DSM capacity currently operating in the SWIS.
- Capacity which is planned to be built or under construction.
- Planned capacity retirements.
From this, the IMO provides estimates of the amount of capacity that will be available to meet demand in future years and the extent that this exceeds, or is less than, the forecast demand.
Copies of the Statement of Opportunities which have been published are available here.
Expressions of Interest
In January each year, the IMO invites expressions of interest from persons who may wish to provide new capacity. This is a non-binding process that provides important planning information to the IMO and other stakeholders.
Copies of the Request for Expressions of Interest and copies of the summarised results of these processes are available here.
Certification of Capacity
The reliability of the SWIS depends on generators and DSM providers delivering the capacity that they have offered. The IMO undertakes a process of certification thorough which it satisfies itself that, among other things:
- the facility will be able to deliver the quantity of capacity that is being offered; and
- if the facility is yet to enter service, that it will be able to supply power into the SWIS by the date claimed.
In applying for certification, developers need to provide information such as:
- Details of their facility’s capacity and temperature dependence.
- Information on fuel supply.
- Projected maintenance outage rates.
- Key project dates for new facilities.
The process of certification takes place between mid-July and early August each year.
Assignment of Capacity Credits
Market Participants with facilities that have been certified may apply for capacity credits. They may indicate to the IMO that they intend to trade their capacity credits bilaterally to retailers or they may offer them to the IMO through a Reserve Capacity Auction.
The IMO first assigns credits to facilities where the Market Participant has indicated their intention to bilaterally trade their capacity. In doing this, the IMO follows the priority order set out in Appendix 3 of the Market Rules. These take into account various factors such as the expected availability of the facility, whether it is in service or under construction and its capacity.
If this process assigns sufficient capacity to meet the system requirement, no further credits are assigned. If further credits need to be assigned to meet the system requirement, the IMO runs a Reserve Capacity Auction to secure the capacity not procured through bilateral trades.
Details of the entities that were assigned capacity credits in these processes can be found here.
Other Reserve Capacity Information
Renewable Energy and Demand Side Management
One of the features of the Wholesale Energy Market is that the particular needs of renewable energy generators and demand side management are incorporated within its design. The IMO has published a paper describing this in more detail, available from the link below.
Further information
The clauses of the Market Rules which cover the RCM are in Chapter 4 and in Appendix 3. A copy of the Market Rules is available here.
A summary document which describes the Wholesale Electricity Market is available below. Chapter 7 of this document describes the RCM.
A guide for investors and developers new to the Reserve Capacity Mechanism and the Wholesale Electricity Market is available below.