Electricity cannot be easily stored so it’s important that sufficient electricity generation is always available to meet demand; so it’s available at the flick of a switch!
Supply and demand isn’t a new concept, most industries face the challenge of making sure they are meeting the needs of their customer’s. However, the need to generate energy fresh, and deliver it virtually instantaneously, adds a level of complexity to this idea.
To ensure the delicate balance of supply is just right, there is an intricate system that sits underneath it all, called the electricity dispatch process. This happens within the National Electricity Market (the NEM) which the government-established Australian Energy Market Operator (AEMO) oversees.
The role of the dispatch process is to make sure the right amount of energy is being generated each minute of each day, ensuring reliability for Australian homes and businesses, as well as keeping costs under control for the market.
Let’s take a look at what steps make up the process.
The dispatch process
The dispatch process starts with each electricity generator submitting bids to AEMO each day, detailing how much electricity they are willing and able to supply the following day and at what cost.
AEMO then matches the bids with demand for each five-minute period, calculating the lowest-cost generation mix considering many factors, including weather, typical daily demand patterns and how quickly each generator can supply to the market.
As each five-minute dispatch period has a different volume of electricity being generated at a different price, the market sets a wholesale market price (also known as the ‘spot price’) for each half-hour by averaging the six five-minute dispatch prices that make up the 30 minute trading interval.
Once the wholesale market is settled, generators receive the spot price for the electricity they supply, and retailers pay the spot price for the electricity they buy for their customers.
The spot price can vary in response to movements in demand and supply. For example, prices can be high when demand from homes and businesses peak, such as on really hot days when people want to run their air-conditioners, or when supply is not sufficient for instance when a main generator or transmission line isn’t operating.
On the hottest and coldest days of the year, the wholesale spot price can reach as high as around $13,000 a megawatt hour, as opposed to a typical wholesale price of around $40 a megawatt hour.
Real time price and demand graphs are available from AEMO.
Wholesale market prices and you
Although energy consumption patterns can make the wholesale market price volatile, most business and residential consumers are insulated from this because the contract tariffs that energy retailers offer are generally stable.
This means, as a customer, your retailer sets a price that will apply for your electricity no matter the season, day or hour, and you don’t have to see the impacts of a fluctuating wholesale market price on your electricity bill.
New technologies, such as smart meters, are allowing for more cost-reflective retail tariffs by letting consumers adjust their demand in response to price variations.
Many policymakers see this as increasing the market’s efficiency; a game changer when it comes to how we interact with electricity.
Other factors such as an increase in residential solar panels, commercialisation of battery storage, a decrease in overall energy consumption in Australia and a growing renewable energy market may also impact on this supply and demand process over the coming years.
You can find out about the global trends that may affect our energy use in the future.