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When demand increases in the NEM, pool prices increase according to the stack
of generator bids. This can be by a few cents or thousands of dollars per megawatt hour.
Demand and bidstacks cannot be forecast precisely, so
to price a customer with variable load effectively, we need some method
to assess the market cost of different half-hours.
When there is a high-priced day in the NEM, the most dramatic pool price
increases are usually in the highest-demand periods* (summer afternoons, winter
evenings). This is also the case when NEM participants try to buy non-standard
contracts to cover selected high-risk periods (e.g. Q1 working weekdays,
12pm-6pm) - they tend to be substantially more expensive than standard Flat or
Raising half-hourly pool price forecasts to model demand surges or
high forward prices must be done in a realistic way.
One method of raising expected average pool prices is to add $N to each
future period, or multiply each price by X. However, this would not represent
typical NEM outcomes, where the highest-priced periods increase by the greatest multiple.
If low-demand periods are overpriced, and high-demand periods are underpriced,
the resulting pricing policy will favour costly high-risk customers.
Gaffprice uses a unique method of simulating a stack of energy bids, based on
the distribution of historical NEM pool prices.
The graph on the right is an indicative NEM bidstack showing the quantity
of MW in different price bands
- A demand increase when the pool price is $35/MWh may see a small lift to
- The same demand increase when the pool price is $40/MWh may see a larger lift
- The same demand increase when the pool price is $300/MWh could see prices hit
close to $10,000/MWh
- Gaffprice creates its own bidstack each time it prices a customer, based on
historical NEM data.
Next Page: Accuracy
*This is exacerbated by the NEMís administered price cap, where
generators with market power on extreme days have the incentive to
create high prices in only the highest-demand periods, where they will be
generating the greatest number of MW.