NEM Electricity Pricing with Gaffprice

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Bidstack Effect


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 Peak contracts.


Challenge


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.



Solution


Gaffprice uses a unique method of simulating a stack of energy bids, based on the distribution of historical NEM pool prices.





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*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.
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