FUTURE CONGESTION PATTERNS & NETWORK AUGMENTATION Report on Assignment A: Transmission Development Framework Scenarios 25 June 2009 Final Report FUTURE CONGESTION PATTERNS AND NETWORK AUGMENTATION Reliance and Limitations The professional analysis and advice in this report has been prepared by Intelligent Energy Systems Pty Ltd (IES) for the Australian Energy Markets Commission (AEMC). This report is supplied in good faith and reflects the knowledge, expertise and experience of the consultants involved. In conducting the analysis for this report IES has endeavoured to use what it considers is the best information available at the date of publication. IES makes no representations or warranties as to the accuracy of the assumptions or estimates on which the forecasts and calculations are based. Although IES exercises reasonable care when making forecasts or predictions, factors in the process, such as future market behaviour, are inherently uncertain and cannot be reliably forecast or predicted. All projections, forecasts and calculations in this report are for illustrative purposes only, using assumptions and estimates described herein. IES makes no representation or warranty that any calculation, projection, assumption or estimate contained in this report should or will be achieved or is or will prove to be accurate. The reliance that a recipient places upon the calculations and projections in this report is a matter for a recipient’s own commercial judgement and IES accepts no responsibility whatsoever for any loss occasioned by any person acting or refraining from action as a result of reliance on the report. In addition, IES shall not be liable in respect of any claim arising out of the failure of a recipient’s investment to perform to the advantage of the recipient or to the advantage of the recipient to the degree suggested or assumed in any advice or forecast given by IES. ii FUTURE CONGESTION PATTERNS AND NETWORK AUGMENTATION Executive Summary Background This report presents the methodology, results and assumptions of the modelling undertaken by Intelligent Energy Systems (IES) in Assignment A of the Future Congestion Patterns & Network Augmentation Scenario Studies. The aim of modelling studies was to provide insight into whether the existing frameworks, with the introduction of the CPRS and expanded RET, will provide network and generation businesses appropriate operational and investment incentives and locational signals in the new environment within which congestion may be more material Assignment A specified that the following scenarios be modelled based on normal commercial entry and exit decisions and behaviour of generators: • Transmission is developed to only meet mandatory obligation and the RET target (based on normal commercial entry and exit decisions and behaviour of generators); • Transmission is developed according to the current framework (based on normal commercial entry and exit decisions and behaviour of generators); • Transmission and generation development are co-optimised. It was agreed with the AEMC that that all cases should be based on a central planning approach that optimises generator entry and exit within the framework of the scenario to allow for a common basis for comparison of the first two cases with the co-optimised case. The assumptions that IES and ROAM Consulting (ROAM) were to use were agreed with the AEMC at a meeting on 30 th March 2009. Since ROAM and IES had both been commissioned to undertake Assignment A, it was agreed that IES and ROAM would utilise common assumptions where possible. This included the interconnector upgrade options and costs. There was no discussion on the options and costs to address intra-regional transmission line congestion. Assumptions All the assumptions were obtained from public documents where available. The key assumptions were obtained from: the 2008 NEMMCO SOO and 2009 NTS Consultation Issue Paper, the 2009 ACIL TASMAN report to NEMMCO on “Fuel Resource, New Entry and Generation Costs in the NEM”, and the Australian Treasury paper “Australia’s Low Pollution Future: The Economics of Climate Change Mitigation”, October 2008. Scenario Development After consideration of the issues involved, IES translated the AEMC’s scenarios into the following modelling: iii FUTURE CONGESTION PATTERNS AND NETWORK AUGMENTATION • Scenario 1: Non-responsive transmission – generation entry and exit is optimised based on a forward curve for carbon permit prices and the requirements for the RET using the existing transmission system with committed expansions. Generator entry is based on existing transmission capacity. Transmission is only developed to ensure demand is supplied and the RET satisfied. • Scenario 2: Current regime working effectively – generation entry and exit are optimised based on a forward curve for carbon permit prices and the requirement for the RET. Generators enter on the assumption that any intra- regional transmission constraints will be addressed under the regulatory test where mandatory obligations, as they pertain to the reliability limb of the test, incorporate current TNSP planning criteria. Interconnection is developed as would likely be done under the Regulatory Test. • Scenario 3: Co-optimising central planner – generation entry and exit and transmission expansion is co-optimised with transmission upgrade options based on a forward curve for carbon permit prices and the requirements for the RET. Limitations of the Modelling Before commencing the modelling a number of limitations were identified. The main ones were as follows: • All the modelling assumed that the transmission system was only in the system normal state. This meant that the degree of congestion and the value of transmission upgrades were underestimated as the most severe cases of market congestion occur when one or more key components of the transmission system are unavailable; • The modelling did not assume any change to the current regional reserve criteria associated with interconnector options modelled. This meant that there may have been some economic value to some interconnector upgrades not included in the modelling undertaken; • While the modelling was based on realistic generator bidding behaviour it did not include potential gaming strategies that could be employed in the presence of an increased number of intra-regional constraints; • There was very limited data on potential network upgrade options. This meant that a proper co-optimisation of intra-regional network upgrades and generation was not possible; • Because the modelling only used 50% probability of exceedence peak demands and it is during very high demand periods (sometimes considerably higher the 50% probability of exceedence peak demands) that network capacity is fully utilised, the modelling may have understated the required amount and value of transmission upgrades. iv FUTURE CONGESTION PATTERNS AND NETWORK AUGMENTATION The Modelling Approach IES used two models in this study. The first was the IES Integrated Energy Market Model (referred to as the MARKAL model as it is based on the MARKAL modelling framework) and the second was the IES simulation model PROPHET. MARKAL was used to obtain the optimised level of interconnection development and the optimised entry of generators as assumed in the scenarios. The IES PROPHET model was used to model the NEM in detail and the constraints that occur on the transmission system under the assumptions used. Results of the Modelling The key results of the modelling were • The level of congestion observed; • The interconnection and intraregional transmission lines developed; • The differences in the level and location of renewable generation and non- renewable generation; • The difference in dispatch costs. Line Constraints To analyse the level of congestion in the network, both the hours that lines were constrained and the amounts by which they were constrained were considered. This was done by relaxing all the intra-regional transmission line limits in the simulation model and determining the MWh of flows that exceeded each line’s rating. We have called this “uncarried” energy. Uncarried energy can be thought of as the energy that would have been transmitted had the line been able to support flows greater than allowed by its rating. In the report uncarried energy is presented for individual lines and also as a total over all lines. Figure 1-1 below shows the amount of uncarried energy per year for each scenario before line upgrades were carried out according to a criterion of limiting uncarried energy to 10,000 MWh per year. As expected, Scenario 2 (unconstrained generator development) leads to the highest amount of uncarried energy before line upgrades. In this scenario the level of uncarried GWh increases significantly over the period 2014 to 2017 after which it decreases slightly. This rapid change is probably due to the substantial increase in carbon emissions costs from 1 st July 2014 due to a change from a 5% target to a 15% target. Scenarios 1 and 3 show similar levels of uncarried energy indicating that optimising generator / transmission development involves utilising the existing network to near its fullest. The sensitivity of congestion expressed as uncarried energy to line rating was also analysed. This was done by increasing the rating of all lines by a multiplier. This is shown in Figure 1-2 for the year 2020, which shows uncarried energy versus the multiplier used to increase all line ratings. v FUTURE CONGESTION PATTERNS AND NETWORK AUGMENTATION