An analysis of price-setting generation technologies in the Australian National Electricity Market

Being the most competitive energy source in terms of the levelized cost of electricity, and supported by government policies to reduce carbon emissions, variable renewable energy (VRE) penetration is increasing globally, including in the Australian National Electricity Market (NEM). This research tries to analyse the impact of this change on price-setting technologies in the NEM. The main objective of the research is to broaden the knowledge on price-setting dynamics across different Australian regional electricity markets and to provide a full picture of which technologies set market prices during different scenarios. By analysing the 5-minute dispatch period data from 2009-2021 we found that price-setting in the NEM is typically dominated by black coal generators. Hydropower, gas, and brown coal generators also set electricity prices for significant periods, however, contribution of renewable generators (solar, wind) to price-setting is still almost negligible. By conducting a 90-day rolling window analysis we found that the share of black coal to set electricity prices is decreasing, while the share of renewable has been increasing through time. We found that black coal generators are more likely to set electricity prices during off-peak periods, while gas and hydropower generators set electricity prices more frequently during peak periods. Among the renewable generators, solar is more active to set electricity prices in the middle of the day when sunlight is abundant, while wind generators set electricity prices more frequently in the early morning and at midday. Coal generators contributed most to electricity prices during periods of lower demand levels, while at the highest demand quantile, coal, gas, and hydropower generators are more likely to set electricity prices. Peak load generators such as gas and hydropower were also setting negative electricity prices. The start-up cost of those generators is lower, and the ramp-up rate is higher so, setting negative electricity prices by those peak load plants was an anomaly. Our research found some evidence that this anomaly may have resulted from strategic behaviour of these generators. Our logistic regression confirms most of the findings of our factor analysis. In addition, it shows that black and brown coal generators are more likely to set electricity prices in summer, while hydropower and gas generators are more likely to set electricity prices in winter. During the carbon tax period, the probability of renewable generators to set electricity prices was increased, while that of fossil fuel-based generators was decreased. Similarly, over time, black coal is less likely to set any extreme electricity prices, while wind and gas generators have become more likely to set prices during spike periods. At the same time VRE technologies also have a higher probability to set negative prices.