BARRENA

Electricity is a homogeneous commodity with physical characteristics that distinguish it from more conventional traded commodities. It is physically the same no matter when and where it is produced or consumed. Its generation and consumption are for all practical purposes simultaneous . The “non-storability” of electricity ensures that electricity markets clear at each moment in time through an adjustment of prices. There is no possibility for generators to make use of productive capacity in hours when demand for electricity may be substantially less than supply, nor can distributors stockpile the commodity, for later use to “smooth” supply or demand shocks, resulting in market-clearing prices that can be extremely volatile, especially on an intra-day basis.

How is Electricity Produced?

Electricity can be produced by either chemical or mechanical action. Electricity produced using chemical means is stored in batteries. While this type of electricity production has many important applications in modern society, it is an expensive production process and can meet only limited specific requirements for electricity. In the NEM, electricity is produced by large-scale power stations that produce electricity by the mechanical action of turbine-driven generators - large, powerful magnets that spin very rapidly inside huge coils of conducting wire. More than 90 percent of Australia’s electricity production relies on the burning of fossil fuels, primarily coal,

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quantities of electric power. While it can be argued that hydroelectric generation technologies can provide de-facto storage, it is not physical storage of the commodity as is traditionally defined and understood. Pumped wat

water is cycled uphill into

To date no technology has been developed to provide a viable storage medium for wholesale er storage provides at best an indirect form of storage: when prices are low, a reservoir and at peak price periods, water is released in high volume to generate electricity through a turbine. This is storage of potential energy rather than electrical energy and is only available when water levels are sufficient and the reservoir is ready for use (Bodily & Buono, 2002).

with some plant fired gy stored in eased by b to gen ate heat, which in turn is used to heat water nd produce steam. The st n f er g ssure throu

that drives a generator to ele he process

ene c e gy.

r gen n, wate red in nd wall.

and falls through large pipes to a generation plant at dam wall. The kinetic energy lling water drives turbine blades to

gy. -pow nerat n of a

propeller-like turbine spi genera il to p city summarises the basic p l char tics of used technologies.

The basic unit of electric power is referred to as a Watt, representing consumption of one joule of energy per second. A joule is the quantity of energy required to raise the temperature of a kilogram of water by 1-degree Celsius. The “wattage” of an electrical appliance refers to the rate at which it converts electrical energy to heat or light. A typical electric kettle has wattage of 2400, indicating that its use consumes 2400 joules of electrical energy per second. One megawatt (MW), or one million watts, is the standard unit applied in the wholesale markets. In the NEM, the unit of price is Australian dollars per megawatt hour ($/MWh), where one Megawatt Hour can be defined as the quantity of energy required to power ten thousand 100W light globes for one hour.

by natural gas or heating oil. The chemical ener these fuels is rel urning er

a eam is the

produce

orced und ctricity. T

reat pre gh a turbine complete involves the conversion of chemical rgy to kineti energy to el ctrical ener

In hydroelectric powe eratio r is sto a reservoir behi a dam Water is released from the dam

the foot of the produce electrical of fa ered ener In wind ns a ractica ge tor co acteris

ion, the actio roduce electri commonly

wind on . Table 3.1

Table 3.2 Characteristics of Electricity Generators Characteristic _Type Coal-fired Gas Turbine and Oil- Fired Water (Hydro) Renewable (Wind/Solar) Gas and Boilers Time to fire-up

generator from cold

8–48 hours 20 minutes 1 minute dependent on prevailing weather Degree of operator medium_(depend

control over energy high high _{available water} ing on levels) low source Use of non-renew res r l nil able

ou ces high high ni Production of

gre h high

medium-

high nil nil

en ouse gases

Other characteristics medium-

low medium-high low fuel cost with plentiful water supply; production suitable for remote and stand-alone applications; operating cost operating cost severely affected by drought batteries may be used to store power

Source: Salomon Smith Barney 1998 – “Flipping the Switch”.

Once electricity is dispatched to the distribution grid, it is not possible to distinguish which generator produced the electricity that is consumed by a particular customer. For this reason, the wholesale electricity market is organised as a centralised “pool” where all electricity output from generators is notionally pooled and coordinated to meet prevailing electricity demand.