1 Annual Report - The Institution of Engineers Sri Lanka

The third lecture in September 2013 was on ‘national Electricity market (NEM)”by Eng. Methsiri Aratchige.This was a very informative session on a utility that is essential in our lives. Methsiriexplained the key components in getting electricity to our houses and industries –from generation, transmission, to distribution - and also the evolution of the Nationalelectricity market, from a fully Government owned enterprise in 1990, to the currentmix of private and public owned assets and operations. Interestingly, the first tointroduce competition by involving private sector was Victoria in early 1990s, whichthen was adopted by NSW, Queensland and South Australia, encompassing all ofthe Eastern States, and Western Australia and Northern Territory left out due totyranny of distance. The governance structure for the NEM, headed by the Councilof Australian Governments (COAG), operated by Australian Energy Market Operator(AEMO) and regulated by Australian Energy Regulator (AER), looked quite robust inassuring that all the activities and pricing is undertaken in a well controlledenvironment.The concept of electricity being traded through wholesale spot market called a “Pool”was new information for most of the audience. Of more interest was the process ofbidding by the Generators, the Pool Price set every 5 minutes by the generatorsupplying the marginal increase in demand, and both the customer paying andgenerator getting paid this Pool Price. In addition to the complexities that Methsiriillustrated such as: generator response times, minimum load levels, and failures; and,transmission losses and limitations; one could only imagine the many othercomplexities involved when he mentioned that the Pool Price is set by a series ofalgorithms with about 30,000 equations! The other mechanism for buying and sellingelectricity – Contract For Difference – or CFDs (which most of us knew applied in theshare market, but not for electricity) – enabled a level of price certainty for both thebuyer and the seller than the spot market, but carried some inherent financial risks incase of even short term breaches to contract (such as generator failure).A lively discussion followed, with the audience raising many difficult questions andMethsiri answering them with his expert knowledge on the subject.