In our September 2004 statistical digest, we reported that network limitations in the Latrobe Valley, which began to impact in April, continued to bind throughout the quarter affecting a further 34 hours. This brought the total to around 155 hours since the beginning of the year. We noted the strategies adopted by a number of generators during that period. There remain no official proposals for those constraints being relieved before 2008. A variety of options, however, are currently being examined.
The offers of generators behind these constraints included use of despatch inflexibilities and zero ramp rates of change. Those constraints also affected offers in the ancillary services markets. We noted in particular the extensive use made by International Power (Hazelwood) of the despatch inflexibility, or ‘must run’, provisions of the code. We made clear at the time our concerns in particular about the need to ensure that the despatch inflexibility provisions should be used only in response to abnormal plant conditions or other abnormal operating requirements in respect of a scheduled generating unit.
We wrote to International Power (Hazelwood) reminding them of those provisions and the need to demonstrate evidence of a genuine technical operating requirement. To satisfy ourselves that the intent of the market rules was being delivered, we commissioned engineering consultants Burns and Roe Worley (BRW) to examine the nature and likely duration of the abnormal plant conditions across the station given by Hazelwood to justify its use of the ‘must run’ provisions.
A detailed and comprehensive report by BRW concluded that the reasons for bidding “inflexible” during the review period related to standing problems with the plant and poor quality fuel supply. It noted that the plant problems, apart from poor quality coal, were continuous in nature and would remain until they are rectified in future maintenance outages. BRW were generally of the view that the approach by Hazelwood was reasonable and appropriate.
Hazelwood co-operated fully with our investigation and provided evidence of the steps taken since to correct many of those technical issues associated with its plant. It has also committed to providing regular updates to us on progress with its maintenance programme and coal quality issues.
In light of this review, we are satisfied that the use made by International Power (Hazelwood) of the despatch inflexibility, or ‘must run’, provisions of the code in these instances were reasonable and that no further action is warranted. We are also working with VENCorp, SPI Powernet, and NEMMCO to make sure all possible steps are being taken in terms of addressing these network constraints in the Latrobe Valley, including the provision of information to the market.
We will continue closely to monitor the use of these provisions across the market to satisfy ourselves that the intent of the market rules is being delivered.