Bidding Behaviour in the Australian Electricity Market
Article provide by Minter Ellison Lawyers
In common with many utilities markets around the world, the Australian Electricity Market has undergone major reform in recent years.
The Australian Electricity Market has largely developed from a centrally planned, principally state owned industry. Private participation is now welcome in all States of Australia, and a substantial degree of privatisation has occurred.
Since 1998, a gross pool electricity market has operated between 5 out of 6 Australian States. However, a relatively shallow market, coupled with limited interconnection between the States, has meant that at various times, almost every generator has been in a position to determine market prices within the Australian National Electricity Market. Pricing, though generally low, can be very volatile, and can fluctuate from -$AU 1000 to $AU 12500/MWh within a few hours.
This has led to a series of legislative responses. The most recent legislative attempt to restrain market behaviour, was a requirement, in the National Electricity Rules, that market bids be made "in good faith". That rule has been the subject of an extensive and instructive Court case, involving the Australian Energy Regulator (AER) and Stanwell Corporation Limited (Stanwell).
SEE OTHER TOP STORIES IN THE ENERGY DIGITAL CONTENT NETWORK
Under the National Electricity Rules, dispatch offers, despatch bids and rebids must be made "in good faith". Most regulatory attention has been paid to the lodgement of rebids, because it is at this point that much of the volatility in the market occurs.
A rebid "is taken to be made in good faith, if at the time of making such a ..... rebid," the relevant generator "has a genuine intention to honour that rebid, if the material conditions upon which the rebid were based remain unchanged until the relevant despatch interval."
In the Stanwell case, the AER investigated behaviour in the Queensland Region of the Australian Market, at times when demand was particularly high, and spot prices (usually in the vicinity of $20-$30/MWh), had exceeded $5,000 on 14 occasions. A protracted investigation first focused on all bidding behaviour over the relevant period, and then gradually narrowed down its focus, until 92 and then eventually 8 rebids were the subject of a court prosecution, allegatimg that the requirements of 'good faith' had been breached. A lengthy trial took place and a decision was handed down in August 2011.
The AER's case
The AER sought to identify "the material conditions and circumstances placed on which rebids were based', and alleged that 'there was no change in those conditions' or 'no change upon which the respondent acted in making the subsequent rebid.". Alternatively, the AER alleged that the witnesses' testimony established that there was no relevant intention to honour the relevant rebids. In effect, the regulator was arguing that:
it was possible to identify the particular circumstances that gave rise to a decision to make an initial bid;
a rebid was only lawful if those circumstances changed.
Stanwell argued "that the requirement or good faith requires honesty." As a result, a rebid would be made in good faith if, when it was made, the trader did not have the actual intention to displace it with another rebid.
The Court's findings
The Judge found in favour of Stanwell Corporation. He found that "by definition a market is made up of potential buyers and potential bidders, each trying to maximise its own benefits from each transaction."
His honour rejected the notion that it would be possible or indeed relevant to identify all of the factors that led to a decision to make a bid or particular rebid. The good faith rule required an examination of:
"the totality of relevant conditions with a view to identifying whether there has been any change, and that rebidding could reflect the particular personalities, and experiences of the traders".
A decision to make a bid or rebid was often a reflection of the judgement and risk aversion of the traders. Traders were entitled to take into account changes in actual and forecast despatch pricing, as changes in material circumstances which justify a rebid. Lastly, a rebid may be made in good faith even if it was made with the object of achieving a particular market price.
Implications of the case
(A) Gathering and relying on evidence.
Both the investigative process and the case itself created very significant evidentiary difficulties for all parties concerned. Not the least of these was that witnesses for Stanwell were required to testify as to their intentions concerning a relatively small selection from a large number of market bids made more than 2 years previously. His Honour ruled that in those circumstances a degree of reconstruction was inevitable, but that that reconstruction could be taken into account. However, documentary back up of the decision to bid remained critical in the determination of the case.
(B) Implications for market design
The Stanwell case does not, on any view, create an unrestrained licence for participants in the National Electricity Market to rebid. However, if external circumstances change, then rebids are permitted, and bidders are entitled to maximise profits as a result of the change in circumstances.
The AER is considering whether the rule itself achieves its purpose, but for the time being, investors in the Australian Electricity Market can take comfort from the fact that the rebidding rule does not appear to prevent the normal operation of electricity markets.
Itronics successfully tests manganese recovery process
Itronics - a Nevada-based emerging cleantech materials growth company that manufacturers fertilisers and produces silver - has successfully tested two proprietary processes that recover manganese, with one process recovering manganese, potassium and zinc from paste produced by processing non-rechargeable alkaline batteries. The second recovers manganese via the company’s Rock Kleen Technology.
Manganese, one of the four most important industrial metals and widely used by the steel industry, has been designated by the US Federal Government as a "critical mineral." It is a major component of non-rechargeable alkaline batteries, one of the largest battery categories sold globally.
The use of manganese in EV batteries is increasing as EV battery technology is shifting to use of more nickel and manganese in battery formulations. But according to the US Department of Interior, there is no mine production of manganese in the United States. As such, Itronics is using its Rock Kleen Technology to test metal recoverability from mine tailings obtained from a former silver mine in western Nevada that has a high manganese content.
In a statement, Itronics says that its Rock Kleen process recovers silver, manganese, zinc, copper, lead and nickel. The company says that it has calculated – based on laboratory test results – that if a Rock Kleen tailings process is put into commercial production, the former mine site would become the only primary manganese producer in the United States.
Itronics adds that it has also tested non-rechargeable alkaline battery paste recovered by a large domestic battery recycling company to determine if it could use one of its hydrometallurgical processes to solubilize the manganese, potassium, and zinc contained in the paste. This testing was successful, and Itronics was able to produce material useable in two of its fertilisers, it says.
"We believe that the chemistry of the two recovery processes would lend itself to electrochemical recovery of the manganese, zinc, and other metals. At this time electrochemical recovery has been tested for zinc and copper,” says Dr John Whitney, Itronics president.
“Itronics has been reviewing procedures for electrochemical recovery of manganese and plans to move this technology forward when it is appropriate to do so and has acquired electro-winning equipment needed to do that.
"Because of the two described proprietary technologies, Itronics is positioned to become a domestic manganese producer on a large scale to satisfy domestic demand. The actual manganese products have not yet been defined, except for use in the Company's GOLD'n GRO Multi-Nutrient Fertilisers. However, the Company believes that it will be able to produce chemical manganese products as well as electrochemical products," he adds.
Itronics’ research and development plant is located in Reno, about 40 miles west of the Tesla giga-factory. Its planned cleantech materials campus, which will be located approximately 40 miles south of the Tesla factory, would be the location where the manganese products would be produced.
Panasonic is operating one of the world's largest EV battery factories at the Tesla location. However, Tesla and other companies have announced that EV battery technology is shifting to use of nickel-manganese batteries. Itronics is positioned and located to become a Nevada-0based supplier of manganese products for battery manufacturing as its manganese recovery technologies are advanced, the company states.
A long-term objective for Itronics is to become a leading producer of high purity metals, including the U.S. critical metals manganese and tin, using the Company's breakthrough hydrometallurgy, pyrometallurgy, and electrochemical technologies. ‘Additionally, Itronics is strategically positioned with its portfolio of "Zero Waste Energy Saving Technologies" to help solve the recently declared emergency need for domestic production of Critical Minerals from materials located at mine sites,’ the statement continues.
The Company's growth forecast centers upon its 10-year business plan designed to integrate its Zero Waste Energy Saving Technologies and to grow annual sales from $2 million in 2019, to $113 million in 2025.