27 Mar 2018 by Rory Blundell
Inflows boost hydro storage
The level of water in New Zealand’s hydro lakes has risen rapidly to above average for this time of year – a clear indication that the security of electricity supply can quickly change.
At the start of the year, the ‘controlled storage’ available for use in New Zealand’s hydro lakes was sitting at about 2,240 gigawatt hours (GWh) − about 17 per cent below the mean storage level for that time of year.
We know the situation can change rapidly and, sure enough, rain in the hydro lake catchments has pushed storage in the country’s hydro lakes above the mean for this time of year. Controlled storage increased by around 850 GWh in February – enough to power an additional 100,000 homes over the course of a year. And in mid-March, lake levels hit a five-year high for that time of year.
Of course, things can easily change again in the reverse direction. As we saw at this time last year, storage was high but steadily decreased over April, May and June, moving us into a ‘dry winter’ situation. Aside from consumers on spot price contracts or living near the hydro lakes, it is likely most people weren’t aware of the situation. That’s because we have a comprehensive set of arrangements to ensure the lights can stay on even when supply looks tight.
Spot prices increase to conserve hydro
A feature of our wholesale market is that electricity generators can calculate the price at which they can economically generate, and they start up their generators when the market price is high enough. When the controlled storage in hydro lakes is lower than average, those hydro generators are likely to increase their prices – put simply, because there is less ‘fuel’ it becomes more valuable. Other generators such as thermal generators, which have a higher cost of operation, watch the prices. If the prices offered to the market reach a point that would cover their costs of operation, the thermal generators are likely to start up. This may result in temporary increases to the spot price of electricity, as we saw in 2017.
Hydro risk curve showing controlled storage to 19 March 2018
New Zealand also has a unique arrangement to discourage electricity retailers from seeking a public conservation campaign unless it is absolutely necessary. Before 2011, retailers had the incentive to lobby for a national conservation campaign to be launched so they would be less exposed to high spot prices. This happened in 2001, 2003 and 2008.
To prevent these campaigns from happening unnecessarily the Authority set up the Customer Compensation Scheme, with two key features:
- The scheme stipulates that an official conservation campaign should occur only when the hydro lakes have a 10 per cent risk of running out of controlled hydro shortage. (Storage fell to its lowest level last year since the scheme was introduced, with a 2 per cent risk of running out of controlled shortage.)
- If an official campaign is launched, customers are compensated for their conservation efforts. Retailers have to pay their customers $10.50 for every week of the campaign, which could cost some retailers almost $5 million per week. The requirement for compensation provides a good incentive for retailers to manage spot price risk through measures such as financial or physical hedges.
The Authority is currently reviewing two aspects of the Customer Compensation Scheme. We’re asking for feedback on whether a retailer should be required to compensate a customer for the full conservation campaign period, even if the customer switches to another provider during that time.
We’re also considering whether we need to review the minimum weekly amount paid to customers more or less frequently. Currently the amount is reviewed every three years, but we’re keen to hear industry views on whether this timeframe should be changed.
The consultation on these two aspects of the Customer Compensation Scheme is open until 10 April.
31 Aug 2017 by Tim Street
More accurate pricing can unlock technology potential
It’s important to improve the certainty and reliability of spot price information to enable the growth of new technology, such as batteries and electric vehicles, and business models.
For example, batteries can help to meet demand in peak periods, but need reliable spot price information to ensure they contribute energy at the most valuable times. It’s likely that consumers will be less inclined to invest in and use batteries if they can’t get reliable spot price information to help them make those decisions.
Currently, spot market prices are finalised two or more days after ‘real-time’—after generators have supplied electricity to the market and consumers have used the electricity. However, if prices were finalised in real-time, participants and consumers would receive more price certainty and could make better decisions about their electricity use.
On 1 August we published a consultation paper on our real-time pricing proposal. If progressed, our proposal will be a major development for New Zealand’s electricity market, and is the result of a detailed programme of work over many years.
Our proposal would enable smarter decisions which are likely to save consumers money and reduce the overall investment that New Zealand needs to make in the power system. Prices would be more actionable and more efficient, and the process would be simpler and easier to understand.
“More actionable” means consumers and participants can trust and respond to the prices they see in real-time. More efficient means consumers and participants would be much less likely to regret their decisions, and prices reflect the cost of resources actually used to run the power system at the time.
In August 2017, the Authority and system operator held two briefings to provide an opportunity for stakeholders to ask questions in advance of finalising their written submissions. The briefings were a valuable opportunity for interested parties to raise and discuss issues, and we appreciated the opportunity to provide clarity. Slides and video recordings from the briefings are available on our website.
Submissions on our consultation close at 5 pm on Tuesday, 26 September 2017.
29 Aug 2017 by Carl Hansen
Prerequisites for a competitive retail market
Earlier this month I presented at the recent Singapore Electricity Roundtable, sharing thoughts on what’s needed to create a successful competitive retail market.
Singapore has similar electricity market arrangements to New Zealand. And while Singapore doesn’t have a competitive retail market for residential consumers yet, it’s interesting to see they have a lot of retail competition for non-residential consumers.
So whilst we know there is always more work to do, I thought I’d share my perspective on what the Authority believes to be key drivers of success here in New Zealand.
New Zealand’s energy market has become increasingly competitive since full retail competition was introduced in 1999. As at 31 July 2017, consumers had 40 retail brands to choose from, delivered by 29 parent companies.
Market share snapshot
Competition brings long-term benefits for consumers because retail companies are forced to innovate to deliver better offerings to gain and retain customers.
In each distribution network region across New Zealand the largest retailer has experienced diminishing market share. The average market share of the largest retailer in a network region was 76 per cent in 2004. That has almost halved so that the largest retailer in each region now holds, on average, 42 per cent of the market as a result of other large players having gained more customers.
From my perspective there are four key prerequisites to developing a successful retail market.
- A level playing field
It’s crucial that potential market players believe there is a level playing field. If they don’t then they’re unlikely to enter and compete.
- Reduction of barriers to retailer expansion
Competition can be seriously compromised if market players face high barriers to expanding their business. Therefore, the Authority is focused on minimising inefficient barriers for retailer expansion.
- Low barriers to consumer action
It’s important that consumers believe they can exercise meaningful choice when they want it.
- A vigilant regulator
There will always be a time when ‘the going gets tough’. In these instances it’s important there is a vigilant regulator focused on market-oriented solutions.
Following on from these four key prerequisites, there are three outcomes which demonstrate the existence of a successful, competitive retail electricity market.
- Price changes reflect cost changes. In theory a competitive market should deliver prices reflecting the efficient costs of supply. If price changes are broadly reflective of cost changes over a reasonable period of time then we can take that as an indication the market is workably competitive and prices are reasonable.
- Diverse range of choices. As consumers are highly diverse in their preferences, a wide diversity of choices available in the market indicates retailers are facing strong competition to meet the needs of consumers.
- Technology changes are adopted quickly. Over the long term, innovation delivers the largest value gains for consumers, typically far greater than the value gains from prices more accurately reflecting costs. We’re now seeing various electricity retailers bringing innovations to the market—from communications advances offering the ability to charge customers differently to new ways of packaging power bills.
But one additional thing is needed to demonstrate a successful competitive market. All industries experience tough times and so, a successful competitive retail electricity market is one which “lasts the distance”. That is, its fundamental features, prices and other key terms and conditions, are determined by market forces and are robust to serious adverse events.
We’re pleased to see that consumers now rank the electricity market as the third most competitive retail market behind supermarkets and the telecommunications industry.
The Authority is continuing with its comprehensive programme of work to continue improving these measures, all the details are available on our website.
7 Jul 2017 by John Rampton
Malaysia looks to New Zealand for inspiration
In May 2017, we met a study group from Malaysia’s large, vertically-integrated electricity utility, Tenaga Nasional Berhad (TNB).
Tim Street, Alistair Dixon and I hosted the study group when they visited the Authority during their New Zealand trip. The group included senior regulatory and finance representatives who were interested in obtaining a better understanding of the workings of effective electricity markets.
Malaysia does not have a competitive electricity market; TNB own and operate generation, transmission, distribution, system operation and retail functions. However, there are some private power stations, and TNB also operates a ‘single buyer’ function that effectively aggregates electricity production at a wholesale level.
Malaysia is moving to separate the system operator and single buyer from TNB, which will likely prove to be the first step to further reform of the electricity system to deliver greater benefits. New Zealand’s competitive electricity market was a key topic at the meeting—retail competition, price structures and performance monitoring created plenty of conversation.
Our discussions with TNB highlighted some areas of New Zealand’s regulatory structure that are perhaps more difficult to understand from a distance. These areas include the roles and interface between the Authority and the Commerce Commission. The group found it interesting to compare the single regulator (Suruhanjaya Tenaga) in Malaysia with the New Zealand framework.
Even though our markets are quite different, the potentially disruptive effects of emerging technology on electricity systems are similar in Malaysia and New Zealand. There’s no denying that emerging technology impacts us all, just in different ways.
It was interesting to explore the differences between New Zealand’s market-based approach and the single monopoly supplier in Malaysia. What was clear was that New Zealand’s markets can introduce change more swiftly, resulting in increased innovation, which leads to more efficient outcomes for the long-term benefit of consumers.
It’s an exciting time in Malaysia’s market development and they were keen to learn from their New Zealand experience. We enjoyed meeting the TNB group and were pleased to share guidance, advice and information with them. Likewise, it was equally valuable for us to consider what they’re doing and what they plan to do next.
The TNB group representatives indicated that their visit to the Authority further confirmed their desire to move to more competitive, market-based outcomes. It led them to ponder a final question, “How long would it take for Malaysia to get an electricity market like New Zealand?”
3 Jul 2017 by Craig Evans
New Zealand's electricity market compares well
Compared to markets in and near the US, the New Zealand electricity market is less complex and more durable. Our focus on promoting workably competitive markets is also a more effective way for responding to innovation and change than approaches being tried elsewhere.
Many people involved in the US-based markets are concerned about adapting wholesale market design to respond to new technologies and renewable energy targets. In particular, capacity mechanisms appear vulnerable to new technology and changes to how electricity networks are being used, for example from increased investment in batteries and demand response for electricity markets. A further problem faced in the US-based markets is a lack of integration and coordination in the design of wholesale markets and downstream markets. This lack of integration is undermining the US-based wholesale markets, inhibiting the development of the retail market and, more than likely, contributing to an inefficient uptake of evolving technologies. Fortunately, the market governance arrangements here in New Zealand avoid this by providing the Authority with a whole-of-market and supply chain focus.
Various US government subsidies have led to a massive increase in wind generation, which has had some interesting market effects, including increasing periods of negative prices. A key concern about wind generation is that it will not be flexible and fast enough to maintain system reliability and security.
New York State has developed a “Reforming the Energy Vision” (REV) programme in response to some of the same issues we are facing in New Zealand—including inefficient distribution prices encouraging consumers to invest in solar panels. However, the contestable focus of the REV programme will face challenges because it does not have the solid platform that New Zealand has following the changes to industry structure in the late 1990’s and subsequent efforts aimed at promoting workably competitive markets.
The distributor and default retailer for New York City, Consolidated Edison, is starting a roll out of 5 million smart meters which they expect to take until 2022. There is considerable interest in New Zealand’s approach to metering, and some surprise that we have achieved 75% penetration without explicit regulatory intervention regarding metering functionality. This success is partly because retailers are responsible for installing meters—metering is a contestable service and so is best provided by a range of contestable providers, rather than a monopoly provider (such as a distributor).
In the US, there is considerable regulatory oversight of wholesale prices due to concerns with the prices bid by generators through the wholesale market process. Regulatory intervention in the wholesale market is one reason for a “missing money” problem because wholesale prices do not allow generators to recover their fixed costs. The solution to this problem appears to have been to introduce capacity markets. In contrast, New Zealand and Australia are developing wholesale markets that encourage competition rather than trying to regulate wholesale prices. This is because, in practice, it is difficult to distinguish whether high prices are a result of a competitive market process, or are the outcome of the exercise of market power.
Retail competition can lead to large value gains for consumers in the long-term, and assure consumers they are paying reasonable prices. But in New York State, retail competition is compromised by a widespread perception that electricity retailers are fraudsters and scammers, and this means very few people switch from the default utility supplier. Here in New Zealand, there were 28 independent retailers operating at the end of March 2017, and there were 40,691 switches during March 2017 (the highest count in the 2017 calendar year to-date).
My over-arching impression is that New Zealand’s electricity market is much better placed than most other jurisdictions to manage the fundamental changes being experienced by the electricity industry. Although we still have some work to do, we are further along than many jurisdictions and have a superior platform (market design and industry governance). The Authority has a comprehensive programme of projects aimed at identifying and reducing inefficient barriers and allowing for more participation. On 30 May 2017 we released a consultation paper titled, Enabling mass participation in the electricity market: How can we promote innovation and participation? We are seeking views on opportunities for more participation across the electricity supply chain, and on changes needed for consumers to benefit from innovation—the consultation closes on 11 July 2017.
We’re looking forward to further engagement with participants and expect it to be a fascinating and thought-provoking time of change for the industry.
Craig visited the US to attend the 34th Electricity Intermarket Surveillance Group (EISG) Conference. The EISG brings together organisations responsible for electricity market surveillance and monitoring in Canada, the US, Mexico, Colombia, Philippines, South Korea, Singapore, Australia and New Zealand. The Electricity Authority hosted the 32nd EISG Conference in April 2016.
While in the US he also met with representatives from New York State’s generation and transmission business, The New York Power Authority; the New York distributor and default retailer, Consolidated Edison, and the New York State Department of Public Services. He also met with an electricity consultant to utilities and governments across the US and an expatriate Kiwi working for an electricity retailer in New York.
27 Oct 2016 by Carl Hansen
Plenty of food for thought at APERF
I recently returned from the 2016 Asia Pacific Energy Regulatory Forum (APERF) in Seoul, Korea. The forum brings various Asia-Pacific counterparts together, where they can share best practice regulatory and market arrangements.
I attended the forum with Authority Chair Brent Layton and board members Susan Paterson and the Hon. Roger Sowry. Dr Stephen Gale, Commissioner at the Commerce Commission, also joined the New Zealand delegation. Over the course of the 2-day event, we met with delegations from South Korea, the United States, Australia, Tonga, China, Japan, Singapore and the Philippines.
A key take-away from this years’ forum was how important it is to have well-functioning wholesale electricity markets. Electricity markets are highly dynamic and security of supply considerations are important factors in all jurisdictions. All countries who attended the forum are at different stages in their development, so the topics ranged from a need for flexibility, to concerns over inefficient capacity, to wholesale market developments.
The presentations from the US delegation showed their strong focus on creating more flexibility in the electricity system. The California ISO can experience big changes in solar and wind power—often just as demand is increasing rapidly—making flexibility and fast ramp rates in other sources of generation vitally important. Flexible demand response systems are a key focus in the US.
There are a wide range of reforms coming into the Japanese market and the Japanese delegation gave an interesting presentation about transmission pricing issues in their country, with several problems similar to those the Authority discussed in its transmission pricing paper released earlier this year. An interesting insight was that in the wake of the Fukushima nuclear disaster, 30 nuclear stations were taken out of operation but there was still just enough capacity for the country to operate without experiencing ruinous black-outs. The head of the Japanese delegation highlighted how this level of excess capacity is not efficient.
Often the talk these days is on micro grids, so it was interesting to hear from delegates about exploratory work on a super grid connecting South Korea, Japan, China and Russia. SoftBank has indicated willingness to fund the project but there remain significant issues about how much each country would pay for the super grid.
We had an engaging bilateral meeting with the Electricity Market Authority (EMA) of Singapore, whom we enjoy a close working relationship with. Singapore is moving to full retail competition and from vesting to hedge contracts, so we were able to provide our insights in this area. We’ve been happy to welcome the EMA’s Allan Chong to our Market Design team, while he’s on secondment for six months. Our team has really valued his contribution, and I’m sure he’s found it to be an equally valuable career experience.
Outside of APERF, we also had a very good meeting with Enernoc Korea. Enernoc has seen a dramatic increase in their business—offering demand response capacity to the market—following government determination to pursue a wide range of options to avoid a repeat of rolling outages in earlier years. In fact, the Korean market is now Enernoc’s second largest demand response programme in the world, after PJM in the United States.
Tokyo will host the next APERF in 2018. There are major reforms due to be introduced in Japan in 2020, so I’m looking forward to see how things are progressing in 2018.
27 Oct 2016 by Carl Hansen
Celebrating twenty yearsnow what's next?
On 1 October 1996, New Zealand’s competitive wholesale electricity market started.
We celebrated the milestone of twenty years of the wholesale electricity market on 4 October 2016. Over 100 guests representing key players from the industry then and now joined us in Wellington to share stories and reflect on the achievements of the industry.
My history in the electricity industry goes back to 2000 when I joined an economics consulting firm, so compared with some of the guests, I’m still a relative newcomer. In his welcome speech NZX Chief Executive Tim Bennett likened the event to a school reunion. I think that was pretty accurate.
Most of the last twenty years has been smooth sailing for the wholesale electricity market, but of course there have been a few storms from which we have learned about various weaknesses where refinements were needed. But overall, there is a huge amount to celebrate in a market characterised by its innovation.
New Zealand was only the third jurisdiction in the world to establish a wholesale electricity market, behind England and Wales (1990) and Norway (1993). New Zealand’s market design included several innovative world firsts, including incorporating half-hour market pricing and internet-based electricity trading.
When the wholesale market first began in 1996 there were only a few generation companies selling into the market and the trading options for managing risk were extremely limited. Now, we have 35 generation companies selling to the wholesale market and 47 traders purchasing from it. Risks can be managed through a vibrant and rapidly growing futures market, through cross-hedging to manage hydro risks and through the fast-developing financial transmission rights market.
Other major changes have come about through the methods we have in place to manage security of supply risks and the development of full retail competition in 1999.
The design of the market is put under the microscope whenever we receive visits from international academics and regulators and participants from other jurisdictions. Without exception, they all express admiration for the high quality design of the New Zealand electricity market, and the determination to craft market-oriented solutions wherever possible.
We are now at an interesting juncture. The opportunities presented by evolving technology are set to challenge many of the market structures currently in place, while providing consumers with more choices and control than ever before. The Authority is committed to removing any inefficient barriers to consumers engaging with evolving technology.
So in October 2036, will we be celebrating forty years of the wholesale electricity market? Or will the new world of block chain, household generation and storage systems, mobile apps and the ‘internet of things’ have transformed the market so dramatically that the wholesale market we know today is no more? It’ll be fascinating to see how things evolve over the next few years, and I’m personally very excited to be helping consumers get the most from the industry during this transformative period.
18 Oct 2016 by Carl Hansen
Our strategic focus for 2016/17
Rapid evolution is occurring in and around the electricity sector and it is imperative we identify and remove any inefficient barriers to emerging technology affecting the electricity sector.
In our 2016/17 Statement of Performance Expectations (SPE) we identified that the implications of new technologies and business are likely to have a significant impact on the electricity sector. We expect new technologies to create many new options for how electricity is generated and used, meaning consumers will have far greater choice and control than ever before. This could also have a significant impact on market participants, with the potential for new and innovative players to enter and grow market share.
We have reoriented our work programme
Our 2016/17 work programme supports our SPE and gives indicative information about major projects for the year ahead.
We consider evolving technologies and innovative business models are increasingly blurring the traditional demarcation between retail market, wholesale market and transport activities. We are concerned that the current Code and market facilitation measures, market administration and operational processes and its compliance arrangements may inhibit dispersed forms of generating, storing, transporting and purchasing electricity. We are keen to remove barriers to these developments, including removing barriers to residential consumers purchasing directly from the wholesale electricity market or from local generators.
With these influences in mind, the new market development programmes for 2016/17 are:
- Programme A: Evolving technologies and business models. This programme aligns with our strategy to reduce barriers.
- Programme B: Consumer choice and competition. This programme aligns with our strategy to improve consumer participation.
- Programme C: Pricing and cost allocation. This programme aligns with our strategy to improve price signals.
- Programme D: Risk and risk management. This programme aligns with our strategy to increase flexibility and resilience.
- Programme E: Operational efficiencies. This programme covers initiatives to increase the efficiency of electricity market operations.
- Programme F: Compliance education. Our compliance function plays an integral role inensuring the integrity of the electricity market. Please note that the compliance programme remains unchanged from prior years.
We have revised our work programme to ensure we are able to consistently and proactively pursue our statutory objective of promoting competition, efficiency and reliability for the long term benefit of consumers. Figure 1 below demonstrates how our programmes, functions and strategies support our statutory objective.
As always, we remain focused on providing opportunities for parties to innovate and compete, and on promoting choice for consumers.
Figure 1: Our strategic framework.
13 Sep 2016 by Fraser Clark
Smart meters: Enhancing competition and enabling new consumer technologies
The electricity industry is facing a wave of new technology that is challenging the way the industry works, and increasing the choices available to consumers. Smart meters are playing an important role in enabling these choices.
New technology is changing the way we can buy, use and even generate and sell power. Smart meters, and the Advanced Metering Infrastructure (AMI) that manages the meter data, are one of these new technologies. Smart meters have been a game changer in the industry, improving customer service while also providing the basis for the innovative business models being adopted by new entrant retailers. Looking ahead, smart meters will be a tool to help change the way we use electricity and facilitate other new technologies such as batteries and electric vehicles.
More than 70% of NZ homes (over 1.5 million meters) are now benefiting from smart meters and their ability to provide more accurate consumer invoicing. These consumers’ electricity invoices are now based on actual meter reads rather than estimates. Smart meters also provide much less invasive meter reading. Consumers with a smart meter don’t have to open their properties to a meter reader.
In the last five years, 21 new retail brands have entered the market. Most of these retailers have built their business models to use smart meter data to reduce costs, increase efficiency, improve customer service and offer new services and tariffs. Some of these new retailers are growing their market share rapidly, encouraging other, existing retailers to create new services to retain customers.
Retailers are now using smart meters to provide a gateway for services such as Electric Kiwi’s free ‘hour of power’, Flick Electric’s wholesale price-following tariff and Glo-bug’s web-based prepay service.
Smart meters will enable consumers to get the maximum benefit from new technologies such as battery storage, solar PV and smart home technology. They will also help consumers to benefit from cost reflective pricing such as ‘time of use’ tariffs. When used together, smart meters and new technologies that enable consumers to decide how they use and generate power will deliver significant benefits for consumers. Using a smart meter with solar PV and battery storage could help a consumer decide when, and how much, power to buy from or sell into the grid. Smart meters enable ‘time of use’ tariffs by recording exactly when consumers use or generate their power throughout the day.
New Zealand’s competitive electricity market is world-leading, and is supported by the successful roll-out of smart meters. These smart meters are providing a gateway to the electricity market for other emerging technologies. As the market regulator, we are looking forward to the challenge of ensuring the market continues to evolve and adopt new technology, with consumers receiving the benefits.
30 Aug 2016 by Rory Blundell
ACCC and AER Regulatory Conference 2016
We sent three delegates to the ACCC/ AER regulatory conference in Brisbane. This was a two day conference with international delegates from America, Britain, Australia and New Zealand. There was also an additional half day conference run by the Energy Networks Association of Australia.
The Authority sent Tim Sparks and Daniel Vincent from our Market Design team and me, as part of our international engagement programme, and to get an update on international regulatory developments.
Part of our work at the Authority is to engage with other international organisations to be able to judge how the New Zealand market is doing at an international level.
The main conference theme was around economic regulation of electricity markets, and answering the question: “does the conventional wisdom still apply?”
Delegates discussed the big issues in infrastructure regulation with a view to how evolving technologies are creating new issues.
We were particularly interested in the future of the electricity industry and what it may mean for regulating the grid. One of the sessions was based on the structural implications of energy disruption, with the emergence of new technologies and new forms of service delivery.
The electricity market is changing, with the increase in use of battery storage, solar PV, electric vehicles and other distributed energy resources. Most international delegates are facing these same issues in their home environments.
There was a broad consensus that the future electricity industry looks very different to the industry of today. The advent of peer to peer trading in electricity will require significant change to the regulatory framework for many countries. Most regulators are concerned with staying ahead of the curve, to make sure their rules allow for well-functioning markets. This concern means that conferences like these are great talking and learning points where regulators can come together and discuss how best to adapt to these emerging trends.
Tim, Dan and I made some valuable contacts with Australian electricity industry participants, and we will be sure to keep up conversation with them, to stay in touch with international developments. We also had good discussions with international delegates on their emerging technologies and their role as regulators overseas.
We also got some great insight into the Australian regulators’ definition of the line between monopoly and competitive elements, and the extent to which regulated monopolies can participate in competitive markets.
We look forward to being able to use these relationships and thinking in our future work.
28 Jul 2016 by Rory Blundell
Real residential energy prices reduce for the second year running
Ministry of Business, Innovation and Employment statistics show that the energy component of residential retail electricity prices have dropped.
We recently released our residential performance document, which details how the residential electricity market performed in 2015.
In June 2016 the Ministry of Business, Innovation and Employment (MBIE) released revised national-level residential electricity cost data for the year-ended March 2016.
These figures provide an indicator of the average cost of a residential consumer’s energy and lines charges. And the good news is (allowing for inflation) the energy component of these costs has dropped across both the years-ending March 2015 and March 2016.
The sales-based electricity cost data published by MBIE is based on total national revenue and consumption volumes obtained from retailers each quarter.
Costs are split between lines components, and energy and other components. The combined data covers all residential consumers, on all tariffs and all levels of consumption, and takes retailer discounts into account. This means that the final figures are a robust indicator of the average cost per kilowatt-hour that was actually paid by residential consumers.
Figure 1 shows movements in the energy component of residential retail prices since 2010, expressed as average cents per kilowatt hour (c/kWh) consumed, in both nominal and real (i.e. adjusted for inflation) terms.
Figure 1 : Nominal and Real Energy Component of Residential Average Electricity Prices, year-ending March 31 (GST inclusive)
Figure 2 below compares the breakdown between the lines component and energy component in real terms, since 2010. The energy component is associated with the competitive part of the electricity sector. Those costs have reduced across both the years-ending March 2015 and March 2016.
The lines component is associated with the part of the industry that is regulated by the Commerce Commission because of its monopoly characteristics. Those costs saw an increase in the year-ending March 2015, off-setting the reduction in the energy component, but reduced in the year-ending March 2016.
Figure 2 : Real Residential Average Electricity Prices - Lines Component vs Energy and Other, year-ending March 31 (GST inclusive)
There is a significant seasonal aspect to electricity consumption, with most households consuming more during winter months than during summer. Figure 3 below illustrates this seasonality, with consumption and total expenditure on energy being shown for each quarter since April 2013.
Consumers will be pleased to see that, on average, real expenditure on the energy component of electricity costs reduced year-on-year in all quarters of the March 2016 year.
Figure 3: Quarterly real average household expenditure on energy vs quarterly consumption, grouped by year-ending March
3 Jun 2016 by John Rampton
Real time pricing workshop
The Authority recently hosted a workshop on real time pricing with Dr Howard Haas, Chief economist at Monitoring Analytics (market monitor of the PJM electricity market).
Dr Haas was visiting New Zealand as part of the Energy Intermarket Surveillance Group forum that the Authority hosted in Wellington in April 2016. We held an additional presentation for industry participants to attend and ask questions on the topic. On hand to answer questions were Greg Williams, Senior Adviser Wholesale Markets, David Hunt Director of Concept consulting, representatives from the system operator, and Dr Haas.
Dr Haas stated that through their own experiences at PJM, people are more likely to respond to a transparent electricity market. With prices that are clear and consistent, confidence will grow in interacting with the market. “People realise that you’re actually going to be billed at what you do.”
Real time pricing is a topic that is particularly close to the Authority as we recently released a consultation paper on the options for our own real time pricing project.
We consider that real time pricing will result in more consumer participation and increased competition in the wholesale, hedge and retail markets. Generators will be more responsive and accurate with their pricing in response to real time pricing capabilities. This should benefit consumers in the long run with more innovative tariffs and keener power pricing.
In New Zealand, final spot prices used for settlement are published at least two days after the day on which trading occurs.
As Dr Haas said, “Right now, if you find out two days later how much it cost to put gas in your car, you might be making some very different decisions.”
The consultation is now closed and we will be publishing the submissions we received in due course.
3 Jun 2016 by Tim Street
The Electricity Authority hosts the 32nd Meeting of the Energy Intermarket Surveillance Group
The New Zealand Electricity Authority hosted the 32nd Energy Intermarket Surveillance Group (EISG) in Wellington in April 2016.
The New Zealand Electricity Authority hosted the 32nd Energy Intermarket Surveillance Group (EISG) in Wellington in April 2016.
EISG is a private forum to discuss issues, techniques and procedures about the surveillance of wholesale electricity markets. Delegates came to Wellington from the USA, Canada, Australia, Singapore, South Korea and the Philippines.
Delegates gave presentations on varying topics, including the impact of renewables and disruptive technologies, and governance arrangements for power markets. There was some robust discussion around disruptive technologies and how they are beginning to interrupt and change power markets. The international delegates also shared their experiences with Authority delegates regarding the role of market monitors within the developing markets.
Delegates discussed how electricity markets are becoming more connected and governance of them is more complicated. Different countries shared their experiences on what is working well and, in some cases, what they are looking to add to their current work programmes. Some members of the EISG are just beginning to introduce changes to their markets and are developing market governance strategies. Authority representatives were able to share their knowledge of setting up a market and establishing a governance structure, and some of the challenges we have faced.
Hosting and participating in international events like this are particularly valuable as it gives a sense of how New Zealand and the Authority are placed compared to other jurisdictions. It is always interesting to observe how much similarity there is in the issues we are currently facing, especially in relation to innovative and disruptive technologies.
If you are interested in finding out more about this meeting, please get in touch with Tim Street at email@example.com
22 Apr 2016 by Rory Blundell
Electricity Market Performance Year in Review 2015
Each year, we provide a summary of how the market performed. The year in review highlights important events and trends during the year, and summarises the work we do in monitoring performance of the market.
The Electricity Market Performance: Year in Review 2015 (Year in Review 2015) paints a picture of a healthy electricity market. We saw small and medium-sized retailer growth, prices for residential consumers holding steady, greater activity in the futures electricity market and a decrease in ancillary services costs.
The rapid growth of small and medium retailers continued in 2015, with new entrants successfully entering the market and growing their customer bases.
Figure 1: Market size for large and small retailers in the retail market
Figure 1 shows a comparison between the market sizes of the five largest retailers, by parent company, and the rest of the retailers. The market share for small and medium sized retailers has increased since 2009 and continues to grow.
Small and medium retailers now have over 170,000 customer connections. In comparison, the total market size of the largest five retailers has been steady in recent years.
Retailers are offering innovative pricing plans, pre-pay electricity options, and bundled product offerings to their customers. We are pleased to see that consumers have more choice than ever, and that retailers are focused on providing greater flexibility to their customers.
It has also been encouraging to see improvements in the wholesale market. Trading volumes and unmatched open interest of electricity futures contracts both increased; future contracts assist retailers to manage wholesale price risk as well provide a market-based assessment of security of supply risks. In addition, ancillary services costs have shown a steep decrease since the introduction of frequency keeping control (FKC) in October 2014. Frequency keeping is a process designed to keep the frequency of the grid within its normal band (50 Hertz). FKC was enabled by enhancements on the high voltage direct current link, and this has led to a reduction in the amount of frequency keeping services which are procured—overall ancillary services costs decreased by $30.5 million between 2014 and 2015.
We conducted a significant inquiry in 2015, under Section 18 of the Electricity Industry Act 2010. The Minister of Energy and Resources requested an inquiry into the Penrose substation fire of October 2014. The fire left some parts of Auckland without electricity for two days. Two lessons from the Penrose fire are that assets that are critical for supplying customers need to be identified and prioritised for risk assessment, and that assets should be assessed based on their characteristics.
Key highlights from Year in Review 2015:
- Trustpower, Nova and Flick were the fastest growing retailers.
- Statistics NZ’s Consumer Price Index (CPI) result for the year ending June 2015 showed a 0.0 per cent annual rate of change in electricity prices paid by households.
- Australian Securities Exchange (ASX) New Zealand electricity futures contracts hit record trading volumes in August 2015, with around 2,300 GWh traded.
- Thermal generation was down by around 26 per cent when compared to the previous five years.
- Three thermal generators (Contact Energy Limited, Mighty River Power Limited and Genesis Energy Limited) signalled intentions to close thermal stations.
- Ancillary services costs decreased and these benefits are likely to flow through to consumers.
- The Penrose inquiry highlighted the need for risk managers to identify and manage critical assets.
Please send an email to firstname.lastname@example.org if you’d like to receive a physical copy of Year in Review 2015. Please include your postal address and the quantity required.
22 Apr 2016 by Fraser Clark
New system operator contract signed with Transpower
In February 2016, we completed negotiations with Transpower for a new contract for their delivery of the system operator services.
The new contract comes into effect on 1 July 2016 and is expected to be worth $216 million over the next five years. The annual contract value represents more than 50% of the Authority’s annual appropriations, as shown in our 2015/16 Statement of Performance Expectations, so the overall outcome is an extremely positive one for the industry and electricity consumers.
The new contract includes increased transparency over service and performance, greater commercial discipline on costs and project management, and requirements for more engagement with stakeholders. A major focus of the new contract is on ensuring value for money.
Key changes in the new contract include:
- A fixed fee for the majority of services has been agreed. Any increases above the fixed fee (other than as a result of inflation adjustments) now require industry consultation. An efficiency incentive has also been put in place to encourage operational efficiencies.
- Any capital expenditure to improve or enhance the services must be consulted on and approved by the Authority.
- Performance and delivery incentives will be agreed annually.
- New reporting requirements such as performance-related audits and final business cases for capital projects will enable clearer demonstration that the services are being delivered effectively. High value capital projects will be subject to a benefit realisation review following completion.
The system operator is responsible for coordinating the supply and demand of electricity, in real time, to ensure there is a continual and reliable supply to everyone who needs it. This is a 24/7 job—the system operator has to maintain balance, second-by-second, between the electricity demanded by consumers and the electricity supplied by generators. In addition, the system operator is responsible for ensuring that sufficient reserves are available to manage any system events, such as the failure of a large power plant. Without these reserves there would not be enough electricity for consumers to have power to their homes and businesses.
As you can see, the system operator has a crucial role to play in the stability and reliability of New Zealand’s electricity system. As such, the system operator service provider contact is a key agreement to support the facilitation of this important service, in addition to the Electricity Industry Participation Code 2010, which mandates a number of the system operator’s key operational obligations.
The negotiation teams at the Authority and Transpower contributed a significant amount of time and effort to finalise the details of the new contract to ensure that the system operator’s management of the electricity system delivers long-term benefits for all New Zealanders. We are confident that the new contract firmly focuses the system operator’s work so that it best supports this objective.
22 Apr 2016 by Androula Dometakis
Electricity in New Zealand
We have released an updated and refreshed version of Electricity in New Zealand. It tells the story of the electricity industry in a simple and engaging way.
Electricity in New Zealand provides a high-level overview of retail companies, distribution companies, the transmission grid, generation companies and the electricity market. It also shows how these areas interact with each other, so it is a handy reference tool for those who are learning about the industry.
Electricity in New Zealand walks you through the industry from beginning to end, and provides easy-to-understand details about:
- consumers and their behaviour
- retailers and their product offerings
- distribution companies and their network connections
- the reach of the national transmission grid\
- generation companies and their fuel types
- the key activities in the operation of the market
- how the wholesale market works.
It also includes some colourful facts, for example…