19 June 2018 - Electricity Authority report shows market performed well in winter 2017
The Electricity Authority has today released a report on its review of how the electricity market performed during the winter of 2017.
Leading into the winter of 2017 there was extremely low rainfall around our South Island hydro lakes. The low inflows caused storage to fall to its lowest level since 2008. This limited the amount of water available for generators heading into the cold months when electricity demand increases greatly.
The report says that while the electricity supply situation was not as severe as 2008, overall the 2017 winter was managed well.
Electricity Authority Chief Executive Carl Hansen says the report is a good opportunity for the industry to reflect on what worked well and to provide lessons for the future.
“We have a high reliance on hydro-electricity in New Zealand, so when we experience periods of low inflows into our hydro lakes our regulatory and market mechanisms operate under more testing conditions and so it’s useful to review how well they worked.”
“We’re pleased the dry winter conditions were handled with no noticeable impacts and importantly no disruption to consumers. The same occurred in 2012 when there was a moderately dry period over winter.
“But there are always opportunities to learn from these experiences and we can never be complacent when dealing with security of electricity supply,” Mr Hansen says.
The report shows the regulatory and market mechanisms that have been introduced since 2010 to improve security of supply are working well.
There is statistical evidence that storage is now managed more conservatively than in the past.
Mr Hansen says a range of factors have made the market what it is today, enabling it to manage dry winters effectively.
“Probably the greatest contribution to effective management of dry winters has come from the clear rules we have about when any official conservation campaign would be run.
“Measures – such as a customer compensation scheme requiring retailers to make payments to their customers should savings be officially called for, along with a stress testing regime to ensure major electricity users and retailers are aware of the risks they face – seem to have had the desired effect.
“It’s great to see hydro-storage was managed well last year. By conserving water early in the process the electricity system has more options to get through the winter comfortably and there is lower risk of needing to ask consumers to reduce their electricity use.
“There are lessons from the electricity futures market where the difference between the best offer to sell at and the best bid to buy widened over the winter. This widening can reduce the ease with which parties can manage the risks they face and confidence in the reliability of the prices in the electricity futures market.
“Given the hydro circumstances were not as severe as some past events, we will take stock and will be looking at whether further measures are needed to strengthen the electricity futures market,” Mr Hansen says.
The 2017 winter review report is available on the Authority’s website.
Inflows into the South Island hydro lakes in the first six months of 2017 were amid the lowest on record. The drier winter was reflected in temporarily higher wholesale electricity prices, with 98 per cent of consumers on fixed-price contracts, there was not a significant impact on household consumers.
Figure 1: Hydro storage
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The Electricity Authority is an independent Crown Entity with a statutory objective to promote competition in, reliable supply by, and the efficient operation of, the electricity industry for the long-term benefit of consumers.