Background on exploring refinements
The Authority has reviewed aspects of New Zealand’s spot market for electricity.
This project stems from the completion of another on Improving the alignment of forecast and settlement pricing, a task the Wholesale Advisory Group (WAG) agreed to consider. The WAG presented its recommendations on the matter to the Board in December 2013. It recommended the Authority:
- proceed with incremental improvements to fix specific problems with the existing system
- investigate settlement based on ex ante or real-time prices
- consider other aspects of the design, such as zonal pricing, that could improve retail competition.
These recommendations matched the Authority’s focus for the next four years to further enhance competition across the electricity industry, with retail competition as a top priority. Therefore, the Authority agreed to adopt WAG’s recommendations (b) and (c) as a separate project to explore refinements to the spot market.
The Authority has considered five options to identify those with significant potential to improve retail and hedge market competition:
- how settlement prices are calculated
- locational price signalling
- firm prices available ahead of real-time
- incentive for demand-response
- incentive for capacity investment.
Its intention is to identify which option or options it should explore in more detail.