Use of ‘discretionary demand’ control

Q: I think you mentioned the difference bids wouldn't be used in the dispatch schedule, so I was unclear if final prices would reflect the $9,000 value assumed in the difference bids. I am a bit worried that if the price doesn't make it to final prices then we still have a perverse incentive situation.

A: As part of the real-time pricing release in November 2022, the system operator implemented a change to the dispatch process that would allow the system operator to “add back on” any demand management called for under a grid emergency when producing a pricing solution in the dispatch process. This allows the system operator to dispatch appropriate generation to meet the actual demand, while publishing a market price that reflects the scarcity situation that led to demand management.

Option E is proposed to only be used to signal discretionary demand availability in a grid emergency situation. We are not proposing any changes to any of the system operator’s other security management processes and tools.

Difference bids would need to be provided when required by the system operator. The quantities in the bids would need to be updated as estimates of the quantity of available emergency discretionary demand management change in the lead up to the notified grid emergency period.

Q: In WITS how far in advance do we have to bid, for what period and in response to what signal? Eg, is it a GEN or CAN low residual notice and what information does a difference bid contain eg, template? We want to understand this, as we do not currently forecast discretionary demand.

A: The need to submit bids would be based on a notice from the system operator. This could take the form of a Customer Advice Notice (CAN) or other method as dictated by the timeliness and urgency of the forecast situation. This notice would include the time that bids are required for eg, 5pm to 7pm for an evening peak. There is a standard template for the bid submission form. If an implementation decision is taken, the system operator will work with NZX to support distributors in setting up the required processes.

Q: What is the participant described in the participant register that lines up with a WITs trader eg, ancillary services agent?

A: Every distributor is registered as a participant in their role as a distributor. Registered participants are assigned a 4 letter participant identifier. If a distributor is registered with the WITS manager for a trading account this participant identifier would be used as the distributor’s trader identifier.

Q: What are our compliance requirements or what happens if we cannot deliver what we said eg, we had an unexpected trip on our network and needed to use the dispatchable demand ourselves or we are managing to a limit (include example to ensure understanding)?

A: There will be an obligation to submit a difference bid upon request by the system operator. However, the bid quantity is expected to be a reasonable estimate of the available resource at the time it’s needed. As difference bids are not used in the dispatch schedules there would be no dispatch compliance requirement though the system operator may follow up with any failure to respond to their instruction to disconnect discretionary demand as part of their usual post-event investigations.

Q: How will the System Operator measure the actual impact of demand response by EDBs?

A: Any demand management would be visible to the system operator via its GXP level SCADA load indications. We are not proposing any more stringent monitoring of distributor discretionary demand management. However, the system operator may want to follow up with a distributor post-event to understand the level of discretionary demand response provided under a grid emergency.

Q: How will EDBs record the revenue from demand response activity? Will it be deemed outside the price path?

A: For clarity, the submission of a difference bid to the wholesale market and response to a system operator instruction under a grid emergency does not provide a direct payment to distributors for responding. The market price signal is intended to provide an incentive for spot-price exposed third parties to contract directly with distributors to bid their discretionary demand management into the wholesale market on a routine basis. As such, revenue from these third-party contracts would be subject to the usual Commerce Commission classification of that revenue.