Demand-side participation
There are three ways to take part in the demand side of the spot market - dispatchable demand, dispatch notifications and difference bids - each offers different ways to manage price exposure and support system flexibility.
On this page —
Why take part on the demand side
The wholesale electricity market offers three ways to take part on the demand side: dispatchable demand, dispatch notification and difference bids. Taking part in these mechanisms can help electricity market participants:
- reduce their electricity costs
- increase competition in the market and support lower prices
- provide the System Operator with better visibility of available resources
- manage peak demand and reduce the need for costly network investments
- lower the risk of emergency or involuntary power cuts.
The three mechanisms at a glance
| Feature | Dispatchable demand | Dispatch notification | Difference bids |
|---|---|---|---|
|
Who can participate? |
Large consumers |
Small-scale flexible load or aggregators |
Any purchaser* |
|
What's the purpose? |
Compete with generation to lower prices |
Compete with generation to lower prices |
Signal price sensitivity and test potential price outcomes |
|
Can they say 'no' to dispatch instructions? |
No |
Yes |
N/A (they do not receive them) |
|
Can they participate in ancillary services? |
Yes (with compensation) |
No^ |
No |
|
Revenue streams |
Cost avoidance + constrained on/off payments |
Cost avoidance |
None |
Notes
* Distributors must also submit difference bids if asked by the System Operator.
^However, the System Operator can approve ancillary services participants on a case-by-case basis.
1. Dispatchable demand
Dispatchable demand is defined as ‘notified dispatch bids’ in the Electricity Industry Participation Code 2010. It is a way for industry participants to use their flexible consumption to manage their costs and support the power system.
Who can participate
This product is suitable for:
- industrial consumers directly connected to the transmission system and large consumers (more than 10MW) who:
- can control and separately meter their consumption
- are exposed to spot prices
- retailers who supply large volumes of controllable demand.
How participants benefit
Taking part in dispatchable demand can help participants:
- reduce final prices by competing directly with generators to set the spot price. Reducing demand can also lower overall spot prices
- manage and reduce energy costs by avoiding unexpected spot prices through dispatch. This is in addition to responding to prices by consuming more when prices are low and less when prices are high. This can sometimes lead to lower overall costs than a fully hedged position, but it relies on participants being able to change their consumption immediately.
How it works
Dispatchable demand is a way for participants to use their flexible consumption to manage their costs and support the power system. It works as follows:
- participants register with the System Operator and set up systems to:
- send bids to the wholesale information trading system (WITS)
- send real-time telemetry to the System Operator
- receive dispatch instructions from the System Operator
- participants bid into the wholesale market, indicating how much electricity they are willing to consume at different prices
- the System Operator dispatches each participant, just like generators, which means participants must adjust their consumption when instructed
- participants are entitled to ‘constrained on/off payments’. These compensate participants for following dispatch instructions when the dispatch price differs from the final price.
2. Dispatch notification load
Dispatch notification load is a low-cost way for industry participants to use their flexible consumption to manage their costs and support the power system.
Who can participate
Dispatch notification load is suitable for:
- smaller scale consumers (more than 1MW but less than 10MW), such as commercial consumers eg, supermarkets
- aggregated household resources, such as solar panels, small batteries and electric vehicle chargers.
How participants benefit
Taking part in dispatch notification load can help participants:
- reduce final prices by competing directly with generators
- manage and reduce energy costs by consuming more when prices are low and less when prices are high, potentially achieving cheaper outcomes than a fully hedged position.
How it works
Dispatch notification load is a low-cost way for participants to use their flexible consumption to manage their costs and support the power system. It works as follows:
- participants register with the System Operator and set up systems to receive dispatch notifications via web services
- participants submit bids indicating how much load they are willing to reduce and at what price
- the System Operator issues dispatch instructions
- participants are expected to follow dispatch instructions unless unforeseen circumstances mean they cannot. If this happens, they can decline the dispatch and be ‘non-dispatchable’ for a short period
- responses are verified monthly via meter data, rather than real-time monitoring.
Why dispatch notification load is cheaper and more flexible
This option is simpler and more cost effective because:
- the System Operator does not require real-time visibility, which means that participants do not need to invest in real-time telemetry
- dispatch instructions can be sent over the internet using web services
- participants can decline dispatch notifications, provided this does not happen too often
- participants can withdraw from the dispatch process at other times
- compliance is verified monthly using meter data, avoiding continuous monitoring.
3. Difference bids
Difference bids show industry participants how their electricity use might change at different price levels. They allow participants to test the price impact of increasing or reducing load in the forecast schedules, without being bound to those bids in real time.
Who can participate
Difference bids are used by:
- purchasers (retailers and direct-connect consumers) at conforming GXPs to:
- test their price sensitivity in the forecast schedules
- signal a reduction in load at higher prices and an increase in load at lower prices
- do this without being obliged to honour their bids, because difference bids are not included in the dispatch schedules.
- lines companies, use difference bids differently. When the System Operator requires them ahead of potential capacity shortfalls, they must:
- provide the best estimate of their controllable load capability, showing how much load they could reduce on their networks if needed.
Benefits of difference bids
Difference bids provide useful insights for both purchasers and the System Operator by showing how load changes could help manage prices and support the wider electricity system.
- When used by purchasers - Participants can make more informed decisions about adjusting their load, based on the price impact shown by the difference bid.
- When used by lines companies - The System Operator has more visibility of what resources are available to address potential shortfalls.
How to become a dispatchable demand or dispatch notification participant
To participate in dispatchable demand or dispatch notification, the participant or an agent will need to:
- become a dispatchable load purchaser - apply to the System Operator to have your plant recognised as a dispatch-capable load station
- understand how to submit bids and interact with the wholesale information and trading system (WITS)
- meter all or a part of their load (or grid exit point) to an acceptable standard – note that requirements differ for the two mechanisms
- adjust consumption promptly when a bid is dispatched and maintain that level of consumption for the duration of the dispatch period.
View the register of approved dispatch-capable load stations
For more information on how to become a participant, email market.operations@transpower.co.nz
Updating the regulatory framework around demand response
To unlock the benefits of demand‑side flexibility, we must ensure the regulatory settings are fit for purpose.
We recognise there is a perception across the electricity industry that demand flexibility is underutilised and that the current mechanisms are not enough to incentivise participation. To address this, the Authority is working with the industry to update the regulatory framework. For example, see our work on:
Questions?
Contact us at OperationsConsult@ea.govt.nz