Better tools to manage price volatility and incentivise flexible demand

This is the Authority’s latest quarterly update on how we are implementing the Market Development Advisory Group’s (MDAG) final report. It covers April to June 2025.

The Authority has now implemented nine of the 31 recommendations and is currently working on a further 13. The remaining nine will be incorporated into our work programme. You can see how progress is developing on this document.

MDAG identified that the market needs better tools, including to improve price discovery, manage risks of price volatility and ensure the best utilisation of resources. This article highlights the Authority’s activity on better market tools and information over the past quarter.

We have recently appointed DNV Services as our new centralised provider of intermittent generation forecasts for New Zealand’s wind and solar farms. More accurate generation forecasts will help participants with decision-making, such as whether to commit slow start thermal generation or to charge or discharge a battery. The new forecasting arrangements come into effect on 31 July. (MDAG recommendation 1)

As thermal generation exits the market, flexible supply and demand resources will become more important. We have accelerated work on mechanisms that reward consumers for adjusting demand in peak periods. Since April 2025, we have:

• Published a consultation paper with a roadmap of 11 proposed actions to reward industrial consumers for providing short-term demand flexibility. Two of these actions that could be in place before winter 2026 are the development of a new standardised product for demand flexibility; and the Emergency Reserves Scheme which we aim to consult on by the end of July. (MDAG recommendations 6 and 8)
• Enhanced our monitoring of tariffs that encourage demand side flexibility. The retail market monitoring clause 2.16 information notice will require retailers to submit data on flexibility services. (MDAG recommendation 3)
• Published a BESS roadmap. This highlights upcoming work to reduce barriers to grid scale batteries and enhance revenue opportunities for flexible services.
• The Authority is also scoping how we can increase consumer awareness of opportunities and benefits from providing demand-side flexibility to the wholesale market. (MDAG recommendation 20)

As well as tools, participants need good information to help them make the best decisions.

• On the hedge market, we published a competition dashboard for the flexibility segment of the wholesale market in early April. This dashboard will assist interested parties in monitoring improvements in the supply and pricing of shaped hedges. It will be updated quarterly. (MDAG recommendation 12)
• We also published a consultation paper on collecting information from all retailers and large industrials on their over-the-counter negotiations. Our intention is to improve transparency and competition in the over-the-counter hedge market. In turn, this should drive greater retail competition and improve participant confidence in the hedge market. (Risk Management Review, Energy Competition Task Force 1D and MDAG recommendation 9)
• We have recently updated the stress testing regime, to help ensure participants are making informed decisions about their price risks. The changes extend the stress test period, from the next quarter to the following 12 quarters. The new regime also updates the scenarios used to simulate market stress; and provides more information and reporting so that participants can see how their risk management position compares to others. (MDAG recommendation 7)
• We continue to improve visibility of the generation investment pipeline as well as barriers to investment (MDAG recommendation 17). The Authority recently invited developers to complete a short survey about barriers to progressing new electricity projects. This will support our monitoring of investment and will also help to inform and prioritise our work to strengthen security of supply. The survey closed in May and the Authority is analysing the results.

Implementing MDAG’s recommendations is a priority for the Authority. This, along with our work as part of the Energy Competition Task Force, seeks to ensure that New Zealanders can access reliable electricity at affordable prices. We will continue to report on our progress through these quarterly updates.