Electricity Authority confirms actions to promote competition in the wholesale market
- Low emissions
The Electricity Authority has today confirmed the actions it will take to constrain the exercise of market power and encourage investment in renewable generation to promote competition in the wholesale electricity market.
The suite of initiatives for the Authority and suggestions for other Government entities to progress are included in the Promoting competition in the wholesale electricity market in the transition toward 100% renewable electricity decision paper.
“The decisions that we have confirmed follows consideration of submissions made in response to our consultation paper released in October last year,” says Electricity Authority Chief Executive Sarah Gillies.
“While the electricity market may not be perfect, it has served consumers well and the importance of a well-functioning electricity market to enable the transition to a decarbonised economy cannot be understated.
“The nine actions we are undertaking support the key finding in that paper that encouraging investment in the renewable electricity generation market, especially from new developers, will foster competition and keep a check on the exercise of market power.
“The package of actions we are progressing and the others we have invited other agencies to consider progressing will support the wholesale electricity market to evolve over time while promoting the long-term interests of consumers during the transition top renewables-based electricity system.
“While we found that fundamental structural reforms are not currently justified, we agree with those submitters who noted that some market settings will need to evolve over time to encourage competition in the transition. In addition to the actions we are implementing, we also look forward to recommendations from the Market Development Advisory Group on options to support price discovery in a renewables-based electricity system and the Ministry of Business, Innovation and Employment’s Electricity Market Measures project.
“While the release of the decision paper marks the end of our formal review of competition in the wholesale market that began early in 2021 it is by no means the end of our monitoring of the market and the behaviour of its participants.
“As part of our ongoing monitoring and investigations we stand ready to explore options to strengthen wholesale competition if new information comes to light on the exercise of market power or any impediments to competitive entry by new generation.
“We are very conscious that some market participants are wanting more flexible contracts and we are proactively working with the industry to ensure the market evolves to meet their needs,” says Gillies.
Actions to promote competition in the transition
To constrain the exercise of market power the Authority will:
- continue proactive monitoring and enforcement of trading conduct in the spot market, and investigate the application of trading conduct rules to the forward market
- investigate mechanisms to accelerate the development of the demand response market (in addition to its current work programme directed at this, eg, real time pricing and empowering consumers to participate in the electricity system in new ways)
- clarify disclosure requirements (and consider amending the Code to provide certainty about such requirements) about current or expected constraints that could impact generation capacity, and arrange a centralised location for disclosure
- explore better information sharing processes and obligations with the Commerce Commission on any information the Authority collects that may raise concerns about restrictive trade practices, collusion, or misuse of market power.
To facilitate investment in new renewable generation the Authority will:
- undertake regular monitoring of progress on generation investments, and an annual update of the investment pipeline and impediments
- regularly collect information on offtake and ‘firming’ agreements (and if feasible declined requests) to understand and build the evidence base about the nature and scale of current and emerging access issues reported by developers of new generation
- improve the Electricity Hedge Disclosure System to improve its functionality and make contract details more transparent
- investigate and test the case for providing or requiring longer-dated futures (for instance products traded on the ASX)
- analyse thermal generation transition risks in the context of demand to 2030, its role in hydro firming and more prevalent solar and wind generation, and options to mitigate transition risks.
Actions the Authority invites other government entities to progress
To constrain the exercise of market power, the Authority invites:
- MBIE to progress work to improve disclosure of information on availability of gas for electricity supply to support efficient price discovery and resource allocation, dry year risk management and trading conduct monitoring, with input from the Authority and the Gas Industry Company.
To facilitate investment in new renewable generation, the Authority invites:
- MBIE to bring forward the completion of the Gas Transition Plan, Energy Strategy, and NZ Battery Project, as reduced uncertainty would contribute to more renewable generation investment, and so lower prices, sooner
- MBIE to produce an Annual Electricity Generation Investment Opportunities report, targeting international developers, with input from NZ Trade & Enterprise, Transpower, the Electricity Authority, Overseas Investment Office, and Ministry for Environment
- MBIE to investigate the merit of providing a one-stop shop for overseas investors in renewable electricity generation, to help navigate and streamline the regulatory requirements and agencies, and advice on relevant stakeholders they should engage with
- MBIE and the Ministry for Environment to promptly complete their work to strengthen national direction for renewable electricity to inform local planning and resource management consenting. This should reflect the government’s 100% renewable electricity aspiration, electrification and renewable energy goals, and the implications for the amount of investment in renewable generation that needs to occur
- Transpower to publish connection studies to further streamline the connection application process.
The Authority launched a review into competition in the wholesale electricity market in March 2021 after sustained high electricity prices since Spring 2018 following the Pohokura gas field outage.
The Authority’s phase 1 review, released in October 2021, observed that generators had incentives to conduct inefficient price discrimination which may adversely affect consumers – with the potential to impact on consumers as illustrated by the Tiwai contracts between Meridian, Contact and New Zealand Aluminium Smelters.
The Authority made an urgent amendment to the Electricity Industry Participation Code (2010) in August 2022 to address this specific issue by prohibiting Materially Large Contracts unless certain conditions are met, requiring disclosure of such contracts, and providing a voluntary clearance process. The urgent Code amendment will be revoked and replaced by a permanent Code amendment on 19 May 2023.
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