Electricity Authority seeks feedback on Emergency Reserve Scheme

The Electricity Authority Te Mana Hiko (the Authority) is seeking feedback on a proposed Emergency Reserve Scheme (ERS) to boost security of New Zealand’s power supply ahead of next winter. The proposed ERS is a key initiative under the Energy Competition Task Force’s (Task Force) vision and roadmap for unlocking industrial demand flexibility.

Under the proposed ERS, organisations willing and able to reduce their power consumption on request - to make it available to the grid - could opt-in to the scheme and be paid to reduce their demand for short periods, where it makes commercial sense to do so.

The proposed ERS would enable Transpower to access additional short-term capacity to prevent household and business disconnections on those rare occasions when market solutions fail to balance supply and demand. It may only be called on for a few hours each year but would be particularly useful for winter months, when demand is highest.

The Authority has acted quickly to develop a design for the proposed ERS to ensure that, if approved, a scheme could be in place before winter 2026. Electricity Authority Chair and Task Force member Anna Kominik says the proposed scheme would support New Zealand households and businesses during the energy system transition.

“As our demand for electricity increases, and our evolving electricity system grapples with supply pressures from declining natural gas production and dry year risk, it’s critical that we work together and work differently as a sector to maintain security of supply,” says Kominik.

An Emergency Reserve Scheme would provide an additional lever for Transpower to pull when other market mechanisms have already been used, for example when there’s a combination of high demand and a high number of unplanned system outages.

“It is not intended as a dry-year response mechanism and we expect it would be used rarely and only for short periods,” Kominik says. “But in the event that it’s needed, it could deliver significant benefit by further reducing the likelihood that Transpower would need to restrict access to power when our system is under extreme pressure.”

Commerce Commission Chair and Task Force member Dr John Small says establishing an Emergency Reserve Scheme is a sensible step to ensure our system can continue to meet demand through the energy transition.

“We believe the proposed scheme strikes a good balance between enabling Transpower to manage power system security, while also providing appropriate market signals to incentivise reliable supply for consumers.

“Had this kind of scheme been available on 9 August 2021 for example, when New Zealand’s electricity system was under significant stress, it would have supported the system to avoid unplanned power cuts.”

The Authority is now seeking feedback on its rationale for an Emergency Reserve Scheme and on a proposed high-level scheme design. The proposed design allows a wide range of consumers to participate in the scheme and aims to benefit consumers by enhancing security of supply and efficiency, while minimising the risk of market distortion.

If the Authority decides to proceed with an ERS following this consultation, it will consult further on the required changes to the Electricity Industry Participation Code for implementation.

The scheme is a short-term deliverable on the Authority’s proposed roadmap of 11 actions to appropriately reward industrial consumers for the benefit their short-term demand flexibility brings to the power system.

Visit the Energy Competition Task Force webpage for more information on the roadmap and Emergency Reserve Scheme initiative.

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