Renewables revolution for wholesale electricity market

Increasing renewable generation, such as wind and solar, and reducing our reliance on fossil-fuelled generation may mean changes to how New Zealand’s electricity market operates.

The evolution of the wholesale market is a critical project on the Authority’s Energy Transition Roadmap, future-proofing the market to respond to increasing renewable generation, more smart technology, and more distributed energy resources, like batteries and EVs, connected to the system.

The Authority’s Market Development Advisory Group (MDAG) has today started consulting with industry to understand how the wholesale electricity market, including spot and hedge markets, and investments, would work under a 100 percent renewable electricity system, and what changes may be needed.

An issues paper released today, Price discovery under 100% renewable electricity supply, has been developed with the support of local and international experts in electricity market design as well as with industry stakeholders and includes simulation modelling of future market outcomes and key issues.

Authority Chief Strategy Officer, Joey Au says New Zealand has an opportunity to lead the world with clean energy market design and operation.

“New Zealand will be very different from most other countries because of our greater access to hydro generation with energy storage being able to operate when the wind isn’t blowing and the sun isn’t shining. So, competition between sources of storage, including hydro, will be a key issue.

“However potential intermittent wind and solar generation means wholesale spot prices may become more volatile. High wholesale prices reflecting scarcity may be more frequent, but this also provides an important signal for more investment in renewable generation to avoid this scarcity, and in key forms of flexibility such as flexible EV charging.

“External factors like extreme weather events will also have an impact. No one knows exactly how our energy system of the future will evolve. But the Electricity Authority has a critical role to play in the transition - our role as independent regulator is to create the right conditions for an orderly and stable transition.

“Demand for electricity is forecast to increase by 68 percent over the next 30 years so what we do today lays the foundations empowering consumers to benefit from new and emerging technologies tomorrow.

“New Zealand’s goal is for a 100 percent renewable energy system by 2030. If we are to meet our goal, the extent of the change and the pace at which it needs to happen is unprecedented in our industry,” says Mr Au.

MDAG’s consultation covers efficient balancing of supply, demand, and reserve energy including technologies such as batteries, management of stored water, the contracts market, new investment, and retirement of fossil-fuelled generation assets.

The next stage of the project will be identifying and analysing options to address the problems identified in the consultation. MDAG will consult on the options analysis later in 2022. The Authority expects to receive and consider MDAG’s recommendations and decide on next steps later in the year.

Read more information about the issues paper and consultation.