New Zealand

1
New Zealand AustralianWholesale Electricity
Markets

• A Comparative Review
• Dr Ralph Craven Transpower NZ Ltd

2
NZ Australian Wholesale Electricity Markets

• Summary
• Background to Markets
• Market Characteristics
• Market Outcomes
• Current Market Issues

3
Market Development - Background
AUSTRALIA
NEW ZEALAND
1991 Council of Australian Governments formed
National Grid Management Council
1987 SOEs formed, programme of separation and
deregulation initiated
Industry Reform Initiated
1998 National Electricity Market created. NEMMCO
market management company and NECA (National
Electricity Code Administrator) created.
1995 New Zealand Electricity Market commences.
Further separation of Supply, Transmission and
Retail/Distribution
Electricity Markets Commence
Commerce Commission competition regulator NZEM
industry regulation Transpower common quality
and system security
ACCC NECA
Initial Regulatory Structure
AER Aust Energy Regulator AEMC Aust Energy
Market Comm ACCC
Commerce Commission EC Electricity Commission
2004
Regulatory Structure 2007
4
Wholesale Electricity Markets Australia and New
Zealand
Australia- NEM 20 million (18m) 195 TWh 28 GW
peak 92 Power Stations 28 Network Providers 37
Market Customers 19 Specials 6 Traders
New Zealand -WEM 4 million population 38TWh 6900
MW peak 43 Power Stations 3 Transmission Cos 28
Distribution Cos 7 Retailers
Source NEMMCO
Source Transpower
5
Market Characteristics New Zealand
Generation
9 Generation Cos 3SOE (60), 5 public co
Gross Pool LMP with 180 market nodes 2 sided
market bids from supply and demand Uncapped ex
post price Losses, tx constraints, security
constraints and ancillary services co-optimised
Dispatch
4 Ancillary Services Instantaneous Reserves,
Frequency Keeping, Black Start, Overfrequency
Ancillary Services
Open Access to transmission. Capacity allocated
in Security Constrained Economic Dispatch
Transmission
28 Distribution Cos, permitted own generation
not retail
Distribution
Largely vertically integrated with Generators

Retail
6
Market Characteristics Australia
Generation
62 Generation Cos in 5 States
Gross Pool Zonal LMP with 6 nodes 1 sided market
bids from supply Ex ante price for 30 min trading
period based on 5 min dispatch. Price cap at VOLL
10k Fixed losses and heuristic constraints
applied
Dispatch
8 Frequency Control Ancillary Services Markets (4
Raise/4 Lower - at 6,60 sec and 5 min)
Ancillary Services
Open Access to transmission. Capacity allocated
in Security Constrained Economic Dispatch
Transmission

Distribution
Open Access distribution

Retail
Full Retail competition initiated
7
Market Outcomes New Zealand
Supply Reliability
11 years of market operation no failure of
market to supply. Includes 3 dry years. Supply
margin reduced July 2007 close to curtailment.
Transmission Investment
Market has delivered no Tx investment. With
Regulator Transmission Investment regime outside
market. Significant Investment planned next 10
years.
Generation Investment
Generation Investment has been left to Market for
last 10 years. 19 generation projects delivering
2038 MW completed.
After 11 years no active forward market has
developed. 70 of load is hedged through
vertical integration of Generator/Retail
businesses. Availability of forward contracts
questioned
Forward/Hedge Markets
Open access to Market dispatch as price taker
with load forecast and dispatch control
conditions. Build to 2007 modest (170
MW), Proposed build 1700MW introduces security
concerns.
Intermittent and Renewable Generation - Wind
Spot price of energy 25 of consumer price. Early
market below SRMC at 40/MW now set at 50-60.
Spot Prices/Consumer Prices
8
(No Transcript)
9
2007 Installed 7 projects 170 MW Planned 12
projects 1760 MW
10
Market Outcomes Australia
Supply Reliability
9 years Market operation. Plant availabilities
increased (93 cf 84 Pre market).
Transmission Investment
Market does not manage Transmission investment
regime.
Generation Investment
Generation Investment has been left to Market for
last 10 years. Significant investment required
next 10 years.
OTC bilaterals are common risk management tool.
Not part of NEM Governance. Brokers trade 6
standard contracts. Active forward Market.
Forward/Hedge Markets
Open access to Market dispatch as non scheduled
generators. Modest build to 2007 (617 MW),
Proposed build 6000 MW introduces
security Concerns that must be resolved.
Intermittent and Renewable Generation - Wind
NSW and Vic spot prices very low in early years
of market. SA and Qsld higher. Recent prices
compare across all states and show increases.
Spot Prices/Consumer Prices
11
(No Transcript)
12
Intermittent Generation Australia
NEM 2007 Installed 27 projects 617 MW Planned
70 projects 5899 MW
QSLD Installed 3 projects 12MW Planned 4
projects 176 MW
SA Installed 7 projects 387 MW Planned 20
projects 1868 MW
NSW Installed 4 projects 17MW Planned 18
projects 1080 MW
VIC Installed 7 projects 134 MW Planned 23
projects 2380 MW
TAS Installed 6 projects 67 MW Planned 5
projects 395 MW
13
Current Market Issues New Zealand

• Market Design Review
• Risk Management options no financial markets
• Transmission alternatives
• Capacity Margin optimal generation mix
• Market Information
• Transmission Investment
• Forward Price Market
• Security of Supply

14
Current Market Issues - Australia

• Retail Market Competition
• Congestion Management
• Comprehensive Reliability Review