The Electricity Authority is seeking feedback on a range of proposals to better align supply and demand so that consumers can be confident that the lights and the heaters will stay on through winter 2023 and beyond. Submissions on the consultation paper close on 16 December.
Since mid-2021, there has been a significant increase in the frequency of trading periods when the available supply is tight or insufficient against projected demand and normal reserve requirements.
This reflects a mix of factors, in particular:
- the increased role of intermittent (wind and solar) generation
- the growing cost of gas, coal and carbon emissions, and
- an erosion of the commercial incentives on generators to fire up baseload thermal generation (a Huntly Rankine unit can take up to 12 hours to bring on line from cold) on the off chance that the wind will fall away on a cold morning – referred to by some market participants as a “unit commitment problem”.
The Electricity Authority (the Authority) notes that the problem is not that the gap between supply capacity and peak demand has narrowed appreciably. On the contrary, the North Island Winter Capacity Margin has remained well above 1,000 MW since 2012.
It is that not all of this resource (and increasingly not enough of it) has been dispatched - requiring Transpower as the system operator to issue warnings of a potential shortfall (which it has been doing so often recently that they are becoming almost commonplace).
Options for consideration
The Authority is considering if any intervention could be made (for example, via a Code amendment) to better manage electricity supply risk and is seeking input on eleven possible demand response solutions.
It has identified four that it considers could be implemented relatively easily and quickly:
- providing more reliable information to wholesale market participants on the extent of headroom in the supply stack to better inform short term contracting decisions
- providing forecast spot prices under sensitivity cases so that generators can better understand the price impact if net demand is higher or lower than forecast
- enabling Transpower to review wind offers based on an external meteorological forecast and to invite wind operators to reconsider their offers if there are large divergences, and
- clarifying the volume of discretionary demand (e.g. ripple control of hot water and possibly, in the future, EV chargers) in forward schedules and how it could be called upon by Transpower.
The remaining seven options are envisaged for potential implementation over a longer horizon – either because the necessary information or capability is not available now or because the Authority considers more thought is required. They are:
- improving the accuracy of intermittent generation offers
- introducing new integrated ancillary services to offset increased uncertainty in net demand
- increasing an existing ancillary service at times to offset increased uncertainty in net demand
- requiring retailers to compensate their consumers for any forced curtailment caused by insufficient generation
- incentivising generators to take action by giving the Authority the power to review and/or reset prices following an energy or reserve shortage
- introducing a new ‘hours-ahead’ market under which parties would lock in certain generation/demand at a price and would pay a differential if the undertaking was not met, and
- procuring additional resource outside of the spot market (such as volume contracts or options that could be called upon when extra supply headroom is required).
If you would like to make a submission on this consultation, we would be happy to assist.