Electricity Market Bried Dec 22

Termination of the Reserve Generation Capacity Agreement – Transfer of Whirinaki Ownership
The ownership of the Whirinaki generating station will transfer from the Crown to Contact Energy at 3pm today, Thursday 22 December 2011. Accordingly, the Reserve Generation Capacity Agreement between the Electricity Authority and the Crown will terminate at 3pm. Contact Energy took over the submission of offers into the market at 1pm today for trading periods starting from 3pm today.

The Crown’s transfer of ownership of the Whirinaki generating station is in accordance with the recommendations of the 2009 Ministerial Review of Electricity Market Performance.

Since its establishment a little over a year ago, the Authority has introduced a number of measures to enhance market incentives for efficient management of tight supply situations. The key initiatives are outlined below.

Customer Compensation Scheme

The Customer Compensation Scheme (CCS) requires retailers to pay qualifying customers $10.50 per week during Public Conservation Campaigns (PCCs). They may also offer their own compensation schemes linked to individual customers’ conservation efforts. In addition, the scheme sets a firm trigger for when a PCC may be implemented, and assigns clear responsibility for triggering and ending a campaign to the system operator.

The $10.50 component of the CCS encourages retailers to develop innovative schemes to encourage consumers to conserve electricity ahead of any need for PCCs, and it reduces incentives on retailers to call for PCCs when they are not needed. These measures should result in electricity conservation campaigns occurring less frequently than in the past, and should strengthen consumer confidence in the reliability of supply.

Scarcity Pricing
Scarcity pricing introduces a $10,000/MWh price floor and $20,000/MWh price cap to the spot market when emergency load shedding occurs throughout one or both islands.

The scarcity price floor is intended to give investors in last-resort generation plant, and investors in demand response capability, confidence that emergency load shedding will not unduly suppress spot market prices and undermine the business case for investing in those resources. This promotes reliable supply by the electricity industry, which reduces the risk of emergency load shedding occurring in the first place. The scarcity pricing initiative is scheduled for implementation by June 2013.

Stress Testing
The stress testing regime requires parties buying from the clearing manager, and consumers directly connected to the national grid, to produce a report each quarter on their spot price risk exposure and to report their stress test results to their board. An independent registrar will provide risk exposure measures to the Authority in a form that ensures individual parties cannot be identified by the Authority. The Authority will publish the stress test results and market statistics.

Stress testing makes it clear that parties buying electricity on the spot market do so knowing the risks they are taking, and that they are solely accountable for the consequences of their risk management decisions. Consequently, purchasers will be encouraged to better manage their risk position through means such as improved demand response and appropriate hedge cover, which in turn will improve the reliability of supply.

More information on these market improvements is provided at:
http://www.ea.govt.nz/our-work/programmes/priority-projects/scarcity-pricing-default-buy-back/

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