Future proofing the electricity market

Future proofing the electricity market

1 March 2016

The Electricity Authority has outlined its approach to ensuring that New Zealand’s electricity market can respond to developments in new technology and changes amongst generators.

Dr Brent Layton, Chair of the Electricity Authority says, “We are steadfastly focused on making sure that the New Zealand electricity market delivers long-term benefits for New Zealand consumers.”

“The market is in an extremely healthy position, with record levels of competition across both the retail and wholesale sides of the market in 2015. But it is important that we, as a regulator, are on the front-foot. We want to make sure the right conditions are in place to ensure positive outcomes continue for consumers.”

The Authority has commenced work on a review of the market to ensure that unintended barriers do not prevent consumers from adopting new technologies like electric vehicles and batteries. It is also looking to ensure that consumers are able to benefit from potential new ways of buying and selling electricity.

“We’ve seen the disruptive effect players like Uber and Air BnB have had in other markets, and the positive impacts these can have on the prices consumers pay and the options that are available. We want to make sure the electricity market is flexible enough to allow for disruptive technology and alternative ways of buying electricity.”

Two thermal generation plants (Southdown and Otahuhu) were closed in 2015 and there remains uncertainty about the future of Genesis Energy’s Huntly plant after 2018. Dr Layton says consumers should not be concerned about these changes. They reflect the investment in newer generation plants over the last few years, most of which has been renewables.

“The Authority’s focus is on ensuring electricity industry participants make decisions that are in the long-term interests of New Zealand consumers.”

“Ultimately, it is important that the electricity industry participants are the ones that face the full cost of their commercial decisions.”

“To ensure the correct arrangements are in place for the lead up to 2019 we are currently reviewing how we ensure dry-year security of supply. We have a stress testing scheme that requires firms to monitor and report on the impact high spot prices would have on their finances. We also have a customer compensation scheme that requires retailers to pay $10.50 per week to each customer in the event an official campaign to conserve energy is launched so consumers and not retailers benefit from conservation campaigns. We are looking at these schemes to assess if any refinements need to be made.”

“There is healthy trading activity in the electricity futures market. The futures prices for 2019 are only slightly elevated, which shows that the industry believes that either the Huntly units will stay or alternative sources of supply will occur in time for winter 2019.”

“I’d like to commend the ASX for deciding to introduce a cap product to the NZ electricity futures market. This will give even more transparency about future supply risks and is another way for generators and retailers to buy and sell insurance against high spot prices. The caps will provide another means for parties exposed to spot market prices to communicate how much backup cover the market should provide, whether in the form of backup generation plant or demand-response capability.”

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