Access To Contingent Storage Clarified For Winter 2025 Ahead Of Full Rules Review

Transpower has today clarified its process for triggering access to hydro lake water below normal operating levels for electricity generation ahead of winter 2025.

This follows feedback on an Issues Paper released last month about the information it publishes in its System Operator role to help the electricity sector manage security of supply risks.

This is the first step towards a full review of the data and assumptions used to monitor and assess security of supply outlined in the System Operator Security of Supply Forecasting and Information Policy (SOSFIP).

Transpower Executive General Manager Operations Chantelle Bramley said the System Operator received a range of views from the electricity industry as well as major users of electricity, consent authorities and community groups about actions that can be taken for winter 2025.

“We’ve listened, and it’s clear from feedback that there are complex issues to be addressed in the review to ensure any permanent change doesn’t inadvertently have an adverse impact on security of supply,” Ms Bramley said.

“In the meantime, stakeholders have confirmed that the System Operator should retain discretion under the rules to trigger earlier access to additional water, known as contingent hydro storage, if it becomes necessary this winter.

“So, we’ve provided a great deal more clarity to participants around how access to contingent hydro storage could be triggered this winter in advance of the full review.”

Contingent storage refers to water below a level set out in the relevant resource consents held by generators that, due to environmental and community requirements, can only be used to avoid shortages of electricity supply to consumers.

Transpower will look at contingent storage again as it progresses through a complete review of the policy ahead of next winter. It will make recommendations to the Electricity Authority who will ultimately make the decision on any changes to the SOSFIP. The work will be completed in time for winter 2026.

This would give industry and other key stakeholders, including resource consent authorities, more time to consider and provide feedback on the implications of any changes.

Transpower focus on security of supply supported

Ms Bramley said that it is clear from the wide range of submissions that delivering a secure supply of electricity now and into the future is the priority for all stakeholders during a complex energy transition.

“There are no easy answers here,” she said.

“New Zealand is leading the world in addressing these questions due to our extraordinarily high level of renewable electricity and the challenges brought about by the rapid decline in natural gas availability for back up generation.

“Making it easier to use contingent hydro storage to reduce gas and coal burn may feel like a no-brainer, but it isn’t. It is our fuel of last resort. If we use our contingent hydro storage early and it doesn’t rain, we can run out of energy later in winter.

“Our decision puts New Zealand’s security of supply first, while giving hydro generators much greater clarity about the process for accessing contingent hydro for winter 2025.”

New Zealand is reliant on an aging fleet of thermal generation units to provide back-up to our abundant renewable energy resources when the wind isn’t blowing, sun isn’t shining or we experience prolonged dry spells, as we have this year and last.

Even if alternative fuel such as gas or coal are secured to run these thermal units, if one or more fails later in winter then we will need spare water in the system so that hydro generation output can be increased while the back-up power station is fixed.

Ms Bramley also said that Transpower has to take into account future years as well as the immediate situation.

“If we use the contingent hydro stored water this year, we enter the next year relying on above average levels of rain to top up the lakes for winter,” she said.

“In all of these circumstances the risk of electricity shortage is very real, and this drives the potential for very high wholesale electricity prices, like we saw last year.”

The full review of the policy will enable all stakeholders to consider how permanent changes can be made in support of secure and affordable electricity for Kiwis.

“In the meantime, Transpower will continue to work with the Electricity Authority and the wider industry to prepare for this winter,” Ms Bramley said.

Market urged to secure fuel ahead of a potentially dry winter

Transpower figures show that New Zealand’s controlled hydro catchments have had the driest start to the year in 93 years of historic records. While recent inflows have helped arrest the decline, national controlled storage is sitting at just 82% of average for this time of year, which is in the bottom 10% of historic levels for this stage in April.

At the same time, security of supply risk is elevated with gas supply constrained and some of New Zealand’s thermal generators nearing end of life and therefore more prone to faults.

Ms Bramley said Transpower continues to emphasise the need for the market to continue to co-ordinate early to increase the energy buffer heading into winter 2025.

“This is essential for diversifying risk away from reliance on hydro storage, and to insure against other factors such as unplanned outages to key generation assets,” she said.

“A system-wide response is underway, including continued focus on managing hydro storage levels and securing alternative fuel supplies such as coal, gas and diesel.”

Submissions on the SOSFIP issues paper and Transpower’s summary and response are on Transpower’s website. 
 

Notes:

Security of Supply Forecasting and Information Policy (SOSFIP)

The SOSFIPis a system operation document approved by the Electricity Authority and incorporated by reference into the Electricity Industry Participation Code. The SOSFIP describes how Transpower as the System Operator prepares and publishes information to assist participants to manage security of supply risks.

The Authority is responsible for over-arching market design under which the SOSFIP sits and must approve any changes to it consistent with its statutory objective. It is the role of Transpower as the System Operator to operate the SOSFIP, and the System Operator must comply with the SOSFIP that is current at the time. The SOSFIP addresses physical supply risks and does not consider price impacts.

The current SOSFIP can be found on the Authority’swebsite. 

Transpower focus on security of supply

The Government Policy Statement on Electricity released on 1 October 2024 supports the SOSFIP framework by making clear that Transpower has no authority in its system operator role to shield participants from commercial risk if they don’t hedge against dry year risk.

Transpower’s reporting framework under SOSFIP is focused on security of electricity supply and it has no ability to set or control wholesale electricity prices.

Prices are a matter for the market and reflect generators’ commercial decisions, including how much fuel to stockpile, when to use it, and what to charge for it. Fuels include water in hydro lakes, thermal fuels like coal and gas, as well as the number and location of wind, solar and geothermal generators across the country.

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