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The Future Of Electricity Generation In New Zealand

Part 1 The Market

The NZ Electricity market is a bit different to other electricity markets around the world. We operate in a single time zone, and unlike almost all other markets we cannot share generation with other time zones. Here most people arise each morning within a short period of time, say 6:00 am to 8:00 am; the work day begins between 7:30 and 9:00; lunch is between 12:00 and 2:00; most finish work between 430 and 6:00; Dinner is anywhere between 5:00 and 8:00; and people start drifting off to bed around 10:00 to 11:00 pm.

Overnight national demand may be as low as 3000 MW, over the morning peak it may rise as high as 6000 MW with most of this demand coming on within a 2 hr window. Mid-afternoon it can drop down to 4500 MW, climbing again to 5000 in summer or 7000 in winter. This pattern is well known and understood, and as a result demand can usually be covered with existing generation. Because we are in a single time zone the electricity supply has to follow that same pattern. Whereas in a larger market such as USA, the overnight trough on the west coast is balanced by morning peak in the mid-west, while the Eastern Time zones are in the afternoon trough. Thus USA does not see a 100 - 120% swing from times of low demand to times of high demand, but barely a 25% swing. Europe is even better and hardly sees any peaks at all.

Because of this volatility in NZ, our market works on 48 half hour trading periods with all generators offering their generation into the market in up to 5 tranches. These tranches are at a price for X MW, a higher price for the Y MW, and an even higher price for Z MW etc. for each half hour throughout the day. All generation offers are laid one on top of the other to form a price stack with lowest priced generation at the bottom of the stack and highest priced generation at the top of the stack.

Demand at most locations, called Nodes, is estimated by Transpower, but at some nodes with large loads, called non-conforming nodes, the demand is bid for. At the point that offered generation quantity meets demand quantity, the price is set by that offered generation for that half hour. All generation offered at prices below the discovered final price receive that price. Actual prices are calculated every 5 minutes to enable Transpower to dispatch changes to generation in a dynamic fashion, and this is where wind generation gets treated differently to other forms of generation. Once dispatched All generators, except for wind, must comply with that dispatch to within 5 MW or 5% of their dispatch, whichever is lower, and generators that fail to comply are likely to be penalised by the EA. Wind has a dispensation from that requirement, and only has to offer their best estimate, but with no penalty for failing to meet it. Wind also gets to offer all of their generation at $0.01, so will be dispatched in preference to other forms of generation.

Different types of generation have different characteristics that helps to determine their offer price and where they will fall in the stack.

Part 2 will follow next week

This article was submitted by one of our members - Jantar

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The Future of Electricity Generation in New Zealand

Part 2 Our Sources of Generation

Geothermal, is NZ's equivalent to nuclear. It is brought on load, raised to maximum output, and left there. Trying to reduce generation on geothermal plant is not just a matter of reducing the steam going through the turbine, The wells in the steamfield also have to be reduced in flow, and this results in silica and other solids blocking the pores of the well, and means that a well that has been reduced in steam flow, will not come back up to full production. Geothermal is offered at either $0.00 or at $0.01, so it is always first dispatched.

Run of river Hydro is next. Usually RoR hydro has a small amount of storage in its head ponds, but if not utilised in a short time it will be spilt, so this is usually offered at a low price in 2 tranches. First tranche at a few cents as this is water that will be spilt if not used now, and the second tranche at around the Short Run Marginal Cost (SRMC). For South Island hydro plant the SRMC also includes the cost of the HVDC Cook Strait Cables.

Gas fired Generation has to nominate its gas requirements to the gas market a week ahead, then confirm that requirement with adjustments a day ahead. That gas then effectively becomes take or pay. There are huge penalties for not using it, but at times more gas can be purchased at a higher price at short notice, 4 or more hours ahead. Therefore committed gas generation is offered at a low price, while that extra gas is offered at either SRMC if a company is short in its generation book or at a higher price if long.

Stored Hydro generation, or hydro that uses water from storage lakes, is usually priced in such a way to make a company neutral in its portfolio, with additional water from headponds being priced at its scarcity value. Often this water must be released from lakes into canals or rivers many hours before it is needed. In the case of Hawea water it is 12 - 24 hours lead time before the water can be used at Clyde. For the Pukaki Canals it is around 4 hours lead time. Water from Taupo can be used at Aratiatia within 3 hours, but it is another 12 hours before it is available at Ohakuri, and almost 24 hours later before it finally passes through Karapiro.

Then there is wind. Cheap to generate, and unpredictable. At times we have seen wind differ from its offered amount by over 200 MW. When it is down by that amount where do we get the extra generation from? It is unlikely to be from gas as that gas had to nominated and bought the day before. So that leaves hydro headponds at whatever that scarcity value is. When the wind ends up stronger than forecast then once again gas cannot back off without risking penalties, so it is hydro that has to accommodate that wind generation. This is OK for short periods and small amounts, but if it is a large amount and headponds are full then hydro will spill water. This has happened a number of times in recent years.

Therefore the best mix for wind is where it can be closely matched with hydro generation that has lots of storage, and no or little lead time. A perfect example is White Hill wind with Manapouri generation, or Mahinerangi wind with Waipori generation.

Part 3 will follow next week

This article was submitted by one of our members - Jantar

If you'd like to comment on it ... click here

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