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.

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The Real Future Of Electricity Generation In New Zealand

Part 3 The Solution?

Transpower has forecast a doubling in demand within 30 years. While at first glance that may seem to be a rather dramatic increase it is only 2.5% per annum compounded. There are very few hydro opportunities left in NZ, gas reserves are dropping rapidly, and the political climate is unlikely to allow any more coal fired generation, so the only way to meet that increased demand will be from Wind and solar generation. If the 690 MW of installed wind generation that NZ currently has is starting to upset the electricity market, then adding a further 7000 MW or more to the mix will be unacceptable. Not only will it cause financial waves, but the NZ grid just will not be able to handle the resulting swings in generation, and blackouts will be likely.

The solution to this dilemma is large scale Hydro Pumped Storage schemes such as has been proposed for Onslow. Pumped storage can pump water from a lower reservoir to an upper reservoir when there is excess wind generation, and reverse the flow to generate with that same water when there is no wind.

Possible sites for Pumped Storage are fairly limited. They require a large water source at the bottom of a hill and a large reservoir or lake at the top of the hill. Onslow fits the bill here as there is a small lake but with a large water flow at Roxburgh and another lake, that is capable of being enlarged at Onslow. This arrangement would allow for a very large storage scheme that would more than double NZ’s current hydro storage. The size of Onslow scheme would safely allow for a further 2400 MW of wind generation.

Another South Island site is at the Neck between Lakes Hawea and Wanaka. It would only have 5% of Onslow’s storage and would be able to buffer around 240 MW of wind generation. The advantage of Hawea is that the two lakes are very close together and would require only a short tunnel. The construction time would also be considerably less than for Onslow.

In the North Island there is a possible site on the Ngaruroro River. It would have around half of the storage capacity of Onslow, and would be able to buffer around 1000 MW of wind generation. It does have the advantage of being in the North Island and hence closer to wind generation sites and to load centres. It also has the disadvantage of environmental and cultural issues, and the engineering aspects would make it quite costly.

To simply meet the future demand of electricity in NZ then wind generation accompanied with large scale pumped storage schemes will be a must within the next 30 years. Add in the government’s desire to decarbonise energy use in NZ and it is needed in the next 10 years. The time to start is now.

This article was submitted by one of our members - Jantar

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