Editor’s Pick | Real-time pricing approved for NZ spot market

This article was originally published on 31 July 2019 in Energy:2030.

The New Zealand Electricity Authority (EA) has decided to settle the spot market on prices determined in real-time (RTP).

In its decision, issued on 27 June, the EA said this is the largest change to the wholesale spot market since its inception in 1996 and will make the spot market simpler, as prices will now be driven directly by live conditions on the power system. It follows a consultation in 2017 on the design elements, and a further consultation in March this year on specific elements, including a “dispatch lite” process for smaller generators and suppliers.

The reform targets two problems with the current arrangements:

  • spot prices are first calculated the day after real-time using different inputs, with final prices confirmed the day after that, and
  • spot prices published up to and during real-time are only indicative such that large differences can arise, especially when the power system is under stress.

This means that spot prices are uncertain, making it harder for parties to make efficient real-time decisions on electricity purchases or sales.

Under the revised arrangements, dispatch prices for energy and reserve will be derived from the marginal generator offer or dispatchable demand bid each time the system operator issues new dispatch instructions, instead of a more “idealised” dispatch calculated in hindsight. The interim price for a trading period will be the time-weighted average of the set of dispatch prices during each 30-minute trading period for each node, and the price is expected to be issued seconds after the trading period ends.

The EA considered, but rejected, volume rather than time-weighting the prices, as this could cause substantial price differences between reference nodes and those in the surrounding electrical region in otherwise similar conditions. This could become problematic for risk management contracts such as contracts for difference and financial transmission rights, which are tradeable in NZ’s nodal pricing system.

The EA said generators may not need to change their systems substantially, as offering and dispatch are broadly the same as currently, except for reoffering within a trading period. However, dispatchable demand participants will need to establish an interface to the system operator’s dispatch service, to receive electronic dispatch instructions in real-time, and update their processes to use those dispatch instructions.

Dispatch lite, available for generators up to 30MW and demand (no maximum capacity but it must be approved by the system operator), will be implemented. The differences from the standard arrangements are that this capacity can refuse dispatch instructions, can withdraw from the dispatch process and become a price taker, but does not receive constrained on or off payments.

RTP will be implemented in stages over the next four years, and the EA stressed ongoing dialogue between it, service providers and participants will be vital.

Once RTP goes live in late 2022, the EA expects it will produce Net Present Value benefits of NZD$50mn (£27mn) over 15 years under the base case assumptions, with upper and lower cases at NZD$95mn (£51.4mn) and NZD$15mn (£8.1mn), respectively.

The EA said more actionable and reliable prices send clearer signals for efficient long-term investment, and improved price signals will remove barriers and promote uptake of new technologies and business models.

This important and sensible reform is designed to make spot prices more actionable and efficient. It is also expected to enable more active participation of the demand-side. Issues around the reliability of indicative prices and ex-post adjustments are, of course, relevant in GB.

Electricity Authority

Related thinking

Low carbon generation

Our Renewables Pipeline Tracker: In with the new – scoping projects and progression through planning stages

Our latest Renewables Pipeline Tracker was published on 11 June, and this blog provides a summary of some of the recent developments in our coverage of the pipeline for new build and repowering renewables assets in GB. What’s new? Seabed leasing rounds, scoping projects and CfD announcements Since our previous...

Commercial and market outlook

The PM’s 10-point plan: Further thoughts from our Energy Spectrum webinar

In our regular Energy Spectrum webinar on Tuesday 24 November, Senior Writer Nick Palmer and Head of Relationship Development Robert Buckley discussed the government’s 10-point plan for a green industrial revolution. They considered what has led to this point, what is in the plan, what the reaction was to it...

Low carbon generation

Renewables Pipeline Tracker: Higher, faster, stronger – the changing nature of offshore wind

Having released our October 2020 Renewables Pipeline Tracker report, which covers the latest developments for pipeline renewables sites across GB, this blog explores our recent findings on the pipeline and in particular offshore wind. The Renewables Pipeline Tracker is updated quarterly and includes information across over 1,000 prospective renewables sites...

Home supply and services

COVID-19-driven changes to electricity Third Party Charges

The impact of COVID-19 on the energy sector has been a hot topic for the last few months. As we progress further into the UK’s lockdown period we are now beginning to piece together the wider picture of effects across energy Third Party Charges (TPCs). These impacts are expected to...

Low carbon generation

FiT costs to reach all-time high amid COVID outbreak

Energy Third Party Charges (TPCs) have certainly been in the limelight recently, and rightly so as less consumption from non-domestic sectors is resulting in a greater recovery of money from domestic households amid the COVID-19 outbreak. Several measures have been taken to date to protect domestic suppliers and consumers from...

Commercial and market outlook

BEIS opens consultation on CfD payment deferral

BEIS launched a consultation on a proposal to defer to Q121 part of the increase in electricity suppliers' obligations for Q220 for the Contracts for Difference (CfD) scheme. Launched on 12 May, the consultation is a follow up to the decision BEIS took on 24 April to provide a one-off...

Home supply and services

From “what if?” to “what now?”

As the UK begins its third week of lockdown, the nation’s energy sector continues to wait to see whether there will be any economic or financial support targeted specifically at end users, suppliers, network operators and fellow participants alike. Immediate issues for end users include their ability to pay their...

Low carbon generation

Lessons from a lock down

We are all facing a new, simpler existence. For my part, I have been self-isolated for three weeks. My little flat in central London has become almost my entire existence, my days have settled into a simple routine, and I've had plenty of time to reflect. Although COVID-19 presents an...