Security of Supply

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Draft Government Policy Statement on Electricity Governance (Released 12 March): Summary of and Comment on Submissions

[ Last Updated 22 July 2008 ]

Submission	Officials' Response
Contact – agrees with the new approach to security of supply as outlined. Agrees with the additional focus on peak capacity requirements. Notes the pricing rules for Whirinaki will negatively impact on the economics of new plant designed to provide peak capacity to back increasing amounts of wind generation.	Noted. The Whirinaki pricing policy is well established and transparent.
Orion – is encouraged by continued focus on security of supply and in particular the new focus on monitoring peak capacity. Recommends consideration is given to requiring the Commission to consider the potential adverse impact that disaggregation of centralised load management control may have on system security.	Noted.
Joe Schady – Can the Crown ensure the certainty of power supply over the next 50 years?	Addressed in the NZES to the extent government can foresee what the next 50 years will hold.
Meridian – notes paras 58 and 59 of the 2006 GPS have been removed. Meridian submits it is essential that 'reserve energy' is ring fenced to minimise any affect on ordinary investments and that any trading strategies for reserve energy should be publicly available.	Refer para 73. the EC consults and publishes its reserve energy policy and offer strategies (ref paras 61 & 63).
Meridian – notes change in security of supply objective from 1 in 60 dry year standard to winter energy margin.	Noted.
Vector – supports the improved transparency and monitoring of peak adequacy. Supports monitors of balance between demand growth and new generation capacity investment. Believes electricity and gas sectors need to be more closely linked in the development of security of supply policy.	Noted.
Para 54 – KCE – this cuts directly across the market structure which depends on pricing signals for determination of future capacity.	Disagree. Requiring secure supply does not require overbuild or undermining of the market. Economic development requires a secure supply but not at any cost.
Para 54 - Orion - recommends the addition of a new sentence acknowledging that incentives on distribution and transmission companies to invest and innovate must continue and not investment in generation alone.	No change. Covered in distribution and transmission sections.
Para 55 – ENA, Vector – 1^stbullet – add ", including peak demand growth" at end of sentence.	No change. "Demand" is not defined here. Peak demand specifically referred to in para 59.
Para 55 - Transpower – 3^rdbullet appears to confuse need for additional generation capacity with short term energy requirements. Short and long term likely to require different solutions and should be addressed separately.	Noted. The bullet covers both short and long term requirements, but is not confusing.
Para 55 – KCE – 3^rdbullet – depends on adequate pricing signals for economic operation.	Noted
Para 55 – KCE – 6^thbullet – currently very few [consumers] have exposure and then primarily by choice.	Noted
Para 55 – Transpower – supports 4^thbullet on availability of quality information and forecasts as a key requirement contributing to security of supply. However believes should be further expanded to require appropriate incentives to encourage intermittent generators to improve forecasting as wind generation capacity increases.	No change. Directing how and what 'quality information' is obtained is not appropriate for the GPS.
Para 57 – Vector – supports replacement of 1 in 60 dry year standard with winter energy margin conditional on development of further detail on the calculation of the margin.	Noted.
Paras 57 and 58 – Transpower – not clear whether the winter energy margin (replacing 1 in 60 dry year standard) will take proper account of the greater constraint on HVDC southward transfer that will apply until replacement of Pole 1.	Noted. Operational detail will be developed by the EC.
Paras 57 and 58 – Transpower – no specific provisions requiring the Commission to develop arrangements to manage risks to security of supply presented by increases in wind generation capacity. Recommends addition of further paragraph.	EC will need to consider wind variability and contribution to winter margin. Security of supply objectives outlined in paragraph 55.
Para 58 – Transpower – winter energy margins proposed are defined by island. To be consistent with Minzone definition, the definitions should relate to north and south of Bunnythorpe.	This is the outcome of the EC's extensive consultation on the Reserve Energy Policy in 2007. Operational detail will be developed by the EC.
Para 58- KCE –the level should be set as an outcome of the work being carried out by the Commission in the Market Design Review.	This is the outcome of the EC's extensive consultation on the Reserve Energy Policy in 2007. Operational detail will be developed by the EC.
Para 58 - MRP – supports adoption of a mean winter energy margin but concerned how it will be implemented. Suggests objectives in this para be more clearly specified to reduce uncertainty.	This is the outcome of the EC's extensive consultation on the Reserve Energy Policy in 2007. Operational detail will be developed by the EC.
Para 59 – Transpower fully supports requirement on Commission to develop and set security standards for adequacy of capacity to meet peak demand.	Noted
Para 59 – ENA, Vector –important that the standards include reference to power quality and voltage levels.	Voltage and quality standards are performance obligations on the System Operator.
Para 60 – Transpower – as currently worded this is a little cryptic and needs to be clarified. In Transpower's view [previous] arrangements have proved successful and should continue. Recommends para 60, 4^thbullet in para 61 and para 66 should clearly state that the Commission should, wherever possible, implement these requirements through the existing collaborative bodies such as the System operator's National Winter Group and its summer and winter upper North and South Island industry management groups.	No change. This is detail on the process the EC would use, not for the GPS.
Para 60 - MRP – a requirement to consult with stakeholders over assumptions used in Minzone and energy margin could be added here.	No change. Refer paras 61, 68 and 69.
Para 61 – Transpower – previous requirements on the Commission to publish its process for procuring reserve energy and assessing competing offers appears to have been replaced by the 3^rdbullet in this paragraph except the assessment process. Transpower recommends the requirement is re-instated as the Commission operates in a competitive market when procuring reserve energy and the assessment processes should be transparent.	Noted - would expect the assessment process would be part of the procurement policy in the security of supply policy consulted on and published (para 61 3^rdbullet)
Para 63 – MRP – support the greater transparency inherent in the requirement for the Commission to publish protocols to manage potential conflicts between its roles and a contractor for reserve energy and as a regulator.	Replaced 'put in place' with 'have'.
Para 64 – MRP – not clear how the requirement on the Commission fits with the modelling and forecasting work undertaken by MED.	No direct fit. EC work supports their objectives and tends to be more granular.
Para 64 - Vector – given the criticality of the underlying models to supporting robust forecast, there should be a requirement for these models to be subject to regular independent reviews.	Noted - Refer para 64. EC is required to publish detailed models and expect stakeholders would provide views on the outputs.
Para 65 – MRP – has concern with risks around implementation of the winter energy margin. Supports the Commission forecasting out 5 years rather than 3 – 5 to give market the certainty need to make investments before the Commission exercise the option of intervening. - IPENZ – questions whether 3 – 5 years is a long enough period considering the long lead time for construction.	Noted. It is 3 to 5 years and the EC will determine the optimum timeframe. EC can look further out should it wish.
Para 67 – Vector – A well designed capacity mechanism could shift the responsibility for maintaining security of supply from the Commission to the generators/retailers who Vector believes are best placed to manage the risks.	Noted
Paras 68-70 - Meridian – queries whether the section relating to 'Hydro storage guidelines' is reference to work already completed by the Commission on the Minzone ?	Minzone is well established but further development to improved its usefulness is encouraged.
Para 71 – Contact – agrees with the approach to reserve energy.	Noted
Para 73 – Orion – recommends modification to require the Commission to consider the additional benefits that distributed generation could provide in respect of reducing peak capacity constraints and delaying upgrades, when contracting for reserve energy.	No change. Would expect the benefits of distributed generation would be considered in the reserve needs analysis.
Para 74 – Transpower – based on its experience with demand side response through its trial of grid support contracts Transpower recommends the paragraph is redrafted to ensure demand is not committed to other security services such as AUFLS.	No change. Refer para 74. Demand side response is required to be 'practicable' and commitment to other uses would seem to be counter to this.
Para's 78 and 79 – Contact – supports the additional text on emergency management.	Noted.
Para 80 – ENA – add the word "transparent" as the recovery of the levy fairly should be readily verifiable by all levied parties.	No change. Levy calculations are already transparent, published and independently audited.
Para 81 – Contact – notes the dilution of the wording. If the levy does not recover the operating and capital payments less revenue the taxpayer picks up the difference.	Noted

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Printed: 26/11/2009