Objective 2: Security of electricity supply
Ensuring the lights stay on (affordably) is fundamental to the Strategy. This section is aimed at maintaining the long-term reliability and robustness of the electricity system in the face of growing demand, as new generation sources enter the grid from new locations and as greater levels of intermittent sources, such as from wind generation, are added. There is also the ongoing task of improving the efficiency of electricity system operations.
The Electricity Commission is responsible for the regulatory oversight of the electricity industry and for the operation of the electricity system and markets, and as such is the key government entity with responsibility for electricity supply security. This section primarily reports on key elements of the Electricity Commission's ongoing work programme for the eight months since the Strategy was launched.
This section reports on chapter 8 of the Strategy and on 5.1 of the NZEECS (promoting an efficient electricity system).
2.1.4 Aim and indicators
Aim: That New Zealand maintains a secure electricity supply at competitive prices, through a well-functioning market operating within a well-defined regulatory environment enabling efficient investment, competition and informed consumer choice, and the provision of appropriate back-stop measures.16
The Electricity Commission's role is to ensure supply security and system stability. It has developed a set of indicators to monitor various aspects of security of supply, including the extent of the diversity of the generation mix, energy supply margins, national grid reliability, distribution network reliability and retail market competition. These indicators are available to view in the Commission's statement of intent, so are not reprinted here.17
Short-term supply levels: New Zealand experienced a drought in the early months of 2008, resulting in a ‘dry year' electricity supply situation, where the South Island hydro storage was low. This situation was managed by the electricity industry and the government following protocols developed over the past few years. Short-term management of supply and demand, while relevant, is not the focus of the Strategy, which is on the longer term structure and performance of the electricity system to 2050.
The Electricity Commission website hosts ongoing surveillance information on the status of the hydro storage lake levels and thermal fuel supply for electricity. The information is available at the Electricity Commission website.
2.1.5 Activity
The key new challenge for the Electricity Commission in implementing the Strategy has been to ensure the electricity system can reliably integrate greater proportions of renewable generation to meet the target of 90% of electricity from renewable sources.
Transmission to enable renewables:18 Because new renewable electricity generation projects are often remote from existing major transmission lines, investment in new transmission may be required, and timed appropriately, to enable some projects to proceed. To facilitate the coordination of renewable and transmission investment, the Electricity Commission investigated potential locations of new renewable generation and the transmission investment required to support them. The Transmission to Enable Renewables project published a major report containing a 'resource map' of possible wind, hydroelectric, and geothermal generation locations on 11 July 2008.
Integrating more wind generation into the system:19 Wind power can only be produced when the wind blows, not on demand. In March 2008 the Electricity Commission completed a two-year review of market arrangements to manage higher levels of intermittent wind power entering the electricity system. In the 2008/09 year (and beyond) it will implement the review recommendations.
Major review of electricity market design:20 To ensure the market arrangements for the regulated electricity industry deliver fair costs to all consumers and maintain competitiveness, the Electricity Commission reviewed the performance of the electricity market in 2007 and 2008. It consulted with industry and consumers, and looked in depth at how the electricity market can be improved. On 8 July 2008 it released the Market Design Review Options Paper suggesting ways to improve outcomes for consumers, particularly focusing on pricing and competition in the retail market, energy affordability and how electricity generators are paid.
Smart meter guidelines:21 The Electricity Commission released its policy on ‘advanced metering' and guidelines for companies who intend to install smart meters. The policy recognises that smart meter technology has the potential to provide consumers with detailed information about their electricity use (and potentially enable ‘peak' and ‘off-peak' prices), which could encourage consumers to shift their electricity use away from peak times. The guidelines include provision of open operation of systems so that the meters are still operational if consumers switch retailers, and provision of customer displays.
A more efficient electricity system:22 The Electricity Commission completed a comprehensive investigation into the electricity reconciliation system (the process of matching wholesale purchases and retail sales and allocating unaccounted for electricity). It has brought in new reconciliation rules and rebuilt its reconciliation manager and registry systems, which account for electricity flows from generators to retailers. The result is a more efficient and effective electricity market, with simpler rules, greater transparency and better incentives for market participants to reduce unaccounted for electricity. This project was initiated in 2002 and was completed in the early months of 2008.
Electric vehicles: The Electricity Commission also has begun to investigate what system changes will support the supply of electricity to electric vehicles in the future.
The government has issued updated government policy statements on electricity governance and gas governance to require the Electricity Commission and Gas Industry Company (the regulatory body for gas) to align to the Strategy. Also:
- The government has decided that lines companies will be obliged to continue to supply electricity to all remote locations that were connected to the main grid in 1993, after 2013 (this will require a change to the Electricity Act).
- The Electricity Commission's 2008-2011 Statement of Intent, issued in June 2008, reflects the changes to the government policy statement and clearly identifies projects that contribute to delivery of the Strategy.
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