Interactive Electricity Generation Cost Model

This model is an interactive tool designed to provide users with insights into the potential costs of new generation, and the uncertainty surrounding these costs when key assumptions such as fuel prices, emissions price, exchange rates, etc. are changed.

The projects are ranked from cheapest to most expensive based on their estimated “Long run marginal cost” (LRMC). LRMC is the wholesale price a generator needs to earn, on average, in order to recover capital and operating costs and earn an economic return on investment.

The model also explores how future demand growth might be met. It assumes the cheapest projects are selected first and that sufficient plant must be available to meet both energy demand and peak demand.

Note that this model is illustrative only and does not represent a complete list of all possible future generation projects.

This is a simplified version of that used in the 2009 Energy Outlook. The Energy Outlook uses a more complicated approach using the Electricity Commission’s “GEM” optimisation model to determine the least cost build of new generation. More information on the GEM model can be found on the Electricity Commission’s website at
http://www.electricitycommission.govt.nz/opdev/modelling/gem/index.html.

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