New Zealand electricity market
Transpower is also the System Operator, responsible for ensuring real time electricity supply security and quality.
Some major industrial users are directly connected to the grid, such as New Zealand Steel and the Tiwai Point Aluminium Smelter.
[9] The highest-priced bid offered by a generator required to meet demand for a given half-hour sets the spot price for that trading period.
Final prices at each node, taking account of grid losses and constraints, are processed and confirmed the following day.
Trading develops by bids (purchaser/demand) and offers (generator/supply) for 48 half-hour periods for each pricing nodes on the national grid.
Up to four hours (pre-dispatch) before the trading period starts a new forecast price is calculated to guide participants in the market.
One hour before the start of the trading period bids and offers can no longer be revised (with some exceptions) and the new prices reflect Transpower's adjustments in load forecasts and system availability.
In 2009, the Commerce Commission released a report by Stanford economist Frank Wolak on the ability of the four largest electricity suppliers to exercise unilateral market power in the wholesale electricity market and the economic rents (any payment in excess of the cost of production) that may have resulted.
[12][13] Using empirical industrial organization techniques, Wolak estimates these rents to be $4.3 billion over the 7 years he studied when compared with a perfectly competitive market.
[14] His report was criticised for aspects of its methodology, with the Electricity Technical Advisory Group (ETAG), Ministry of Economic Development, claiming that there is no evidence of the sustained exercise of market power.
Rex Ahdar, University of Otago, later opined that competition law in New Zealand is inherently ill-suited to tackling a network industry such as electricity.
[16] An agent-based model (ABM) developed at Auckland University was used to analyse the New Zealand wholesale electricity market.
[18] There have been long-standing concerns about the potential for market abuse under nodal pricing, particularly when the transmission system becomes congested.
[20] The Electricity Authority declared a UTS (undesirable trading situation) and subsequently dropped the final price to $3000/MWh (€2000/MWh).
[21] The Electricity Authority decision was challenged and the High Court of New Zealand found in favor of the regulator.
The government has increased the extent of intervention through the Electricity Industry Reform Act 1998, which forced power companies to divest either their energy or their lines business.
The result put paid to the prospect of a multilateral agreement on the governance and operational arrangements for the electricity market.
In September 2003 a revised set of draft rules and regulations was issued by the ECEU for submissions by the end of October.
The final chapter of the Electricity Governance Rules, on transmission, was gazetted on 28 April to become effective on 28 May 2004.
[23] One of the key recommendations approved by Cabinet was the transfer of ownership and operation of some power stations between Genesis Energy and Meridian Energy in order to increase retailer competition in both islands and to give Genesis a South Island generating base.
[26] The government responded by calling it "economic vandalism", comparing it to the Soviet Union,[27] but Greens co-leader Russel Norman said it would boost the economy and create jobs.
[28] By the following day, shares in privately owned power company Contact Energy had fallen by more than 10 percent.
The current legislation (Electricity Industry Reform Act 1998) prevents the ownership of cross-sector investment (that is energy and lines functions).
The generation and retail companies use this vertical integration as a natural hedge to manage risks associated with volatility of the spot market.
These five companies have now extended their risk management strategy further by aligning their retail and generation businesses to the same geographic locations.
