New Zealand & AustralianWholesale Electricity Markets

A Comparative Review

Dr Ralph Craven Transpower NZ Ltd

NZ &Australian Wholesale Electricity Markets

• Summary– Background to Markets– Market Characteristics– Market Outcomes– Current Market Issues

Market Development - Background

AUSTRALIA NEW ZEALAND

Industry Reform Initiated

1991 Council of Australian Governments formed National Grid Management Council

1987 SOE’s formed, programme of separation and deregulation initiated

Electricity Markets Commence

1998 National Electricity Market created. NEMMCO market management company and NECA (National Electricity Code Administrator) created.

1995 New Zealand Electricity Market commences. Further separation of Supply, Transmission and Retail/Distribution

ACCC & NECAInitial Regulatory StructureCommerce Commission – competition regulator

NZEM – industry regulation

Transpower – common quality and system security

Regulatory Structure 2007

AER – Aust Energy Regulator

AEMC –Aust Energy Market Comm

ACCC

Commerce Commission

EC – Electricity Commission 2004

Australia- NEM

20 million (18m)

195 TWh

28 GW peak

92 Power Stations

28 Network Providers

37 Market Customers

19 Specials

6 Traders

New Zealand -WEM

4 million population

38TWh

6900 MW peak

43 Power Stations

3 Transmission Co’s

28 Distribution Co’s

7 RetailersSource NEMMCO Source Transpower

Wholesale Electricity Markets – Australia and New Zealand

Market Characteristics – New Zealand

Generation9 Generation Co’s: 3SOE (60%), 5 public co

Dispatch

Gross Pool

LMP with 180 market nodes

2 sided market bids from supply and demand

Uncapped ex post price

Losses, tx constraints, security constraints and ancillary services co-optimised

Transmission

4 Ancillary Services: Instantaneous Reserves, Frequency Keeping, Black Start, Overfrequency

Ancillary Services

Open Access to transmission. Capacity allocated in Security Constrained Economic Dispatch

28 Distribution Co’s, permitted own generation not retail Distribution

RetailLargely vertically integrated with Generators

Market Characteristics – Australia

Generation62 Generation Co’s in 5 States

Dispatch

Gross Pool

Zonal LMP with 6 nodes

1 sided market bids from supply

Ex ante price for 30 min trading period based on 5 min dispatch. Price cap at VOLL $10k

Fixed losses and heuristic constraints applied

Transmission

8 Frequency Control Ancillary Services Markets (4 Raise/4 Lower - at 6,60 sec and 5 min)

Ancillary Services

Open Access to transmission. Capacity allocated in Security Constrained Economic Dispatch

Distribution

Retail

Open Access distribution

Full Retail competition initiated

Supply Reliability

Market Outcomes – New Zealand

Transmission Investment

11 years of market operation – no failure of market to supply. Includes 3 dry years. Supply margin reduced – July 2007 close to curtailment.

Market has delivered no Tx investment. With Regulator TransmissionInvestment regime outside market. Significant Investment plannednext 10 years.

Generation Investment Generation Investment has been left to Market for last 10 years. 19 generation projects delivering 2038 MW completed.

Spot Prices/Consumer Prices

After 11 years no active forward market has developed. 70% of load is hedged through vertical integration of Generator/Retail businesses.Availability of forward contracts questioned

Intermittent and RenewableGeneration - Wind

Open access to Market dispatch as price taker with load forecast and dispatch control conditions. Build to 2007 modest (170 MW),Proposed build 1700MW introduces security concerns.

Spot price of energy 25% of consumer price. Early market belowSRMC at $40/MW now set at $50-$60.

Forward/Hedge Markets

NZ Electricity Market - Average Weekly Spot Price

0.0

50.0

100.0

150.0

200.0

250.0

Oct-96 Oct-97 Oct-98 Oct-99 Oct-00 Oct-01 Oct-02 Oct-03 Oct-04 Oct-05 Oct-06 Oct-07 Oct-08

$/M

Wh

Hay

war

ds

2007

Installed 7 projects170 MW

Planned 12 projects1760 MW

Supply Reliability

Market Outcomes – Australia

Transmission Investment

9 years Market operation. Plant availabilities increased (93% cf 84%Pre market).

Market does not manage Transmission investment regime.

Generation Investment Generation Investment has been left to Market for last 10 years. Significant investment required next 10 years.

Spot Prices/Consumer Prices

OTC bilaterals are common risk management tool. Not part of NEM Governance. Brokers trade 6 standard contracts. Active forwardMarket.

Intermittent and RenewableGeneration - Wind

Open access to Market dispatch as non scheduled generators. Modestbuild to 2007 (617 MW), Proposed build 6000 MW introduces securityConcerns that must be resolved.

NSW and Vic spot prices very low in early years of market. SA and Qsld higher. Recent prices compare across all states and show increases.

Forward/Hedge Markets

NEM Regional Reference Price

0

50

100

150

200

1/11/98 1/11/99 1/11/00 1/11/01 1/11/02 1/11/03 1/11/04 1/11/05 1/11/06

date

$/MW

NSW

QSLD

SA

VIC

TAS

Intermittent Generation –Australia

QSLDInstalled 3 projects 12MWPlanned 4 projects 176 MW

NSWInstalled 4 projects 17MWPlanned 18 projects 1080 MW

VICInstalled 7 projects 134 MWPlanned 23 projects 2380 MW

SAInstalled 7 projects 387 MWPlanned 20 projects 1868 MW

TASInstalled 6 projects 67 MWPlanned 5 projects 395 MW

NEM 2007Installed 27 projects 617 MWPlanned 70 projects 5899 MW

Current Market Issues – New Zealand

• Market Design Review– Risk Management options – no financial markets– Transmission alternatives– Capacity Margin – optimal generation mix– Market Information

• Transmission Investment• Forward Price Market• Security of Supply

Current Market Issues - Australia

• Retail Market Competition• Congestion Management• Comprehensive Reliability Review