New Zealand Electricity Market
Encyclopedia
New Zealand
's electricity market
is regulated by the Electricity Industry Participation Code administered by the Electricity Authority (NZ)
. The Authority was established in November 2010 to replace the Electricity Commission (NZ)
and its publication Electricity in New Zealand explains how the market works.
, transmission
, distribution
, and retailing
. Since then, a step-by-step process of industry reform has led to the separation of the monopoly elements from the contestable elements to create competitive markets in energy generation and electricity retailing, while imposing regulation on the natural monopolies of transmission and distribution.
Currently the market is split into the following areas: administration and market clearing, regulation, generation, transmission, distribution, and retailing.
The wholesale market for electricity operates under the Electricity Industry Participation Code, and is overseen by the market regulator, the Electricity Authority
. Trade takes place at more than 200 pricing nodes across New Zealand. Generators can make offers to supply electricity at grid injection points, while retailers and some major industrial users make bids to withdraw "offtake" electricity at grid exit points. The market uses a locational marginal pricing auction which takes generators’ offers and retailers’ bids, and computes final prices and quantities at each node. The auction is re-run every half hour.
The Authority contracts out the services required to run the electricity market. The Reconciliation Manager, who reconciles all metered quantities, Pricing Manager, who determines the final prices at each node, and Clearing and Settlement Manager, who pays generators for their generation at the market clearing price and invoices all retailers for their offtake, are all contracted to NZX - the New Zealand Exchange, who acquired the previous service provider M-Co in June 2009. The grid operator is Transpower
, a state-owned enterprise responsible for ensuring electricity supply security and quality. Transpower also takes on the roles of scheduler, predicting likely demand to help generators make bids, and dispatcher, in charge of matching demand and supply in real time.
Distribution of electricity from the grid exit points to the end consumers' premises is the responsibility of 28 distributors who have monopoly control of the lines services on their networks. Ownership of distributors, also known as lines companies, is through trust-owned companies and public companies. Some major industrial users are directly connected to the grid, such as New Zealand Steel
and the Tiwai Point
Aluminium Smelter.
As of October 2011, there are five major generators in New Zealand: Meridian Energy
, Genesis Power, Mighty River Power, Contact Energy
, and TrustPower
. These five together produce about 95% of New Zealand's electricity. The first three are state-owned enterprises; the others publicly traded companies. An important feature of the New Zealand market is that all the major generators also own retailing arms. The companies are thus commonly known as "gentailers". Retailers purchase electricity from the wholesale market, and on-sell it to consumers. Retailers currently active are: Bay of Plenty Electricity
, Bosco Connect, Contact Energy, Energy Direct
, Empower,Energy Online, Genesis Energy, Just Energy, King Country Energy, Mercury Energy
, Meridian Energy, Nova Energy, Powershop
, Simply Energy, Pulse Energy, Tiny Mighty Power and TrustPower.
Most of the retailers are linked to generating companies or have common ownership. For example Empower is backed by Contact Energy, Powershop is owned by Meridian Energy, Bosco Connect is a brand owned by Mighty River Power, Energy Online is owned by Genesis Energy, Mercury Energy is owned by the generator Mighty River Power, and Nova Energy and Bay of Plenty Energy have common ownership. Not all retailers supply to all locations, for instance Bosco Connect only supplies to Auckland inner-city apartments. Competition for retail customers varies across the country but since 1999, when full retail competition was introduced, customers have switched at a rate between 9% and 14% per annum.
.
The market operation is managed by several service providers under agreements with the Electricity Authority (NZ)
. The physical operation of the market is managed by Transpower
in its role as System Operator
.
Generators submit offers through a Wholesale Information and Trading System (WITS). Each offer covers a future half-hour period (called a trading period) and is an offer to generate a specified quantity at that time in return for a nominated price. The System Operator (Transpower) uses a scheduling, pricing and dispatch (SPD) system to rank offers, submitted through WITS, in order of price, and selects the lowest-cost combination of resources to satisfy demand.
The market pricing principle is known as bid-based security-constrained economic dispatch with nodal prices.
The highest-priced generator actually required for a given half-hour sets the spot price for that trading period.
Electricity spot prices can vary significantly across trading periods, reflecting factors such as changing demand (e.g. lower prices in summer when demand is subdued) and supply (e.g. higher prices when hydro lakes and inflows are below average). Spot prices can also vary significantly across locations, reflecting electrical losses and constraints on the transmission system (e.g. higher prices in locations further from generating stations).
Trades take place at approximately 285 nodes (grid injection points and grid exit points) across New Zealand every half-hour. Generators make offers to supply electricity at 59 grid injection points (GIPs) at power stations, while retailers and major users make bids to buy electricity at 226 grid exit points (GXPs) on the national grid.
Final prices at each node, taking account of grid losses and constraints, are processed and confirmed the following day.
All electricity generated is required to be traded through the central pool, with the exception of small generating stations of less than 10MW. Bilateral and other hedge arrangements are possible, but function as separate financial contracts. Trading develops by bids (purchaser/demand) and offers (generator/supply) for 48 half hour periods for each pricing nodes on the national grid.
Bids and offers start 36 hours before the actual real-time consumption or ‘trading period’. Up to 4 hours (pre-dispatch) before the ‘trading period’ starts a new ‘forecast price’ is calculated to guide participants in the market. From four hours to the start of the trading period every half hour a ‘dispatch price’ is calculated and communicated. Two hours 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.
During each half hour period Transpower publishes a new real-time price every five minutes, and a time-weighted 30-minute average price. The real-time prices are used by some large direct-connect consumers to adapt their demand. The above prices are however guidelines only as the ‘final prices’ are calculated ex-post (normally noon the following day, unless there are irregularities or disputes) using the offer prices as established two hours before the ‘trading period’ and volumes as established during the ‘trading period’. Differences between forecast, dispatch, real-time and final prices can be significant.
to exercise self-regulation. The normal regulatory legislation such as the Companies Act, Electricity Act, Resource Management Act 1991, Commerce Act 1986
, and Fair Trading Act 1986
provide the framework for regulating normal commercial and environmental transactions.
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, and the Electricity Amendment Act 2001. The latter led to another round of industry reform concentrating on achieving better governance
of the electricity market and tighter control of monopoly functions. The "threat of regulation" was extended to the production of a set of regulations that would be brought into effect if the industry's self-regulation did not meet the Government's criteria.
On May 16, 2003 the result of a referendum
by industry participants and customer representative
s on a proposed set of self-regulating rules was announced:
As there was not a substantial majority of all classes in favour of the proposal it was not implemented.
The result put paid to the prospect of a multilateral agreement on the governance and operational arrangements for the electricity market. The New Zealand government invoked the regulations already prepared to meet this contingency. The "threat of regulation" had been insufficient to stave off regulation.
On 2 July 2003 a draft set of Electricity Governance Regulations and Rules was issued on behalf of the Minister of Energy by the Electricity Commission Establishment Unit (ECEU). This set was for consultation purposes and after submissions were received and reviewed, a set of regulations and rules was recommended to the Governor-General.
In September 2003 a revised set of draft rules and regulations was issued by the ECEU for submissions by the end of October. The set did not include proposed transmission regulations, which were still being drafted. Also in September the Minister of Energy announced the chair and members of the Electricity Commission. Roy Hemmingway, whose most recent position was chairperson of the Oregon
Public Utility Commission in the USA, took on the role as chairperson of the Commission.
The final set of Electricity Governance Regulations and Rules (excluding rules for transmission) became effective on 1 March 2004. The final chapter of the Electricity Governance Rules, on transmission, was gazetted on April 28 to become effective on 28 May 2004.
A Ministerial Review of Electricity Market Performance was initiated on 1 April 2009 and led by an independent Electricity Technical Advisory Group, appointed by the Minister for Energy and Resources, with assistance from officials from the Ministry of Economic Development. There were 29 recommendations arising from the review.
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. It was decided that Genesis would receive the Tekapo A and Tekapo B hydroelectric power stations from Meridian, and Meridian would receive the Whirinaki Power Station
from the government (although Meridian eventually declined to accept). The transfer of Tekapo A and B was completed on 1 June 2011.
On 1 November 2010, the Electricity Authority commenced operations, taking over from the Electricity Commission.
, regulation
, generation
, transmission, distribution
and retailing.
The current legislation (Electricity Industry Reform Act 1998) prevents the ownership of cross-sector investment (that is energy and lines functions). This means a generation company cannot own or have an interest in a distribution company and a distribution company cannot retail electricity or deal in electricity hedges. There are two exceptions to the regulations: generation companies can own the lines required to transport electricity from their power stations to the grid or local distribution network; and distribution companies can own a small amount of conventional generation capacity within their network but are not limited in the level of renewable generation capacity. There is no barrier to vertical integration from generation to retail. The overall arrangement of the industry creates some very interesting market behaviour amongst the players.
First of all, generation is dominated by five companies: Meridian Energy
, Contact Energy
, Genesis Power, Mighty River Power, and TrustPower
.
, Bosco Connect, Contact Energy, Empower, Energy Direct
, Energy Online, Genesis Power, Just Energy, King Country Energy, Mercury Energy, Meridian Energy, Nova Energy, Powershop
, Todd Energy
, Simply Energy, Mighty River Power, and TrustPower.
Of the electricity retailers, Contact Energy has the largest market share.
is dominated by five companies, which are Meridian Energy, Contact Energy, Genesis Power, Mighty River Power, and TrustPower. These are all active in generation, the wholesale market and retail sales of electricity. These five companies combined produce or control more than 95% of NZ's total electricity generation.
There are a number of smaller companies in the electricity generation industry including WEL Networks
, NZ Windfarms, NZ Energy
, MainPower
and Top Energy.
The retail space is dominated by the five generating companies (Mighty River Power's retail arm is better known as Mercury Energy). The generation and retail companies use this vertical integration
as a natural hedge
to manage risks associated with volatility of the spot market. For example, during a dry year, the high prices in the wholesale market price benefit the generation arm but hurts the retailers who buy at wholesale prices and sell electricity to consumers at fixed prices; when prices are low, the loss of profits in the generation side is offset by the profits in the retail business.
These five companies have now extended their risk management strategy further by aligning their retail and generation businesses to the same geographic locations. For example, the majority of Meridian Energy's generation assets are in the South Island, and that's where their retail strongholds are. Mighty River Power's generation assets are exclusively in the North Island, and Mercury Energy's customer base is also exclusively in the North Island.
New Zealand
New Zealand is an island country in the south-western Pacific Ocean comprising two main landmasses and numerous smaller islands. The country is situated some east of Australia across the Tasman Sea, and roughly south of the Pacific island nations of New Caledonia, Fiji, and Tonga...
's electricity market
Electricity market
In economic terms, electricity is a commodity capable of being bought, sold and traded. An electricity market is a system for effecting purchases, through bids to buy; sales, through offers to sell; and short-term trades, generally in the form of financial or obligation swaps. Bids and offers use...
is regulated by the Electricity Industry Participation Code administered by the Electricity Authority (NZ)
Electricity Authority (NZ)
The New Zealand Electricity Authority is an Independent Crown Entity responsible for the regulation of the New Zealand electricity market.In Authority was established in November 2010, following a government review of the electricity industry, and has a narrower focus on industry competition,...
. The Authority was established in November 2010 to replace the Electricity Commission (NZ)
Electricity Commission (NZ)
The New Zealand Electricity Commission was a government authority set up in 2003 to regulate the Electricity sector in New Zealand.The Commission was established under the Electricity Act to regulate the operation of the electricity industry and markets in accordance government energy policy...
and its publication Electricity in New Zealand explains how the market works.
Overview
Until 1987, New Zealand had a centrally run system of providers of generationElectricity generation
Electricity generation is the process of generating electric energy from other forms of energy.The fundamental principles of electricity generation were discovered during the 1820s and early 1830s by the British scientist Michael Faraday...
, transmission
Electric power transmission
Electric-power transmission is the bulk transfer of electrical energy, from generating power plants to Electrical substations located near demand centers...
, distribution
Electric power distribution
File:Electricity grid simple- North America.svg|thumb|380px|right|Simplified diagram of AC electricity distribution from generation stations to consumers...
, and retailing
Electricity retailing
Electricity retailing is the final process in the delivery of electricity from generation to the consumer. The other main processes are transmission and distribution.- Beginnings :...
. Since then, a step-by-step process of industry reform has led to the separation of the monopoly elements from the contestable elements to create competitive markets in energy generation and electricity retailing, while imposing regulation on the natural monopolies of transmission and distribution.
Currently the market is split into the following areas: administration and market clearing, regulation, generation, transmission, distribution, and retailing.
The wholesale market for electricity operates under the Electricity Industry Participation Code, and is overseen by the market regulator, the Electricity Authority
Electricity Authority (NZ)
The New Zealand Electricity Authority is an Independent Crown Entity responsible for the regulation of the New Zealand electricity market.In Authority was established in November 2010, following a government review of the electricity industry, and has a narrower focus on industry competition,...
. Trade takes place at more than 200 pricing nodes across New Zealand. Generators can make offers to supply electricity at grid injection points, while retailers and some major industrial users make bids to withdraw "offtake" electricity at grid exit points. The market uses a locational marginal pricing auction which takes generators’ offers and retailers’ bids, and computes final prices and quantities at each node. The auction is re-run every half hour.
The Authority contracts out the services required to run the electricity market. The Reconciliation Manager, who reconciles all metered quantities, Pricing Manager, who determines the final prices at each node, and Clearing and Settlement Manager, who pays generators for their generation at the market clearing price and invoices all retailers for their offtake, are all contracted to NZX - the New Zealand Exchange, who acquired the previous service provider M-Co in June 2009. The grid operator is Transpower
Transpower New Zealand Limited
Transpower New Zealand Limited is the state-owned enterprise responsible for electric power transmission in New Zealand. Transpower performs two major functions in the New Zealand Electricity Market...
, a state-owned enterprise responsible for ensuring electricity supply security and quality. Transpower also takes on the roles of scheduler, predicting likely demand to help generators make bids, and dispatcher, in charge of matching demand and supply in real time.
Distribution of electricity from the grid exit points to the end consumers' premises is the responsibility of 28 distributors who have monopoly control of the lines services on their networks. Ownership of distributors, also known as lines companies, is through trust-owned companies and public companies. Some major industrial users are directly connected to the grid, such as New Zealand Steel
New Zealand Steel
New Zealand Steel is a large steel mill located at Glenbrook, New Zealand. It uses a unique method of producing steel from ironsand, abundant on the west coast of the North Island...
and the Tiwai Point
Tiwai Point
thumb|[[Awarua Plain]] , Tiwai Point and [[Bluff, New Zealand|Bluff]] viewed from the [[International Space Station]] in 2008.Tiwai Point lies at the entrance to Bluff Harbour on the southern coast of the South Island of New Zealand...
Aluminium Smelter.
As of October 2011, there are five major generators in New Zealand: Meridian Energy
Meridian Energy
Meridian Energy Limited is a New Zealand state-owned electricity generator and retailer. The company generates the largest proportion of New Zealand's electricity, generating 32 percent of the country's electricity in the year ending 31 December 2009, and is the fourth-equal largest retailer, with...
, Genesis Power, Mighty River Power, Contact Energy
Contact Energy
Contact Energy Limited is a New Zealand electricity generator, natural gas wholesaler and electricity, natural gas, and LPG retailer.The company is the second-largest electricity generator in New Zealand , generating 24 percent of New Zealand's electricity in the year ending 31 December 2009, and...
, and TrustPower
TrustPower
TrustPower Limited is a New Zealand electricity generation and electricity retailing company, listed on the New Zealand stock exchange.TrustPower is New Zealand's fifth largest electricity generator and the fourth largest electricity retailer , serving 260,000 customers throughout New Zealand...
. These five together produce about 95% of New Zealand's electricity. The first three are state-owned enterprises; the others publicly traded companies. An important feature of the New Zealand market is that all the major generators also own retailing arms. The companies are thus commonly known as "gentailers". Retailers purchase electricity from the wholesale market, and on-sell it to consumers. Retailers currently active are: Bay of Plenty Electricity
Bay of Plenty Electricity
Bay of Plenty Energy Limited is an electricity generation and retail company in New Zealand...
, Bosco Connect, Contact Energy, Energy Direct
Energy Direct
Energy Direct is a retailer of electricity and gas in New Zealand. EDNZ is a trading division of the Wanganui Gas Company Limited, which in turn is wholly owned by the Whanganui District Council....
, Empower,Energy Online, Genesis Energy, Just Energy, King Country Energy, Mercury Energy
Mercury Energy
Mercury Energy is the retail operating division of Mighty River Power, a New Zealand State-owned enterprise. It retails electricity and gas to customers, primarily in the North Island of New Zealand...
, Meridian Energy, Nova Energy, Powershop
Powershop
Powershop is a New Zealand state-owned online electricity retailer. Powershop claims to be the first electricity company in the world where consumers can choose between different brands of electrical power listed on the website and switch between them with the click of a button. Different brands of...
, Simply Energy, Pulse Energy, Tiny Mighty Power and TrustPower.
Most of the retailers are linked to generating companies or have common ownership. For example Empower is backed by Contact Energy, Powershop is owned by Meridian Energy, Bosco Connect is a brand owned by Mighty River Power, Energy Online is owned by Genesis Energy, Mercury Energy is owned by the generator Mighty River Power, and Nova Energy and Bay of Plenty Energy have common ownership. Not all retailers supply to all locations, for instance Bosco Connect only supplies to Auckland inner-city apartments. Competition for retail customers varies across the country but since 1999, when full retail competition was introduced, customers have switched at a rate between 9% and 14% per annum.
Wholesale Spot Market
Electricity is traded at a wholesale level in a spot marketSpot market
The spot market or cash market is a public financial market, in which financial instruments or commodities are traded for immediate delivery. It contrasts with a futures market in which delivery is due at a later date...
.
The market operation is managed by several service providers under agreements with the Electricity Authority (NZ)
Electricity Authority (NZ)
The New Zealand Electricity Authority is an Independent Crown Entity responsible for the regulation of the New Zealand electricity market.In Authority was established in November 2010, following a government review of the electricity industry, and has a narrower focus on industry competition,...
. The physical operation of the market is managed by Transpower
Transpower New Zealand Limited
Transpower New Zealand Limited is the state-owned enterprise responsible for electric power transmission in New Zealand. Transpower performs two major functions in the New Zealand Electricity Market...
in its role as System Operator
Transmission system operator
File:Electricity grid simple- North America.svg|thumb|380px|right|Simplified diagram of AC electricity distribution from generation stations to consumersrect 2 243 235 438 Power stationrect 276 317 412 556 Transformer...
.
Generators submit offers through a Wholesale Information and Trading System (WITS). Each offer covers a future half-hour period (called a trading period) and is an offer to generate a specified quantity at that time in return for a nominated price. The System Operator (Transpower) uses a scheduling, pricing and dispatch (SPD) system to rank offers, submitted through WITS, in order of price, and selects the lowest-cost combination of resources to satisfy demand.
The market pricing principle is known as bid-based security-constrained economic dispatch with nodal prices.
The highest-priced generator actually required for a given half-hour sets the spot price for that trading period.
Electricity spot prices can vary significantly across trading periods, reflecting factors such as changing demand (e.g. lower prices in summer when demand is subdued) and supply (e.g. higher prices when hydro lakes and inflows are below average). Spot prices can also vary significantly across locations, reflecting electrical losses and constraints on the transmission system (e.g. higher prices in locations further from generating stations).
Trades take place at approximately 285 nodes (grid injection points and grid exit points) across New Zealand every half-hour. Generators make offers to supply electricity at 59 grid injection points (GIPs) at power stations, while retailers and major users make bids to buy electricity at 226 grid exit points (GXPs) on the national grid.
Final prices at each node, taking account of grid losses and constraints, are processed and confirmed the following day.
All electricity generated is required to be traded through the central pool, with the exception of small generating stations of less than 10MW. Bilateral and other hedge arrangements are possible, but function as separate financial contracts. Trading develops by bids (purchaser/demand) and offers (generator/supply) for 48 half hour periods for each pricing nodes on the national grid.
Bids and offers start 36 hours before the actual real-time consumption or ‘trading period’. Up to 4 hours (pre-dispatch) before the ‘trading period’ starts a new ‘forecast price’ is calculated to guide participants in the market. From four hours to the start of the trading period every half hour a ‘dispatch price’ is calculated and communicated. Two hours 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.
During each half hour period Transpower publishes a new real-time price every five minutes, and a time-weighted 30-minute average price. The real-time prices are used by some large direct-connect consumers to adapt their demand. The above prices are however guidelines only as the ‘final prices’ are calculated ex-post (normally noon the following day, unless there are irregularities or disputes) using the offer prices as established two hours before the ‘trading period’ and volumes as established during the ‘trading period’. Differences between forecast, dispatch, real-time and final prices can be significant.
History of reform
Regulation of the electricity market started in a light-handed fashion but there has been an increasing trend towards more heavy-handed regulation. Light-handed regulation is based on the threat of regulation providing an incentive on companies with market powerMarket power
In economics, market power is the ability of a firm to alter the market price of a good or service. In perfectly competitive markets, market participants have no market power. A firm with market power can raise prices without losing its customers to competitors...
to exercise self-regulation. The normal regulatory legislation such as the Companies Act, Electricity Act, Resource Management Act 1991, Commerce Act 1986
Commerce Act 1986
The Commerce Act 1986 is a statute of New Zealand. It prohibits conduct that restricts competition and purchase of shares or assets where that would lessen competition in a market....
, and Fair Trading Act 1986
Fair Trading Act 1986
The Fair Trading Act 1986 is a statute of New Zealand. Its purpose is to encourage competition and to protect consumers from misleading and deceptive conduct and unfair trade practices.The Fair Trading Act provides for consumer information standards....
provide the framework for regulating normal commercial and environmental transactions.
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, and the Electricity Amendment Act 2001. The latter led to another round of industry reform concentrating on achieving better governance
Governance
Governance is the act of governing. It relates to decisions that define expectations, grant power, or verify performance. It consists of either a separate process or part of management or leadership processes...
of the electricity market and tighter control of monopoly functions. The "threat of regulation" was extended to the production of a set of regulations that would be brought into effect if the industry's self-regulation did not meet the Government's criteria.
On May 16, 2003 the result of a referendum
Referendum
A referendum is a direct vote in which an entire electorate is asked to either accept or reject a particular proposal. This may result in the adoption of a new constitution, a constitutional amendment, a law, the recall of an elected official or simply a specific government policy. It is a form of...
by industry participants and customer representative
Customer representative
A customer representative is an individual who represents a community that intends to purchase a product. The term is most often applied to a representative of a company who works closely with a producer or developer to clarify specifications for a product or service. The term is used in software...
s on a proposed set of self-regulating rules was announced:
- Consumers voted 4.4% for the proposal
- Traders voted 66.2% for the proposal (traders = generating companies and retailers)
- Transporters voted 47.4% for the proposal (transporters = distributors and Transpower)
As there was not a substantial majority of all classes in favour of the proposal it was not implemented.
The result put paid to the prospect of a multilateral agreement on the governance and operational arrangements for the electricity market. The New Zealand government invoked the regulations already prepared to meet this contingency. The "threat of regulation" had been insufficient to stave off regulation.
On 2 July 2003 a draft set of Electricity Governance Regulations and Rules was issued on behalf of the Minister of Energy by the Electricity Commission Establishment Unit (ECEU). This set was for consultation purposes and after submissions were received and reviewed, a set of regulations and rules was recommended to the Governor-General.
In September 2003 a revised set of draft rules and regulations was issued by the ECEU for submissions by the end of October. The set did not include proposed transmission regulations, which were still being drafted. Also in September the Minister of Energy announced the chair and members of the Electricity Commission. Roy Hemmingway, whose most recent position was chairperson of the Oregon
Oregon
Oregon is a state in the Pacific Northwest region of the United States. It is located on the Pacific coast, with Washington to the north, California to the south, Nevada on the southeast and Idaho to the east. The Columbia and Snake rivers delineate much of Oregon's northern and eastern...
Public Utility Commission in the USA, took on the role as chairperson of the Commission.
The final set of Electricity Governance Regulations and Rules (excluding rules for transmission) became effective on 1 March 2004. The final chapter of the Electricity Governance Rules, on transmission, was gazetted on April 28 to become effective on 28 May 2004.
A Ministerial Review of Electricity Market Performance was initiated on 1 April 2009 and led by an independent Electricity Technical Advisory Group, appointed by the Minister for Energy and Resources, with assistance from officials from the Ministry of Economic Development. There were 29 recommendations arising from the review.
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
Meridian Energy
Meridian Energy Limited is a New Zealand state-owned electricity generator and retailer. The company generates the largest proportion of New Zealand's electricity, generating 32 percent of the country's electricity in the year ending 31 December 2009, and is the fourth-equal largest retailer, with...
in order to increase retailer competition in both islands and to give Genesis a South Island generating base. It was decided that Genesis would receive the Tekapo A and Tekapo B hydroelectric power stations from Meridian, and Meridian would receive the Whirinaki Power Station
Whirinaki Power Station
The Whirinaki Power Station is an open cycle gas turbine power station at Whirinaki, Hawke's Bay in New Zealand.-Background:Following national power shortages in 2001 and 2003 due to low hydro lake levels, the New Zealand government commissioned Contact Energy to build reserve generation on the...
from the government (although Meridian eventually declined to accept). The transfer of Tekapo A and B was completed on 1 June 2011.
On 1 November 2010, the Electricity Authority commenced operations, taking over from the Electricity Commission.
Milestones in the reform process
The major milestones in the electricity market reform process in New Zealand between 1987 and 2004 were:- Prior to 1987, a government department – the New Zealand Electricity Department (NZED) controlled and operated almost all New Zealand electricity generation and operated the New Zealand electricity transmission gridElectric power transmissionElectric-power transmission is the bulk transfer of electrical energy, from generating power plants to Electrical substations located near demand centers...
- April 1987 - The New Zealand Government corporatisedCorporatizationCorporatization refers to the transformation of state assets or agencies into state-owned corporations in order to introduce corporate management techniques to their administration...
the NZED and formed the state-owned enterprise– The Electricity Corporation of New ZealandElectricity Corporation of New ZealandThe Electricity Corporation of New Zealand Ltd is a New Zealand state-owned enterprise formed on 1 April 1987, as a transition entity in the process of deregulating the New Zealand electricity market...
(ECNZ) - April 1993
- Electricity Market Company (now M-co) established as a joint venture by New Zealand electricity industry players to act as a focal point for the design of a wholesale electricity market.
- The Metering and Reconciliation Information Agreement (MARIA) was set up as a multilateral arrangement to allow for retail competition for customers with half-hour interval meters.
- Former local electricity supply authorities established as energy companies
- April 1994 - Transpower separated from ECNZ and established as a stand-alone state - owned enterprise.
- July 1994 - NZEM commences trading as a secondary market for ECNZ hedges. An independent market surveillance committee was formed.
- June 1995 - After an exhaustive policy debate, the Government announced significant reform of the electricity industry including a framework for buying and selling electricity through a wholesale pool
- February 1996 - An interim wholesale market is put in place allowing ECNZ and Contact to begin competing.
- April 1996 - Contact Energy commenced operations
- October 1996 - The reformed wholesale electricity market (NZEM) began trading
- April 1998 - Government announced the Electricity Reform Act 1998, which included:
- Privatising Contact EnergyContact EnergyContact Energy Limited is a New Zealand electricity generator, natural gas wholesaler and electricity, natural gas, and LPG retailer.The company is the second-largest electricity generator in New Zealand , generating 24 percent of New Zealand's electricity in the year ending 31 December 2009, and...
- Splitting ECNZ into three competing state-owned enterprises
- Instructions to all energy companies to split their retail and lines businesses and sell one or other within a set time period
- Privatising Contact Energy
- April 1999
- Electricity Corporation of New ZealandElectricity Corporation of New ZealandThe Electricity Corporation of New Zealand Ltd is a New Zealand state-owned enterprise formed on 1 April 1987, as a transition entity in the process of deregulating the New Zealand electricity market...
(ECNZ) disbanded, establishment of 3 separate competing spin-off generating companies i.e. Mighty River Power], Genesis Power, and Meridian Energy. - Low-cost system for customer switching established allowing every consumer to choose their electricity retailerElectricity retailingElectricity retailing is the final process in the delivery of electricity from generation to the consumer. The other main processes are transmission and distribution.- Beginnings :...
.
- Electricity Corporation of New Zealand
- May 1999 - Contact EnergyContact EnergyContact Energy Limited is a New Zealand electricity generator, natural gas wholesaler and electricity, natural gas, and LPG retailer.The company is the second-largest electricity generator in New Zealand , generating 24 percent of New Zealand's electricity in the year ending 31 December 2009, and...
shares listed for trading on the New Zealand and Australian Stock Exchanges from 11 May 1999. - February 2000 - The Ministerial Inquiry into the electricity industry begins.
- June 2000 - The report of the Ministerial Inquiry is published
- November 2000 - Electricity Governance Establishment Project set up as a result of the government's review of the report of the Ministerial Inquiry.
- December 2000 - Government Policy Statement published.
- April 2003 - An industry referendum on the outcomes of the Electricity Governance Establishment Project (EGEP).
- May 2003 - The rules developed by EGEP fail to gain sufficient support in the referendum to avoid government regulation.
- July 2003 - A draft set of regulations and rules was issued for consultation.
- September 2003 - As a result of submissions received, revised rules and regulations were issued for further consultation. A revised Government Policy Statement was issued for submissions and the Electricity Commission was appointed
- March 1, 2004 - The Electricity Commission took over control of the New Zealand electricity market from the self regulating bodies, the MARIA Governance Board (MGB) and the Rules Committee of the NZEM.
- October 2004 - The Electricity Act was amended to increase the powers of the Electricity Commission.
- April 2009 – Ministerial review of Electricity Market Performance commences.
- December 9, 2009 – Minister announces outcomes of market review, including 29 new measures.
- November 1, 2010 – Electricity AuthorityElectricity Authority (NZ)The New Zealand Electricity Authority is an Independent Crown Entity responsible for the regulation of the New Zealand electricity market.In Authority was established in November 2010, following a government review of the electricity industry, and has a narrower focus on industry competition,...
takes over from Electricity CommissionElectricity Commission (NZ)The New Zealand Electricity Commission was a government authority set up in 2003 to regulate the Electricity sector in New Zealand.The Commission was established under the Electricity Act to regulate the operation of the electricity industry and markets in accordance government energy policy...
, and the Electricity Industry Participation Code comes into effect.
Current structure
As mentioned above, the New Zealand electricity market is split into the following areas: administration and market clearingMarket clearing
In economics, market clearing refers to either# a simplifying assumption made by the new classical school that markets always go to where the quantity supplied equals the quantity demanded; or# the process of getting there via price adjustment....
, regulation
Regulation
Regulation is administrative legislation that constitutes or constrains rights and allocates responsibilities. It can be distinguished from primary legislation on the one hand and judge-made law on the other...
, generation
Electricity generation
Electricity generation is the process of generating electric energy from other forms of energy.The fundamental principles of electricity generation were discovered during the 1820s and early 1830s by the British scientist Michael Faraday...
, transmission, distribution
Electricity distribution
File:Electricity grid simple- North America.svg|thumb|380px|right|Simplified diagram of AC electricity distribution from generation stations to consumers...
and retailing.
The current legislation (Electricity Industry Reform Act 1998) prevents the ownership of cross-sector investment (that is energy and lines functions). This means a generation company cannot own or have an interest in a distribution company and a distribution company cannot retail electricity or deal in electricity hedges. There are two exceptions to the regulations: generation companies can own the lines required to transport electricity from their power stations to the grid or local distribution network; and distribution companies can own a small amount of conventional generation capacity within their network but are not limited in the level of renewable generation capacity. There is no barrier to vertical integration from generation to retail. The overall arrangement of the industry creates some very interesting market behaviour amongst the players.
First of all, generation is dominated by five companies: Meridian Energy
Meridian Energy
Meridian Energy Limited is a New Zealand state-owned electricity generator and retailer. The company generates the largest proportion of New Zealand's electricity, generating 32 percent of the country's electricity in the year ending 31 December 2009, and is the fourth-equal largest retailer, with...
, Contact Energy
Contact Energy
Contact Energy Limited is a New Zealand electricity generator, natural gas wholesaler and electricity, natural gas, and LPG retailer.The company is the second-largest electricity generator in New Zealand , generating 24 percent of New Zealand's electricity in the year ending 31 December 2009, and...
, Genesis Power, Mighty River Power, and TrustPower
TrustPower
TrustPower Limited is a New Zealand electricity generation and electricity retailing company, listed on the New Zealand stock exchange.TrustPower is New Zealand's fifth largest electricity generator and the fourth largest electricity retailer , serving 260,000 customers throughout New Zealand...
.
Retail companies
The electricity retailers in New Zealand are Bay of Plenty ElectricityBay of Plenty Electricity
Bay of Plenty Energy Limited is an electricity generation and retail company in New Zealand...
, Bosco Connect, Contact Energy, Empower, Energy Direct
Energy Direct
Energy Direct is a retailer of electricity and gas in New Zealand. EDNZ is a trading division of the Wanganui Gas Company Limited, which in turn is wholly owned by the Whanganui District Council....
, Energy Online, Genesis Power, Just Energy, King Country Energy, Mercury Energy, Meridian Energy, Nova Energy, Powershop
Powershop
Powershop is a New Zealand state-owned online electricity retailer. Powershop claims to be the first electricity company in the world where consumers can choose between different brands of electrical power listed on the website and switch between them with the click of a button. Different brands of...
, Todd Energy
Todd Energy
Todd Energy is a diversified energy company operating in New Zealand. Todd Energy employs over 200 people and is part of the Todd Corporation. Nova Energy is the retail division of Todd Energy- Electricity :...
, Simply Energy, Mighty River Power, and TrustPower.
Of the electricity retailers, Contact Energy has the largest market share.
| Company | | New Zealand share | | Auckland share | | Hamilton share | | Tauranga share | | Napier-Hasings share | | Palmerston North share | | Wellington share | | Christchurch share | | Dunedin share | ||
|---|---|---|---|---|---|---|---|---|---|---|---|
| United | Vector | north | south | ||||||||
| Contact Energy Contact Energy Contact Energy Limited is a New Zealand electricity generator, natural gas wholesaler and electricity, natural gas, and LPG retailer.The company is the second-largest electricity generator in New Zealand , generating 24 percent of New Zealand's electricity in the year ending 31 December 2009, and... |
24% | 22% | 18% | 10% | 3% | 52% | 14% | 11% | 18% | 23% | 40% |
| Genesis Power | 23% | 35% | 7% | 73% | 12% | 5% | 54% | 65% | 51% | 7% | 6% |
| Mercury Energy Mercury Energy Mercury Energy is the retail operating division of Mighty River Power, a New Zealand State-owned enterprise. It retails electricity and gas to customers, primarily in the North Island of New Zealand... |
20% | 35% | 66% | 11% | 5% | n/a | 5% | 8% | 10% | 11% | 22% |
| Meridian Energy Meridian Energy Meridian Energy Limited is a New Zealand state-owned electricity generator and retailer. The company generates the largest proportion of New Zealand's electricity, generating 32 percent of the country's electricity in the year ending 31 December 2009, and is the fourth-equal largest retailer, with... |
12% | 2% | 2% | 3% | <1% | 3% | 16% | 9% | 11% | 53% | 10% |
| TrustPower TrustPower TrustPower Limited is a New Zealand electricity generation and electricity retailing company, listed on the New Zealand stock exchange.TrustPower is New Zealand's fifth largest electricity generator and the fourth largest electricity retailer , serving 260,000 customers throughout New Zealand... |
11% | <1% | <1% | 1% | 75% | 3% | <1% | 2% | 2% | 2% | 19% |
| Energy Online | 3% | 3% | <1% | <1% | 1% | 36% | <1% | <1% | <1% | n/a | n/a |
| Nova Energy | 2% | n/a | n/a | <1% | 2% | n/a | 9% | 4% | 4% | n/a | n/a |
| Other | 3% | 2% | 5% | <1% | 2% | 1% | <1% | <1% | 3% | 4% | 3% |
| Orange shading indicates the incumbent retailer (the retailer who inherited the lines company's retail business during the 1998 reforms), of whom is also the largest retailer in the area; green shading indicates the largest retailer in the area; n/a means the retailer does not serve the area. | |||||||||||
Generation companies
The electricity sector in New ZealandElectricity sector in New Zealand
The electricity sector in New Zealand uses mainly renewable energy sources such as hydropower, geothermal power and increasingly wind energy. The 70% share of renewable energy sources makes New Zealand one of the lowest carbon dioxide emitting countries in terms of electricity generation....
is dominated by five companies, which are Meridian Energy, Contact Energy, Genesis Power, Mighty River Power, and TrustPower. These are all active in generation, the wholesale market and retail sales of electricity. These five companies combined produce or control more than 95% of NZ's total electricity generation.
| Company | Capacity MW | Generation GWh | Revenue | Employees | Customers | Ownership |
|---|---|---|---|---|---|---|
| Contact Energy Contact Energy Contact Energy Limited is a New Zealand electricity generator, natural gas wholesaler and electricity, natural gas, and LPG retailer.The company is the second-largest electricity generator in New Zealand , generating 24 percent of New Zealand's electricity in the year ending 31 December 2009, and... |
2,070 | 11,035 | 2,756m | 1,000 | 650,000 | public ownership |
| Genesis Power | 1,977 | 9,126 | 2,482m | 700,000 | state-owned enterprise State-Owned Enterprises of New Zealand State-owned enterprises in New Zealand are registered companies listed under Schedules 1 and 2 of the State-Owned Enterprises Act 1986... |
|
| Meridian Energy Meridian Energy Meridian Energy Limited is a New Zealand state-owned electricity generator and retailer. The company generates the largest proportion of New Zealand's electricity, generating 32 percent of the country's electricity in the year ending 31 December 2009, and is the fourth-equal largest retailer, with... |
2,601 | 11,914 | 2,604m | 183,000 | state-owned enterprise State-Owned Enterprises of New Zealand State-owned enterprises in New Zealand are registered companies listed under Schedules 1 and 2 of the State-Owned Enterprises Act 1986... |
|
| Mighty River Power | 1,369 | 5,954 | 1,172m | 752 | 391,000 | state-owned enterprise State-Owned Enterprises of New Zealand State-owned enterprises in New Zealand are registered companies listed under Schedules 1 and 2 of the State-Owned Enterprises Act 1986... |
| TrustPower TrustPower TrustPower Limited is a New Zealand electricity generation and electricity retailing company, listed on the New Zealand stock exchange.TrustPower is New Zealand's fifth largest electricity generator and the fourth largest electricity retailer , serving 260,000 customers throughout New Zealand... |
594 | 2,018 | 681m | 340 | 222,000 | public ownership |
There are a number of smaller companies in the electricity generation industry including WEL Networks
WEL Networks
WEL Networks Limited is an electricity distribution company, serving the Waikato Region in New Zealand. WEL is the fifth largest electricity distribution companies in New Zealand, with over 80,000 connections and 4,900 km of lines....
, NZ Windfarms, NZ Energy
New Zealand Energy Limited
New Zealand Energy is a New Zealand company, operating small hydroelectric power stations in Haast, Fox, Opunake and Raetihi.NZ Energy proposes to build a 4.6 MW hydroelectric scheme at Lake Matiri near Murchison, Nelson....
, MainPower
MainPower
MainPower New Zealand Limited is an electricity distribution company, based in Rangiora, New Zealand.The MainPower network has 4,518 km of circuits and it services 33,793 customers over an area of 11,180 km2. Maximum total demand is 89MW....
and Top Energy.
The retail space is dominated by the five generating companies (Mighty River Power's retail arm is better known as Mercury Energy). The generation and retail companies use this vertical integration
Vertical integration
In microeconomics and management, the term vertical integration describes a style of management control. Vertically integrated companies in a supply chain are united through a common owner. Usually each member of the supply chain produces a different product or service, and the products combine to...
as a natural hedge
Hedge (finance)
A hedge is an investment position intended to offset potential losses that may be incurred by a companion investment.A hedge can be constructed from many types of financial instruments, including stocks, exchange-traded funds, insurance, forward contracts, swaps, options, many types of...
to manage risks associated with volatility of the spot market. For example, during a dry year, the high prices in the wholesale market price benefit the generation arm but hurts the retailers who buy at wholesale prices and sell electricity to consumers at fixed prices; when prices are low, the loss of profits in the generation side is offset by the profits in the retail business.
These five companies have now extended their risk management strategy further by aligning their retail and generation businesses to the same geographic locations. For example, the majority of Meridian Energy's generation assets are in the South Island, and that's where their retail strongholds are. Mighty River Power's generation assets are exclusively in the North Island, and Mercury Energy's customer base is also exclusively in the North Island.
See also
- Electricity sector in New ZealandElectricity sector in New ZealandThe electricity sector in New Zealand uses mainly renewable energy sources such as hydropower, geothermal power and increasingly wind energy. The 70% share of renewable energy sources makes New Zealand one of the lowest carbon dioxide emitting countries in terms of electricity generation....
- List of power stations in New Zealand
- Ministry of Economic Development (New Zealand)
External links
- The Ministry of Economic Development has a wealth of detail and statistics on the electricity industry, and other New Zealand energy matters.
- The Electricity Authority is the current regulator of the electricity market in New Zealand.
- Em6 and ComitFree provide current data on the New Zealand electricity market.
- Contact Energy
- Domestic Energy Users' Network
- Genesis Energy
- Meridian Energy
- Powershop
- Mighty River Power and Mercury Energy
- Trustpower
- Transpower
- M-co
- Aurora Energy is a distributor, which supplies network services to Dunedin and surrounding areas in the south of the South IslandSouth IslandThe South Island is the larger of the two major islands of New Zealand, the other being the more populous North Island. It is bordered to the north by Cook Strait, to the west by the Tasman Sea, to the south and east by the Pacific Ocean...
. Their web site has extensive links to the main parties involved in the New Zealand Electricity Market as well as statistics on the industry. It can be viewed at Dunedin Electricity - Criticism of power privatisation and reforms Campaign Against Foreign Control of Aotearoa
- Marta Steeman, "Power sector 'lost its way'", Christchurch Press, 18 July 2006