Report No. IRL99440.01




     NETWORK
RELIABILITY AND FIRM
  POWER CAPACITY
     WORKSHOP

       HELD AT INDUSTRIAL RES...
Network Reliability and Firm Power Capacity Workshop: December 2005 (IRL, Wellington)




Table of Contents
1.     Introdu...
Network Reliability and Firm Power Capacity Workshop: December 2005 (IRL, Wellington)



1. Introduction
1.1 Summary
On Fr...
Network Reliability and Firm Power Capacity Workshop: December 2005 (IRL, Wellington)



evaluating the impact of distribu...
Network Reliability and Firm Power Capacity Workshop: December 2005 (IRL, Wellington)



2. Key Conclusions
The following ...
Network Reliability and Firm Power Capacity Workshop: December 2005 (IRL, Wellington)




Ref.     Key Conclusions


C2   ...
Network Reliability and Firm Power Capacity Workshop: December 2005 (IRL, Wellington)




Ref.     Key Conclusions


C3   ...
Network Reliability and Firm Power Capacity Workshop: December 2005 (IRL, Wellington)




Ref.     Key Conclusions


C4   ...
Network Reliability and Firm Power Capacity Workshop: December 2005 (IRL, Wellington)




Ref.     Key Conclusions


C5   ...
Network Reliability and Firm Power Capacity Workshop: December 2005 (IRL, Wellington)




Ref.     Key Conclusions


C6   ...
Network Reliability and Firm Power Capacity Workshop: December 2005 (IRL, Wellington)




Ref.     Key Conclusions


C7   ...
Network Reliability and Firm Power Capacity Workshop: December 2005 (IRL, Wellington)




3. Action Points Raised
From the...
Network Reliability and Firm Power Capacity Workshop: December 2005 (IRL, Wellington)




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Network Reliability and Firm Power Capacity Workshop: December 2005 (IRL, Wellington)




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Network Reliability and Firm Power Capacity Workshop: December 2005 (IRL, Wellington)




4. Workshop Summary

           ...
Network Reliability and Firm Power Capacity Workshop: December 2005 (IRL, Wellington)




for what within the mix of custo...
Network Reliability and Firm Power Capacity Workshop: December 2005 (IRL, Wellington)




Electricity Commission achieve t...
Network Reliability and Firm Power Capacity Workshop: December 2005 (IRL, Wellington)




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Network Reliability and Firm Power Capacity Workshop: December 2005 (IRL, Wellington)




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Network Reliability and Firm Power Capacity Workshop: December 2005 (IRL, Wellington)




Distribution businesses should s...
Network Reliability and Firm Power Capacity Workshop: December 2005 (IRL, Wellington)




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Network Reliability and Firm Power Capacity Workshop: December 2005 (IRL, Wellington)




        2025.)
    -   G4: Wind ...
Network Reliability and Firm Power Capacity Workshop: December 2005 (IRL, Wellington)




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Network Reliability and Firm Power Capacity Workshop: December 2005 (IRL, Wellington)




• How could legislative uncertai...
Network Reliability and Firm Power Capacity Workshop: December 2005 (IRL, Wellington)




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Network Reliability and Firm Power Capacity Workshop: December 2005 (IRL, Wellington)




purchase by retailers of small s...
Network Reliability and Firm Power Capacity Workshop: December 2005 (IRL, Wellington)




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Network Reliability and Firm Power Capacity Workshop: December 2005 (IRL, Wellington)




• Ability to reconcile actual be...
Network Reliability and Firm Power Capacity Workshop: December 2005 (IRL, Wellington)




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Network Reliability and Firm Power Capacity Workshop: December 2005 (IRL, Wellington)




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Network Reliability and Firm Power Capacity Workshop: December 2005 (IRL, Wellington)




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Network Reliability and Firm Power Capacity with Distributed Energy
Network Reliability and Firm Power Capacity with Distributed Energy
Network Reliability and Firm Power Capacity with Distributed Energy
Network Reliability and Firm Power Capacity with Distributed Energy
Network Reliability and Firm Power Capacity with Distributed Energy
Network Reliability and Firm Power Capacity with Distributed Energy
Network Reliability and Firm Power Capacity with Distributed Energy
Network Reliability and Firm Power Capacity with Distributed Energy
Network Reliability and Firm Power Capacity with Distributed Energy
Network Reliability and Firm Power Capacity with Distributed Energy
Network Reliability and Firm Power Capacity with Distributed Energy
Network Reliability and Firm Power Capacity with Distributed Energy
Network Reliability and Firm Power Capacity with Distributed Energy
Network Reliability and Firm Power Capacity with Distributed Energy
Network Reliability and Firm Power Capacity with Distributed Energy
Network Reliability and Firm Power Capacity with Distributed Energy
Network Reliability and Firm Power Capacity with Distributed Energy
Network Reliability and Firm Power Capacity with Distributed Energy
Network Reliability and Firm Power Capacity with Distributed Energy
Network Reliability and Firm Power Capacity with Distributed Energy
Network Reliability and Firm Power Capacity with Distributed Energy
Network Reliability and Firm Power Capacity with Distributed Energy
Network Reliability and Firm Power Capacity with Distributed Energy
Network Reliability and Firm Power Capacity with Distributed Energy
Network Reliability and Firm Power Capacity with Distributed Energy
Network Reliability and Firm Power Capacity with Distributed Energy
Network Reliability and Firm Power Capacity with Distributed Energy
Network Reliability and Firm Power Capacity with Distributed Energy
Network Reliability and Firm Power Capacity with Distributed Energy
Network Reliability and Firm Power Capacity with Distributed Energy
Network Reliability and Firm Power Capacity with Distributed Energy
Network Reliability and Firm Power Capacity with Distributed Energy
Network Reliability and Firm Power Capacity with Distributed Energy
Network Reliability and Firm Power Capacity with Distributed Energy
Network Reliability and Firm Power Capacity with Distributed Energy
Network Reliability and Firm Power Capacity with Distributed Energy
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This workshop was hed to discuss key reliability ssues facing network operators in relation to the growing interest in gird-connected distributed energy resources.

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Network Reliability and Firm Power Capacity with Distributed Energy

  1. 1. Report No. IRL99440.01 NETWORK RELIABILITY AND FIRM POWER CAPACITY WORKSHOP HELD AT INDUSTRIAL RESEARCH LIMITED, GRACEFIELD, FRIDAY 16TH DECEMBER 2005 ISSUES, NEEDS, CONCLUSIONS AND ACTION POINTS Prepared by: Dr. Iain Sanders, Sustainable Innovative Solutions Ltd. (for Industrial Research Limited)
  2. 2. Network Reliability and Firm Power Capacity Workshop: December 2005 (IRL, Wellington) Table of Contents 1. Introduction Page 3 1.1 Summary Page 3 1.2 Background Page 3 1.3 What is Firm Power Capacity? Page 4 1.4 Why is Network Reliability an Page 4 Issue for New Zealand? 1.5 Overview of the Rest of this Report Page 4 2. Key Conclusions Page 5 3. Action Points Raised Page 12 4. Workshop Summary Page 15 5. Supplementary Feedback from Participants Page 41 6. Appendices Page 42 6.1 Workshop Agenda Page 42 6.2 List of Attendees Page 43 6.3 Alternative Policy Frameworks for DG Page 45 6.4 Capacity Metering for General Customers Page 59 Editorial Statement: We have attempted to faithfully report and draw conclusions from the presentations and discussions at the workshop. Neither Industrial Research Limited nor Sustainable Innovative Solutions Limited necessarily endorse these findings. Alister Gardiner, Industrial Research Limited. Iain Sanders, Sustainable Innovative Solutions Limited. Disclaimer: The Commerce Commission does not comment on policy matters. The Commission has participated only to explain its approach to assessing breaches of quality thresholds by electricity lines businesses where caused by extreme events, and has not participated in discussions on nor makes any comment in regard to other technical matters or industry design matters. Paolo Ryan, Manager, Network Performance Group. Page 2 of 67
  3. 3. Network Reliability and Firm Power Capacity Workshop: December 2005 (IRL, Wellington) 1. Introduction 1.1 Summary On Friday December 16th, Industrial Research Limited held a workshop in Gracefield, Lower Hutt, Wellington, on “Network Reliability Requirements” to which electricity industry stakeholders contributed. The purpose of this workshop was to provide an industry forum to discuss key reliability issues facing network operators in relation to the growing interest in connection of distributed generation plant. The workshop presenters in order of appearance were: • Alan Jenkins, Chief Executive, Electricity Networks Association • Rodney Doyle, Chief Advisor, Network Performance Group, Commerce Commission • Gareth Wilson, Manager of the Electricity Group, Ministry of Economic Development (MED) • Robert Reilly, Senior Advisor Retail, Electricity Commission • Duncan Head, Divisional Manager Business Development, Vector Networks • Brent Noriss, Engineering Manager, The Lines Company • Matt Todd, CEO, Eastland Networks Limited • Robert Reilly (speaking on behalf of Roy Hemmingway, Chair, Electricity Commission • Todd Mead, Generation Development Manager, MainPower • Iain Sanders, CEO, Sustainable Innovative Solutions Limited (formerly of Industrial Research Limited) • Alister Gardiner, Hydrogen and Distributed Energy Platform Manager, Industrial Research Limited These presenters discussed regulations, policies, technical issues, business development and research opportunities and challenges associated with delivering firm power capacity in Distribution networks from conventional network infrastructure assets (e.g. lines and poles and underground cables) and alternatives options, including: load management, embedded distributed generation and storage systems. 1.2 Background Network reliability is essential to the safe and secure operation of New Zealand’s electricity delivery infrastructure. Distributed generation adds a new level of complexity for operating networks. This workshop explored some of the needs for reliable firm power capacity in New Zealand’s electricity network infrastructure. Reliability issues were examined from conventional network delivery and alternative energy generation perspectives. This workshop was the first in a series of two workshops. The second workshop (to be held around the middle of 2006) will report on and demonstrate models and techniques developed by Industrial Research for Page 3 of 67
  4. 4. Network Reliability and Firm Power Capacity Workshop: December 2005 (IRL, Wellington) evaluating the impact of distributed energy resources on network reliability, to providing a means for objective comparison of different distributed energy resources against network capacity costs. 1.3 What is Firm Power Capacity? Firm power capacity is defined as “the provision of power capacity when and where it is required, with a high degree of certainty” (Industrial Research Limited). This constitutes firm power capacity as described in this report and as discussed during the workshop. 1.4 Why is Network Reliability an Issue for New Zealand? Network reliability is affected by the age and cost of maintaining infrastructure assets. Alternative energy supply options such as distributed energy resources may in some circumstances provide more reliable and affordable energy delivery solutions. Ageing infrastructure assets can cost too much to maintain – there just isn’t enough revenue generated from the service provided. In other places, network delivery capacities are exceeded because growth in peak demand cannot be met by existing infrastructure capacity. Complimentary localized dispersed generation can address some of the network reliability issues mentioned. This is only possible if affordable distributed generation resources can match the network reliability requirements of the energy demand needs they address. 1.5 Overview of the Rest of this Report In the next section (2. Key Conclusions), a summary of the main conclusions derived from the workshop are presented under appropriate headings that best define the key points raised. Following the “Key Conclusions”, is a section that presents a series of action points (3. Action Points Raised) or recommendations towards helping to address some of the issues identified as needing urgent attention. After section three, there is a summary of the entire workshop (4. Workshop Summary), outlining the main points raised, issues addressed and specific needs identified by each speaker and the audience in the Q&A sessions following each formal presentation. The final section (5. Appendices), provides the workshop agenda (5.1), and a list of attendees (5.2). A couple of appendices (5.3 and 5.4) describe in further detail some of the conclusions from a technical, commercial and regulatory perspective. Page 4 of 67
  5. 5. Network Reliability and Firm Power Capacity Workshop: December 2005 (IRL, Wellington) 2. Key Conclusions The following conclusions were derived from the forum discussion and the question and answer sessions held after each presentation. These high level conclusions indicate concern about governance in the industry affecting future reliability through an uncertain investment climate, of which the future for distributed generation is only one component. “Sustainable development” was frequently used in the workshop as the primary need for the industry and government to address. No attempt is made to define the meaning intended by participants, although network “reliability” is clearly an important contributor to this concept. Ref. Key Conclusions C1 Long-term needs not addressed by short-term political agendas. a. The energy industry of New Zealand is the economic engine critical to the nation’s survival and prosperity over the next 25 years. b. Therefore we need to do a lot more evaluation about what the way forward for the electricity supply sector ought to be. c. There are major concerns about the overall lack of integration and mismatch of issues in the energy sector regarding possible energy futures and mapping out a suitable path forward. d. The central generation electricity market model needs to be supported with reinforcement. We have a bureaucratic structure for energy policy in New Zealand that is: “confused and has a great deal of difficulty making decisions” (forum participant). e. Many reports are being written, submissions made, requests for information given etc., but no decisions are being made that address the issues and concerns raised. f. New Zealand needs an energy strategy to address mid- to long-term needs. Page 5 of 67
  6. 6. Network Reliability and Firm Power Capacity Workshop: December 2005 (IRL, Wellington) Ref. Key Conclusions C2 Untapped potential for sustainable development due to fragmented markets. a. Sustainable development is possible if there is the political will to succeed, backed by a commitment to make the hard decisions and consistently pursue policies and directives critical to achieving this outcome. b. Sustainable development includes the significant adoption of distributed energy resources, energy efficient design and utilization, load management, and energy conservation in buildings, industrial processes etc. c. With respect to sustainable development, the question is: what is technically possible if we have the will to achieve it? What is technically possible within the timeframes required? Considering grid- interconnection guidelines, the Resource Management Act (RMA), Power Purchase Agreements (PPAs) etc.? d. Credibility is a key issue for policymakers to address if progress is going to be made. If it is desirable and doable, then why aren’t we making it happen? I.e. putting structures and policies and standards and regulations etc. in place that will facilitate the uptake and establishment of a more sustainable energy market in New Zealand for our long-term growth and prosperity? Page 6 of 67
  7. 7. Network Reliability and Firm Power Capacity Workshop: December 2005 (IRL, Wellington) Ref. Key Conclusions C3 Many opportunities missed or lost due to lack of coordinated planning between Government and industry stakeholders. a. If barriers to investment in distributed energy resources were effectively reduced and removed, the New Zealand electricity industry could experience a transformation, through competition driving innovation, technology advances, business process and practice improvements, new product developments and practical contractual, regulatory and policy design. b. The electricity market only accounts for about 9% of New Zealand’s CO2 emissions. Farming is responsible for half the country’s emissions, and transport takes care of most of the rest. Industrial transformation would be possible if the electricity industry could help substantially to reduce farming and transport greenhouse gas emissions, by focusing on security of supply without increasing CO2 emissions from the energy resources required to achieve it. How much more can the electricity grid be used to supply the energy demands that are currently being met by non-electrical thermal conversion processes? E.g. fuel substitution and methane gas conversion. c. Poorly thought out strategies for banning wood burning for environmental reasons is placing an increasing strain on already capacity-constrained peak loading of networks (and doesn’t account for peak generation fossil fuel CO2 emissions). Here we have disincentives for better load management and conservation of energy resources. How do we create incentives for more efficient and effective energy management and delivery solutions? d. There is a major lack of coordination between new generation planning and network infrastructure utilization for delivering it. Consequently, many new generation and network infrastructure investments are suboptimal. Long-term needs are not addressed through lack of coordinated optimal design of solutions because they involve competing electricity market stakeholders. Short-term vested financial interests take priority over long-term sustainable security of supply. e. There are great opportunities for New Zealand to implement sustainable renewable energy options, but it only takes one barrier e.g. the Resource Management Act to bring an entire project to a halt indefinitely. Page 7 of 67
  8. 8. Network Reliability and Firm Power Capacity Workshop: December 2005 (IRL, Wellington) Ref. Key Conclusions C4 Short-term micro-management drives decision-making process because of distrust between Government and industry. a. How do we reconcile: assurance from Government to industry: for Government to implement consistent long-term policies that work, versus assurance from industry to Government: that industry will deliver solutions that work? Unless we are really clear about reconciling and balancing the need for the former with the need for the latter, we will not know what we can technically do if we have the will to achieve it. b. How do we build a market system that starts to account for and incorporate external costs and benefits as part of the total value equation; and, furthermore, Government must take responsibility for leading the sustainable development of New Zealand’s energy future. c. How well do we manage and utilize our energy resources, and how can we do it better? What do investors need for sustainable energy development to become a practical reality? Page 8 of 67
  9. 9. Network Reliability and Firm Power Capacity Workshop: December 2005 (IRL, Wellington) Ref. Key Conclusions C5 Current decision-making framework is inadequate for developing a consensus amongst Government and industry stakeholders to take appropriate action to address sustainable development of the electricity sector. a. Government agencies want views and opinions of energy market / industry stakeholders to be expressed and presented with concrete evidence-based facts and case studies for proposals for making changes, taking action etc. It is evident that the existing processes used to collect this information are not achieving the desired results to address present Government needs. b. Proper discussion and consideration of individual submissions from members of the public and industrial organizations is not possible because Government agencies do not have the expertise or the resources to properly consider and assess all the options put forward. c. Submissions are not coordinated and expressed in such a way as to effectively address integrated industrial and public concerns of different electricity market shareholders: responses are fragmented and contradict one another – confusing the primary concerns and needs addressed from lesser secondary concerns and interests. d. Lack of coordination amongst various ministries and government agencies has made it difficult to move forward with a cohesive strategy for tackling current electricity market needs. There are no clearly defined boundaries or guidelines for linking the various responsibilities, interests and policy objectives of separate agencies and ministries into a unified cohesive framework or plan that links New Zealand’s sustainable economic growth and prosperity with its security of energy supply. e. Government needs policies that are: “long(-term), loud and legal”. Page 9 of 67
  10. 10. Network Reliability and Firm Power Capacity Workshop: December 2005 (IRL, Wellington) Ref. Key Conclusions C6 Insufficient vision and uncoordinated focus, fragmented scientific and technological research, and inadequate human and financial resources are preventing significant economic benefits being derived from sustainable energy. a. “Think Global, Act Local”. New Zealand Inc. needs a clear vision: e.g. “New Zealand completely self-sustainable in energy resources by ____?”. If you provide a stable infrastructure environment that people are confident in remaining stable, reliable and dependable for a long period of time, with long-term hedge-type products with reliable investment and pricing indicators that people can start banking against, then the other stuff will follow. E.g. the Orion Networks pricing model for investing in distributed generation. The same thing is observed with transport infrastructure investments. We must have a stable long-term focus. b. Universities, Crown Research Institutes and other academic institutions need to work much more closely with industry to facilitate more effective commercialization of research, and ensure research funding / investments are relevant to developing and improving the industrial capabilities required to realize the market benefits possible. c. The group of shareholders using and benefiting from distributed and other sustainable energy resources do not necessarily represent the same group of investors needed to facilitate their adoption. This problem can be resolved if the distribution networks are given / possess the technical capability, the financial capacity, the cooperation and support of the public at large and local communities (beneficiaries / recipients of the services provided), and most importantly of all: the will and clout of the political establishment to support: business investment, R&D funding, long-term incentives, efficient and effective rules and regulations etc. to make it all work. d. In order to work out these issues, a research institute that addresses the technological, political, commercial and legal issues should be set up to facilitate and coordinate the reliable and useful adoption of sustainable distributed energy resources through the lines companies, and plot the smooth transition of New Zealand’s energy industry towards delivering a long-term sustainable, secure and competitively priced energy infrastructure that meets the needs of New Zealand Inc. for generations to come. Page 10 of 67
  11. 11. Network Reliability and Firm Power Capacity Workshop: December 2005 (IRL, Wellington) Ref. Key Conclusions C7 Government needs to establish a Leadership Task Force of people who know how the whole electricity system works and how to effectively incorporate distributed energy resources for optimum operating efficiency, reliability and security of supply. a. Government policymaking for the electricity industry is a rudderless affair. There are too many disparate parties attempting to steer electricity policy in different directions. Lack of coordination is responsible for much confusion. b. There is significant overlap and hence confusion regarding the roles of different yet similar political / governmental agencies competing for influence and resources. c. Government and industry must take a more hands-on approach towards maintaining and developing New Zealand’s energy infrastructure and untapped energy resources – including new / improved load management strategies, smart metering and distributed renewable energy resources. d. Government and industry must take a more hands-on approach towards improving the reliability and security of delivering New Zealand’s energy requirements today and for future generations. e. Greater integration and proactive coordination of industrial and economic development policy with energy security policy and environmental protection policy required. Page 11 of 67
  12. 12. Network Reliability and Firm Power Capacity Workshop: December 2005 (IRL, Wellington) 3. Action Points Raised From the key conclusions (C1 to C7) and issues raised / specific needs identified by participants, a list of action points are proposed. A1 to A4 are derived from C1 to C7 and A5 to A6 have been drawn from the workshop proceedings. Proposed Ref. Issues Action Points Participation A1 Support long-term • Long-term contracts for Energy planning. energy supply and demand Minister; required. Electricity a. Long-term needs not Commission; addressed by short-term • Pricing arrangements MED; political agendas. (C1) should deliver long-term Commerce contractual arrangements Commission; that help new investors get Energy Users; established and give Generators; consumers who put a Retailers; premium on security, T&D contractual certainty. Networks. A2 Constructive stakeholder • Views and opinions of Energy cooperation. energy market / industry Minister; stakeholders need to be Electricity documented and presented to a. Untapped potential for Commission; the MED, Electricity sustainable development Commission, Commerce MED; MfE; due to fragmented markets. Commission and other NZTE; (C2) Government ministries and Climate agencies. Change b. Many opportunities Office; missed or lost due to lack of • Responses to Government Office of the coordinated planning Requests for Information Parliamentary between Government and (RFIs) should provide Commissioner industry stakeholders. (C3) concrete, evidence-based for the information; and, specific Environment; proposals for making c. Short-term micro- changes, taking action etc. Commerce management drives should be given where Commission; decision-making process possible. Energy Users; because of distrust between Generators; Government and industry. • Government needs to be Retailers; (C4) informed by stakeholders T&D about problems associated Networks. with regulations and policies affecting the operation, efficiency and effectiveness of the electricity and energy markets. Page 12 of 67
  13. 13. Network Reliability and Firm Power Capacity Workshop: December 2005 (IRL, Wellington) Proposed Ref. Issues Action Points Participation A3 Effective decision- • Chains of command, Energy making framework. accountability and Minister; communication need to be Electricity a. Current decision-making improved within and amongst Commission; framework is inadequate Government structures. MED; for developing a Commerce • A more robust, transparent consensus amongst and technically-qualified Commission; Government and industry decision making process is Energy Users; stakeholders to take necessary. Generators; appropriate action to Retailers; address sustainable • Industrial stakeholders must T&D development of the be engaged collectively by Networks. electricity sector. (C5) Government in such a way that interaction amongst different b. Government needs to organizations is supported and establish a Leadership enhanced to achieve better results. Task Force of people who know how the whole • Acquire timely information, electricity system works and the management of that and how to effectively information, with appropriate incorporate distributed smart metering technology. energy resources for optimum operating • Adopt Area and Time Specific efficiency, reliability and Marginal Capacity [ATSMC] security of supply. (C7) cost programmes. A4 Concentrate resources to • Restructure R&D investment Energy achieve a specific so that it supports NZ Inc., and Minister; outcome. a common long-term vision for Electricity New Zealand’s sustainable Commission; a. Insufficient vision and economic growth and MED; MfE; prosperity. uncoordinated focus, NZTE; R&D fragmented scientific and • Create a guiding industrial- organizations; technological research, Governmental coalition with Academia; and inadequate human the resources needed to Climate and financial resources are achieve the vision developed. Change preventing significant Office; economic benefits being • Empower broad-based action, Parliamentary derived from sustainable by getting rid of the obstacles Commissioner energy. (C6) and structures that undermine for Environ.; the vision created. Local govt.; • Encourage risk taking and Chambers of innovation by visibly Commerce; recognizing and rewarding the Commerce organizations that make a Commission; difference towards progressing Energy Users; the vision’s outcomes for New Generators; Zealand. Retailers; T&D Networks Page 13 of 67
  14. 14. Network Reliability and Firm Power Capacity Workshop: December 2005 (IRL, Wellington) Proposed Ref. Issues Action Points Participation A5 Encourage greater • Support the development Energy diversity of supply and of distributed energy minister; demand to reduce risks. resource portfolio business Banks and investment tools and other lending a. A well-structured, models. institutions; diverse portfolio of Business distributed energy (supply- • Encourage banks and investors and & demand-side) resources, other lending institutions to owners; that can balance provide the equivalent of R&D orgs.; fluctuating loads with revolving home loan MfE; Climate fluctuating weather accounts for distributed Change patterns, is needed for energy resource project Office; long-term investment. finance. Electricity Commission; • Support collaboration MED; NZTE; between business / project Generators; investors and load / Retailers; renewable energy T&D forecasters to develop Networks. acceptable & reliable financial risk management metrics. • Ensure coordination of energy investment signals with energy and capacity pricing signals, and energy and capacity usage. A6 Ensure multi-stakeholder • Government intervention is Energy benefits derived from required to reconcile Minister; new energy investments benefits derived from Electricity cover their costs. investing in energy supply- Commission; and demand-side products, MED; Project a. Economic and other processes and services, Investors; benefits derived from with the costs borne by Commerce investing in distributed project investors. This Commission; generation and demand means energy and capacity Energy Users; side management are not benefits obtained by energy Generators; readily realized by the wholesalers, retailers, T&D Retailers; project sponsor or system networks, insurance firms T&D operator. etc., recompense part of the Networks. investor’s project capital and operating expenditure, as applicable, by law. Page 14 of 67
  15. 15. Network Reliability and Firm Power Capacity Workshop: December 2005 (IRL, Wellington) 4. Workshop Summary ISSUES SPECIFIC PRESENTER MAIN POINTS RAISED NEEDS • Historically, the ‘Planning Division’ definition of ‘reliability’: enough plant and fuel • Long-term • Can the available to meet 7% more than normal load in a winter where lake inflows had been contracts for industry 85% of the mean. energy supply provide the required. reliability NZ • Historically the ‘Electricity Division’ definition of ‘reliability’: based around maintaining needs? frequency and voltage through a centrally coordinated generation and transmission • Pricing Alan Jenkins system operated to defined engineering standards. arrangements • Who pays for should give R&D? (Electricity • The new market structure has created the view: ‘the market will provide’, overlooking local Networks the need to plan ahead. Consequently, focus is on creating an environment for generation as • Can CPI-X Association) competition to flourish, not on delivering reliability. well as more deliver an remote economically Presentation: • In the interests of creating a flat commercial playing field, NZ has tended to have a generation sustainable transmission-centric system. options a network What is Reliable reasonable infrastructure Firm Power • Transmission nodal pricing is one manifestation of possessing a transmission-centric chance of for NZ’s future Capacity? Why system. succeeding. energy delivery Do We Need it? reliability • People don’t like building power stations near a local node, because even a relatively • Pricing requirements? small volume of new generation there will mean that the price of power from remote arrangements competing stations plummets. The net result: no significant investment, either in plant or should keep long-term contracts. old, back-up power stations • NZ’s deregulated electricity market is operationally-focused on generation and nodally- in reserve for driven by trans-mission. when things go wrong, or • It is not clear how much customers are willing to pay for reliability, and who should pay demand gets Page 15 of 67
  16. 16. Network Reliability and Firm Power Capacity Workshop: December 2005 (IRL, Wellington) for what within the mix of customers. ahead of supply. • Between 1992 and 1998, network companies were very focused on supply security, and providing two-thirds of the new capacity being built at that time. The state was no • Pricing longer carrying the responsibility for building power stations, and new stations were arrangements actually being built close to loads. should ensure that the parties • The Bradford reforms of 1998 brought an end to this era, heavily influenced by a belief selling that the networks’ involvement in generation was occurring because local monopolies electricity are were imprudently building generation capacity that the country didn’t need – leaving selling a local consumers to carry the cost through inflated lines charges. package that includes •The Bradford Electricity Reform Act of 1998 was driven by the belief that it would defined, ‘ensure that costs and prices in the electricity industry are subjected to sustained minimum downward pressure”. reliability levels. • Since 1998: distribution and transmission prices have decreased by: 10%. • Pricing arrangements • Since 1998: energy wholesale prices have increased by: 45%. should give the parties who are • Since 1998: total energy retail prices have increased by: 18%. best equipped to put • As a result of the 1998 reforms: there is a ban on networks trading in energy hedges. commercial pressure on • As a result of the 1998 reforms: there is a ban on exercising any sort of influence over transporters a generation subsidiary, which must be managed through its own officers, with its own responsibility board. for paying transmission • The Electricity Commission was established to address problems of: and - security of supply; distribution. - transmission losses; - grid capacity constraints; • Pricing - no liquidity or transparency in forward wholesale electricity prices; and, arrangements - limited competition emerging / occurring in generation and retail. should incentivise • If network companies were investing in generation it would help Government and the consumers to Page 16 of 67
  17. 17. Network Reliability and Firm Power Capacity Workshop: December 2005 (IRL, Wellington) Electricity Commission achieve their objectives. make a contribution to • After the 1992 crisis, electricity system operations were working around a hydro reliability. ‘minizone’ (storage availability) to decide when, and if, back-up capacity is needed. Do we need to revert to these centrally imposed security arrangements? • Pricing arrangements • There are not effective contingency plans in place to keep old, back-up plant available, should deliver as a consequence of constructing the electricity market in the mid-1990s around spot long-term nodal prices without any imposed longer term pricing arrangements such as loss of load contractual probability payments. arrangements that help new • Existing network-level regulatory signals are very poor at dealing with supply reliability investors get problems. The Commerce Commission’s price control formula linking volumes established and distributed and allowed income deters: a. energy conservation and b. uptake of give consumers distributed generation options that take load off parts of their systems (source of who put a revenue). premium on security • Bad signals from the regulatory regime also disincentivise spending on research and contractual development. The CPI-X thresholds only allow R&D expenditure to come out of profits certainty. and under no circumstances be passed through to consumers. • The annual minus-X adjustment erodes network profits and gives them the same immediate, operational focus that dogs the wholesale electricity market. • Does New Zealand need a major power crisis resulting in a substantial economic recession to get reliability back firmly on the policy agenda? Page 17 of 67
  18. 18. Network Reliability and Firm Power Capacity Workshop: December 2005 (IRL, Wellington) ISSUES SPECIFIC PRESENTER MAIN POINTS RAISED NEEDS • For Lines Companies to comply with Part 4a of the Commerce Act defining thresholds • If a subjective for declaration of control of lines businesses: they must demonstrate no material process is used deterioration in reliability to define an “extreme • SAIDI/SAIFI thresholds screening mechanism – are used to identify breaches that may event”, why use warrant further investigation. an objective mathematical • Businesses may avoid post-breach inquiry if they demonstrate: Breach due to an process to extreme event. analyze it? • Views and • What is an extreme event? Definition from the Assessment and Inquiry Guidelines: opinions of • The existing Rodney Doyle “Where one or a small number of rare but high impact events has a significant and energy market / process material impact on a business’ reliability performance”. industry proposed for (Commerce stakeholders to handling Commission) • Difficult to use meteorological definitions of extreme events. Extreme weather limits are be expressed extreme events location specific, open to argument, and Extreme events may not be meteorological. and presented cannot make Presentation: to the decisions fast • Extreme events are self-defining. Key requirements for defining a measure Commerce enough to Extreme Events to identify extreme events: Commission. address the needs raised. Consistency – Applicable to all networks large or small, urban or rural. • Priority is to Efficiency – Clear classification of normal and extreme data. encourage best practice in Practicality – Should facilitate metric setting. outage mitigation, Suitability – Should use readily available data. supply restoration and Simplicity – Easy to understand and apply. network design. Page 18 of 67
  19. 19. Network Reliability and Firm Power Capacity Workshop: December 2005 (IRL, Wellington) There-fore • Steps to identifying an extreme event: proposal aimed at improving 1. Collect up to five years of historical outage data existing practices more 2. Calculate natural log of daily SAIDI figures. than providing an effective 3. Calculate alpha (α) (mean of the log values). method for dealing with 4. Calculate beta (β) (standard deviation of the log values). real-time operational 5. Formula for an extreme event day boundary: requirements. Focus is on e(α + 2.5 β). reducing problems and / • If an extreme event is identified: or improving responsiveness Exclude data for extreme event days from SAIDI records. to current problems. Calculate average daily SAIDI of residual (last 5 years). • Extreme Substitute extreme event days SAIDI figures with average. weather events are very difficult Calculate new annual SAIDI figure. to anticipate from historical Test if threshold is exceeded. data, weather patterns and Decide on action. the shear complexity of • Need consistent reporting practices from lines businesses; Standardised reporting the statistical information for those in breach; Issues in reporting of “Step” restoration type models (and interruptions; hence their Appropriate allocation of outage cause; Evidence of extreme events to be notified to reliability) Commission a.s.a.p. to facilitate investigation and decision. involved. • The Commerce Commission recognise the geographic diversity; • Conclusion: Page 19 of 67
  20. 20. Network Reliability and Firm Power Capacity Workshop: December 2005 (IRL, Wellington) Distribution businesses should still identify best practice: outage mitigation, industry is very supply restoration procedures, and network design; Aim of improving overall service nervous and reliability. wants to be heard over the Commerce Commission’s proposed thresholds regime. Page 20 of 67
  21. 21. Network Reliability and Firm Power Capacity Workshop: December 2005 (IRL, Wellington) ISSUES SPECIFIC PRESENTER MAIN POINTS RAISED NEEDS • Electricity Commission (EC) responsible primarily for: • Wide range of possible - overseeing electricity industry and markets. options and - ensuring dry-year reserve. alternatives to - Conducting electricity efficiency programmes; and transmission - regulating Transpower. upgrade in the Akld region • Transpower proposes Grid Upgrade Plans (GUPs) to EC. Focus: 400kV Whakamaru- have been Otahuhu transmission upgrade. considered. Robert Reilly Options (on behalf of Roy • EC involved because: favoured Hemmingway) include: - Load in Auckland is growing. building surplus (Electricity - A solution needed to meet demand at peak times by about 2010. capacity into Commission) - Transpower requires EC approval to be able to pass costs of investment on to existing its customers. proposed Presentation: - EC must decide if Transpower’s proposal is best solution. Assessment includes solutions to application of GIT. address future Alternatives to - EC must ensure other options have been analysed, including generation and needs and Transmission demand-side alternatives. reduce overall costs, and • Generation options considered: incorporate small - G1: Baseload co-generation (84MW co-generation at Marsden by 2010.) intermediate - G2: Baseload coal generation (320MW coal generation at Marsden by 2010 and investments to 320MW additional coal generation at Marsden by 2016.) buy time (defer - G3: Baseload gas generation (385MW CCGT at either Rodney or Otahuhu by investments) 2010 and 2 x 200MW gas generators in Auckland by 2010, and 400MW CCGT at either Otahuhu or Rodney by 2015, and 400MW CCGT in South Auckland by Page 21 of 67
  22. 22. Network Reliability and Firm Power Capacity Workshop: December 2005 (IRL, Wellington) 2025.) - G4: Wind generation (75-150MW of wind generation in Auckland region by 2015.) - G5: Relocation of Whirinaki (155MW Whirinaki re-located to Auckland by 2010.) - G6: Peaking plant (Peaking diesel generation in Auckland by 2010.) - G7: Alternative technologies (200-250MW of emerging generation technologies from 2015.) • Demand-side alternatives considered: - D1: Interruptible load (IL) (Up to 200MW of IL by 2010.) - D2: Distribution Network Load Management (DNLM) (130-245MW DNLM by 2015 and 15MW ripple control replacement by 2010.) - D3: Energy substitution (70MW gas substitution in Auckland by 2015 and 1- 22MW solar water heating from 2015.) - D4: Energy efficiency measures (Range of measures including 25MW residential lighting by 2010, 17-63MW residential heating by 2015, and 25MW commercial measures by 2015.) • Transmission alternatives: - T1: duplex the WKM-OTA 220kV A and B lines, then install 400kV between WKM and OTA in 2021. - T2: install 220kV between WKM and OTA in 2017. - T3: install HVDC between WKM and OTA in 2017. - T4: install 400kV between WKM and OTA in 2017. • Next steps: - Assessment of ‘short short-list’ of alternatives (generation, demand-side, and transmission) by applying GIT (now underway). - Comparison of short-listed alternatives and Transpower’s proposal (Jan 2006) - Draft decision on Transpower’s proposed 400kV project (Feb/Mar 06) - Consultation (Mar/Apr/May 06). - Final decision (Jun 06). Page 22 of 67
  23. 23. Network Reliability and Firm Power Capacity Workshop: December 2005 (IRL, Wellington) ISSUES SPECIFIC PRESENTER MAIN POINTS RAISED NEEDS • Lines companies can own: Non renewable generation up to 50 MW or 20% of lines • Advanced capacity. metering provides value • Lines companies can own: Unlimited new renewable generation (e.g. wind). for managing existing and • Lines companies can own: Reserve generation contracted to Electricity Commission. new energy options more • Capacity above 5MW or 2% is subject to arms length restrictions. effectively – Submissions who is Gareth Wilson should provide • Lines companies also prevented from trading in electricity generally and buying and investigating concrete, selling hedges. these (MED) evidence- opportunities? based • Exemptions from some or all of the restrictions may be granted on a case by case Where is the Presentation: information; basis. funding to and, specific research how Facilitating proposals for • Restrictions in place to minimise the opportunity and incentive for lines businesses to: new Investment in making inhibit competition; and/or technologies Generation by changes, taking cross-subsidise generation and retail activities. can improve Lines action etc. the operation of Companies should be given • Should arms length rules be relaxed? the electricity where possible. market? - Should the capacity threshold be raised? - What rules should apply to generation connected to another line owner’s • No research network? has been done on whether the • Should the legislation explicitly set out criteria for exemptions? market structure we • Should lines companies be able to trade in hedges? If so, to what level? now have is appropriate. Page 23 of 67
  24. 24. Network Reliability and Firm Power Capacity Workshop: December 2005 (IRL, Wellington) • How could legislative uncertainty be reduced? • It is not clear • Discussion paper to be released March 2006 for comment from relevant stakeholders. how the various government departments and agencies are coordinating their activities, let alone cooperating to achieve an integrated cohesive electricity market development and management strategy. Page 24 of 67
  25. 25. Network Reliability and Firm Power Capacity Workshop: December 2005 (IRL, Wellington) ISSUES SPECIFIC PRESENTER MAIN POINTS RAISED NEEDS • The EC is responsible for: ensuring that electricity is produced and delivered to all • Small scale classes of consumers in an efficient, fair, reliable, and environmentally sustainable generation only manner; and, promoting and facilitating efficient use of electricity. gets value for capacity from • Key outcomes: separate agreements - Investment in (distributed) generation, transmission, energy efficiency and with distribution Robert Reilly demand-side management. networks – • Electricity retailers do not (Electricity Commission value capacity - Remove barriers to distributed generation. Commission) wishes to be delivered. informed about - Access to lines for distributed generation. Presentation: problems • The cost of associated with installing export - Arrangements for the sale of surplus small scale generation. The Electricity the model meters could Commission’s arrangements be a barrier to Role and - Switching and reconciliation of small scale distributed generation. for the sale and DG uptake. Distributed purchase of Generation • The Government proposes to introduce regulations prescribing reasonable terms and surplus conditions on which line owners and electricity distributors must enable generators to be • Separate electricity. agreements are connected to distribution lines. needed with • The objective is to facilitate the use of distributed generation by ensuring that it does the retailer and not face undue barriers in connecting to lines. the distributor to gain full value from • The Electricity Commission will have responsibility for administering the regulations operating DG. and for proposing amendments as required. • The Electricity Act 1992 provides powers to regulate terms and conditions for the Page 25 of 67
  26. 26. Network Reliability and Firm Power Capacity Workshop: December 2005 (IRL, Wellington) purchase by retailers of small surpluses of electricity from generating units owned or operated by consumers. • It can be difficult for owners of distributed generation units to negotiate terms and conditions with local retailers to purchase small surpluses of electricity generation. • The Government would like to see this barrier to the development and uptake of distributed generation reduced by setting appropriate terms and conditions for purchase of small electricity surpluses by local retailers. • The Government envisages that this policy should apply to consumers with generation units capable of generating up to 40,000kWh over a year. • A key principle however is that retailers should not incur ongoing financial losses by the requirement to purchase such electricity. • The Commission should seek to develop non-regulatory arrangements to achieve these objectives, but should recommend regulations or rules if voluntary arrangements are unsuccessful in achieving the policy outcomes the Government seeks. • The Commission has a role in facilitating Distributed Generation. • Model Retail contracts have provision for the sale and purchase of surplus electricity from small scale generation. • Existing rules do not prevent retailers from trading small scale generation. • Proposed rules will facilitate trading and switching of the output from small scale generation. Page 26 of 67
  27. 27. Network Reliability and Firm Power Capacity Workshop: December 2005 (IRL, Wellington) ISSUES SPECIFIC PRESENTER MAIN POINTS RAISED NEEDS • Load management is useful when aggregated – due to scale and diversity. • Purchase of cheap • Demand-side is the ability for customers to effect an outcome on the electricity system controllable / market. load (from customers) is a • Load management involves an agreement with a customer to turn off a nominated big opportunity appliance or replace dependence on the network for an agreed duration. for lines companies to • There are a variety of historical technologies in place. Future ability and scope is increase Duncan Head growing with convergence of communications and energy infrastructures. network asset management (Vector Networks • Demand-side participation is not a “public good”, and it depends on the consumer’s • Coordination efficiency and Ltd.) choice between price and quality. It is left to value-seekers to incentivise uptake. of energy economic value investment – but load Presentation: • Demand-side has many valuing-adding applications: signals with management energy usage solutions must Mass Market - Transmission: congestion relief, alternatives, emergency management. required. provide value Load Control - Distribution: capital deferment, asset utilization. to all Issues - Customer: transmission pricing, load management (under time of use pricing). stakeholders in - Retail/Generation: energy hedging, portfolio & risk management. the value chain. - Other: energy hedging, spot market influence, compliance management, ancillary energy market services (e.g. voltage, under frequency). • Issues for effective load • It is doubtful whether any real long-term benefit is provided by the Transmission Pricing management Methodology (‘TPM’). include: gaining benefit from the • Controlling to TPM targets can bring forward investment in distribution network without transmission minimizing Transmission build. pricing methodology Page 27 of 67
  28. 28. Network Reliability and Firm Power Capacity Workshop: December 2005 (IRL, Wellington) • Ability to reconcile actual benefits to third parties limiting demand-side application to including non-distribution users. reconciling peak load • Alignment of basic building blocks will enable value of demand-side to be realized. reductions with GXP price • Load management needs to create value for those involved. reductions (current • An integrated system is required to gain network benefits from load management. difficult). • Specific outcomes for network distribution load management are: network • An integrated management, asset deferral, and satisfactory customer price-quality trade offs. system is required to gain • Focus on reducing numbers of customers on traditional controlled appliances through network fuel substitution and personal choice. benefits using SCADA • Technology will change the current network load management paradigm. technology. • Vector Networks is currently embarking on a significant rethink of load management. • Vector is looking to • Vector Networks is looking to review incentives for customers to participate in demand- review side management, and how they participate. incentives for customers to • Vector Networks is looking at reducing free riders, so that demand-side benefits go participate in where they are created. load management • It is essential to be able to recognize value (created by demand-side participation etc.) options. and to be able to pass it on. • Load • Change in technology creates opportunities to establish next generation demand-side management systems and strategies, so that ripple plant’s days and historical ownership structures needs to create may be numbered. more value for those involved. • Ripple-relay control systems act like a Page 28 of 67
  29. 29. Network Reliability and Firm Power Capacity Workshop: December 2005 (IRL, Wellington) ‘sledge hammer’ – no longer appropriate for managing loads effectively. • Transmission pricing does not reflect system peaks. Page 29 of 67
  30. 30. Network Reliability and Firm Power Capacity Workshop: December 2005 (IRL, Wellington) ISSUES SPECIFIC PRESENTER MAIN POINTS RAISED NEEDS • Technical issues associated with installing network-embedded DG include: Connection Arrangements; Protection; Over and Under-voltages; Stability; Auto Re-closing; • The option of Ferro-resonance; Metering; Islanding; Current Flows; Power factor; Under Frequency separating Protection; Harmonics. electricity Brent Noriss generators and • Commercial issues associated with installing network-embedded DG include: • Market rules retailers in the (The Lines Recovery of Costs including Engineering; Transpower Avoidance Calculations; Loss required to NZ electricity Company) Factor Calculations; Power factor; support the market might Dedicated Assets; Connection Contracts. complexity make it harder Presentation: associated with to address the • Industry issues associated with installing network-embedded DG include: Electricity connecting technical The Market ability to handle complex Distributed Generation Situations; Innovative Network distributed issues Experiences of Solutions; and, Plant Reliability. generation to associated with a Network networks in installing and Engineer in The • DG is exciting but involves a lot more engineering than most people realize. reality. operating King Country network- • There is significant difficulty in getting the various stakeholders to understand the embedded issues (let alone work together to address them!) generation. • It is not clear who is going to pay for what with DG installations and operations, let alone ensure that sufficient benefit is concentrated in few enough hands to justify project commencement. Page 30 of 67
  31. 31. Network Reliability and Firm Power Capacity Workshop: December 2005 (IRL, Wellington) ISSUES SPECIFIC PRESENTER MAIN POINTS RAISED NEEDS • Eastland Networks Limited (ENL) has commercial and operational motivations for • Transpower’s investigating DG. plans to upgrade • ENL network characteristics include: low consumer density, low average consumer existing circuits consumption, fed by a long radial transmission line with high nodal energy prices. is limited considering • Capacity is a key issue with 47MW uncontrolled and 39MW+ controlled. There is a forestry trends single line, double circuit 110kV line, running through rugged erosion prone back- and the growth country. in regional Matt Todd processing and • A well- • The transmission assets are becoming n-1 constrained. log exports. (Eastland structured, Networks) diverse • 38MW per circuit during the summer. • ENL needs portfolio of non- Presentation: distributed • Peak consumption could grow to 80MW by 2011. transmission generation solutions that Maximising required to • Price is a key issue affecting the network: large customers have been paying 4 to 7 will address Value from make it (DG) c/kWh, new contracts (3 years) are being offered at 10 c/kWh. energy delivery Distributed work. prices and Generation • For forestry processing energy is a top 3 input cost. capacity constraints. • Investors in the region planning new developments need certainty around energy: price, supply (capacity) and contract terms (of supply / price). • The current electricity • Typical problem / challenge involves: investing in a forestry processing plant with a 25 regulatory year $100m investment to make, where energy is one of its top 3 input costs, and environment energy has risen 30% over the last 3 years, with a maximum forward (hedge) term of 3 does not to 5 years. provide incentives for Page 31 of 67

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