Doug Clover on New Zealand's Electricity Reforms


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Doug Clover on New Zealand's Electricity Reforms

  1. 1. The New Zealand electricity system: past, present, and future Victoria University of Wellington 25th May 2010 Doug Clover Victoria University of Wellington
  2. 2. Overview of presentation <ul><li>Introduction to the electricity system </li></ul><ul><li>The current proposals to reform electricity sector </li></ul><ul><li>Future options for the electricity system in New Zealand </li></ul>25/5/10 Doug Clover
  3. 3. Doug Clover Otahuhu/Southdown (Thermal) Huntly (Thermal) New Plymouth / TCC (Thermal) Waikato system (Hydro and Geothermal) Waitaki system (Hydro) Clutha system (Hydro) Manpouri (Hydro) Adapted from Transpower 2006 25/5/10 The New Zealand grid
  4. 4. Key statistics 2008 Doug Clover 25/5/10 Hydro Thermal Geothermal Wind Other (wood, biogas, cogen) Total Oil Gas Coal Installed capacity (MW) 5375 155 1805 1008 585 321 127 9376 Electricity Generated GWh 22091 123 7997 3943 3913 1,047 2,989 42,246 Thermal Total (GWh) 12063 Percentage (GWh) 52% 28% 9% 2.5% 7
  5. 5. Structure of the electricity sector Ministry of Energy Doug Clover 25/5/10 Pre the 1990 reforms NZED Power-boards and MEDs Residential and Commercial customers Direct supply customers
  6. 6. Electricity system 25/5/10 Doug Clover Post 1990 reforms Generators Mighty River Power 16% Genesis Power 22% Meridian Energy 27% Contact Energy 24% TrustPower 5% Other Independents and On-site Generators 6% Transpower Sys op Line Companies Direct supply customers New Zealand Steel, Pulp and Paper, Rio Tinto Aluminium, Fonterra Co-operative Group, Methanex, Ontrack etc. Clearing Manager (M-Co) Electricity Retailers Commercial and residential consumers Commerce Commission Electricity Commission Adapted from : MED 2009
  7. 7. The electricity market <ul><li>Spot market – </li></ul><ul><li>Sets half hourly price for electricity. Marginal bid for that half hour sets the market clearing price. All electricity is bid into the pool. </li></ul>25/5/10 Doug Clover Source: Tipping 2007
  8. 8. The electricity market <ul><li>Reserve market (also clears every half hour) </li></ul><ul><li>Contracts market (Generators and retailers) </li></ul>25/5/10 Doug Clover Source: M-Co 2009
  9. 9. Impact of the market on electricity prices Doug Clover 25/5/10 Source: Melhuish 2009 Source: Tipping 2007 Wholesale price Retail prices
  10. 10. Trends in electricity generation Doug Clover 25/5/10 Source: Bertram and Clover 2009
  11. 11. Greenhouse gas emissions 25/5/10 Doug Clover Source: MED 2009 and MfE 2009
  12. 12. Maui gas 25/5/10 Doug Clover Source: Bertram and Clover 2009
  13. 13. Moving towards 90% The supply side 25/5/10 Doug Clover Source: Bertram and Clover 2009 Renewable resources
  14. 14. Renewables supply curve 25/5/10 Doug Clover Source: Bertram and Clover 2009
  15. 15. Future demand 25/5/10 Doug Clover Source: Bertram and Clover 2009
  16. 16. Changes to the electricity sector <ul><li>Electricity Commission becomes the Electricity Authority, focused on the establishment of an industry code (not take account of environmental sustainability – to be dealt with by the RMA) </li></ul><ul><li>Redistribute some stations between SOE generators </li></ul><ul><li>EECA to take over EC’s energy efficiency programme (funding?) </li></ul><ul><li>MED takes over long term forecasting </li></ul><ul><li>Commerce Commission takes over the Grid Investment Test (technical knowledge) </li></ul><ul><li>Line companies will be allowed to retail (to increase competition) </li></ul>25/5/10 Doug Clover
  17. 17. The Code <ul><li>Compensation by retailers to consumers during public conservation campaigns: </li></ul><ul><li>A floor on spot prices during supply emergencies </li></ul><ul><li>Promote the development of [transmission] hedges against price risks : </li></ul><ul><li>Develop mechanisms demand-side participants to benefit from demand reductions: </li></ul><ul><li>Require distributors to use more standardised line distribution tariff structures and use-of-system rules </li></ul><ul><li>Facilitating active market for trading financial hedge contracts for electricity </li></ul>25/5/10 Doug Clover
  18. 18. Demand side Future demand revisited Doug Clover Source: Bertram and Clover 2009 25/5/10
  19. 19. DSM and distributed generation <ul><li>DSM – Demand side management– measures that allow for increased control of energy demand, primarily at peak times. </li></ul><ul><li>Distributed generation – energy generation that is primarily or entirely for use on-site (located on the user’s side of the meter) – it is most often used in the context of electricity generation, but can include the production of heat as well. </li></ul><ul><li>Note: This definition is not the one used by the Electricity Commission </li></ul>Doug Clover 25/5/10
  20. 20. DSM <ul><li>Comprises technologies– including smart grids, smart meters, smart appliances, distributed generation, on-site energy storage (EVs?) </li></ul><ul><li>Comprises behavioural change – price signals that motivate peak shifting, energy efficiency initiatives, and energy conservation </li></ul><ul><li>DSM is a systems approach and works best in conjunction with measures that improve energy efficiency </li></ul><ul><li>Can potentially be aggregated into neighbourhood and community level systems (local smart grids - micro-grids). </li></ul>25/5/10 Doug Clover
  21. 21. Barriers to DSM <ul><li>Electricity market/players are all incentivised to maximise profits by selling more electricity </li></ul><ul><li>As retailers are owned by generators – no DSM promoter/aggregator </li></ul><ul><li>Spot market designed for supply, not DSM - price settled ex-post (DSM providers need an ex ante price) </li></ul><ul><li>DSM response is not seen as “dispatchable”, therefore is seen as unreliable </li></ul><ul><li>Regulation and policy frameworks focused on supply </li></ul><ul><li>Weak price signals - residential and commercial pricing does not incentivise demand management. </li></ul>25/5/10 Doug Clover
  22. 22. Barriers specific to DG 25/5/10 Doug Clover <ul><li>Electricity system designed to have the electricity flow one way - to the consumer - concerns about impact on the stability of the grid </li></ul><ul><li>Seen as unreliable – not dispatchable </li></ul><ul><li>Lack of expertise/support services – except for household insulation providers, limited to a number of small businesses run by enthusiastic operators. </li></ul>
  23. 23. Barriers specific to DG (cont.) <ul><li>Large up front costs </li></ul><ul><li>Limited incentives to sell any surplus electricity – net metering is available (limited), but feed-in tariffs are not (not discussed in Market Review document). </li></ul>25/5/10 Doug Clover Source: EECA 2008 Average residential price (incl GST)