Download - An update on the Market Development Program
An update on the Market Development Program
Phil BishopNew Zealand Electricity Commission
Presentation to the EPOC Winter Workshop3 September 2009
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Outline
• Background, strategic context and key elements
• MDP c.f. Ministerial Review• 10 MDP projects• Security of supply and efficient investment
• Timeline
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Background• MDP established to draw together and prioritise projects that are
focused on improving the performance of the electricity market• Market design review – 2007-08• Winter 2008 review – 2008-09• Commerce Commission investigation – 2005-09
• Underlying concerns (or perceptions?)
• Lack of confidence in security of supply
• Electricity prices are too high
• Visit the Commission’s website for further information
• http://www.electricitycommission.govt.nz/
• …/advisorygroups/mdag/index.html
• …/opdev/mdp
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MDP context – strategic priorities
Market Design Review
2008 Winter Review
Commerce Commission investigation
Strengthen competition
Improve investment/ supply signals
Improve market monitoring
MDP designed to reflect EC’s strategic priorities as reinforced by recent reviews
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MDP key elements
Retail monitoring & consumer information
Review distribution pricing
Smart metering / infrastructure
Locational hedge products
Clarify ownership of load control
Wholesale market monitoring & information
Frequency keeping & instantaneous reserves markets
Review transmission pricing
Capacity & scarcity mechanisms
Future of Whirinaki station
Retail competition
Wholesale competition
Security
MDP elements driven by strategic priorities and current legislative framework
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MDP c.f. Ministerial Review• MDP will culminate in proposed options for consultation
with participants, i.e. in accordance with the Act, and, if required, rule changes
• In contrast, the MR puts forward 28 recommendations:• 23 related to market arrangements• 5 related to governance structures
• There appears to substantial alignment between many of the MR recommendations and the MDP• Many of the MR recommendations exist as options
within the various MDP projects• Both MDP and MR represent an evolution of market
design and arrangements
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MDP – 10 projects• Capacity and scarcity - develop, assess and implement scarcity
pricing and/or capacity market mechanisms that will encourage efficient generation investment to supply energy at times of scarcity.
• Future of Whirinaki - subject to outcomes from the capacity and scarcity project, determine whether Whirinaki should be removed from the Reserve Energy Scheme and, if so, under what conditions.
• Locational hedges - develop and implement an effective mechanism that will allow participants to better manage locational price risk and thereby increase retail competition and improve hedge market liquidity.
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MDP – 10 projects cont’d• Market monitoring - develop and implement systems to:• improve the information available to wholesale market
participants;• strengthen the monitoring and assessment of the performance of
the electricity market, including the behaviour of participants in both the retail and wholesale markets;
• provide more accessible information on retail price comparisons to consumers; and
• improve the monitoring and provision of information on security of supply.
• Transmission pricing - review the allocation of transmission costs in order to enable efficient use of, and investment in, transmission assets, and to provide coherent signals through the electricity value chain.
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MDP – 10 projects cont’d
• Distribution pricing - investigate approaches to ensuring that distribution charges are set in a way that promotes efficiency and enhances competition in the retail electricity market.
• Demand-side initiatives - develop the Commission’s load control policy and undertake initiatives to improve levels of demand response (demand-side bidding and forecasting, dispatchable demand). The project also includes an assessment of the effects of property rights on efficient use of load management and whether rule changes are required for better outcomes.
• Extended load control - determine if interrupting residential hot water load by using frequency sensitive relays can reduce procured instantaneous reserves quantities and costs.
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MDP – 10 projects cont’d
• Multiple frequency-keepers - develop a system to coordinate multiple frequency keepers, including a nationally-based market instead of an island-based market.
• Part D rules and advanced metering - review and update Part D of the Rules on metering and metering equipment, and review the advanced metering guidelines to identify any changes needed to ensure a high quality advanced metering infrastructure.
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Security of supply and efficient investment• Three key areas of concern:• Incentive to retain and/or invest in peaking or hydro firming
plant;• The level of demand side participation; and• Management of dry year risk
• Underlying problem: alignment of incentives• Risks and rewards are not always in sync – costs able to be
passed onto others• Reserve energy scheme effectively imposes an implicit price
cap – depresses incentive for market to invest in plant that rarely runs
• Possible solutions• Scarcity pricing/compensation• Compulsory contracting mechanisms
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Interactions between MDP elements
Scarcity / Compulsorycontracting mechanism
Review dist’npricing/terms
Introduce locational
hedge
Increased market
monitoring
Improve ancillary servicemarkets
Modify Reserve Energy scheme
Demand sidemeasures
Review transmission
pricing
Facilitate customersearch/ switching
• Secure supply
• Effective wholesale competition
• Effective retail competition
Coherent MDP ensures:
Scarcity / Compulsorycontracting mechanism
Review dist’npricing/terms
Introduce locational
hedge
Increased market
monitoring
Improve ancillary servicemarkets
Modify Reserve Energy scheme
Demand sidemeasures
Review transmission
pricing
Facilitate customersearch/ switching
Scarcity / Compulsorycontracting mechanism
Review dist’npricing/terms
Introduce locational
hedge
Increased market
monitoring
Improve ancillary servicemarkets
Modify Reserve Energy scheme
Demand sidemeasures
Review transmission
pricing
Facilitate customersearch/ switching
• Secure supply
• Effective wholesale competition
• Effective retail competition
Coherent MDP ensures:
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MDP – intended timelineMDP Programme
Capacity and scarcity mechanisms
Locational hedging
Future of Whirinaki
Monitoring and Information
Transmission and distribution pricing
Transmission pricing
Distribution pricing
Load management/Demand participation
Advance metering recommendation to Minister
Part D review
Property rights
Dispatchable demand
Demand side bidding and forecasting
Ancillary services
Frequency keeping - multiple frequency keepers
Instantaneous reserves - extended load control
Key InitiationAnalysis and DecisionsImplementation*Possible implementation
*rules, software, operational development
2009 2010 2011
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Questions?