Security of supply

About security of supply

In New Zealand, most electricity is provided by hydro generation. The potential and actual risks to the electricity market supplying enough electricity to meet demand occurs when hydro lake levels fall to critical levels.

The electricity industry needs to provide appropriate generation capability and transmission capacity to maintain normal supply to consumers. Managing these scenarios is called 'managing security of supply'. (This does not include reliability of supply to consumers, which arises from short-term causes such as storms or earthquakes.)

Managing security of supply is a year-round job

The focus of managing security of supply is on hydro (as most electricity in New Zealand is generated by hydro), but the management of all fuels need to be balanced to ensure there is enough hydro storage.

In winter, there tends to be more snow than rain, which reduces inflows into the South Island hydro lakes when electricity demand is at its highest. The snow then melts in late spring, filling the lakes over summer when demand is usually lower. This natural cycle means lake inflows tend not to align with electricity demand. Generators need to manage lake levels in autumn to ensure there is enough stored water for winter.

Any change to the natural cycle, such as low snowfall or extreme La Niña conditions, affects storage for the following winter. This needs to be carefully managed to ensure there is enough hydro storage.

The ability to store water to meet electricity generation needs is limited by the consented operating levels of lakes. There are consent conditions in place (lower and upper levels) to protect the balance of the environment, while still allowing access to hydro storage. Hydro generators cannot use all the water out of a lake. For example, Lake Taupō is very deep and New Zealand’s largest lake, but its level may only be varied by 1.4 metres for hydro generation.

When inflows are low for a sustained period, or hydro storage needs to be conserved in anticipation of winter, other forms of generation (like coal which is easily storable) are increased to meet electricity demand.

Electricity market arrangements are designed to ensure there is continued supply, even in dry years or for emergencies.

Forecasting security of supply levels

We contract the system operator (Transpower) to forecast the ability of the electricity system to meet demand in New Zealand.

The system operator compares actual stored water against energy risk curves to show how likely an energy shortage is, and to make plans to deal with it in the rare chance one occurs. The entire electricity system needs to be managed, so the calculation of the energy risk curves also takes into account the availability of thermal generators, thermal fuel and transmission.

As lake levels fall, the amount of available hydro storage falls. If the amount of stored water falls into one of three zones (watch, alert or emergency), the security of supply level changes to reflect the increased risk of energy shortages. Appropriate action is then taken to maintain supply.

When the amount of stored water is in the red or emergency zone, a public conservation campaign may be triggered to enable the remaining water to be conserved to meet winter demand.

Managing security of supply is a year-round task, even when the lakes are full. We meet regularly with the system operator, Ministry of Business, Innovation and Employment and the Gas Industry Co to monitor the status of security of supply. The system operator also regularly hosts industry forums to discuss the risk levels.

Reserve supply determination

The Electricity Commission operated a reserve energy scheme that defined a trigger point for reserve generation capacity. When the Crown owned the Whirinaki generating station, the reserve generation capacity trigger primarily served as the catalyst for ensuring Whirinaki ran to help preserve hydro storage.

Transitional provisions in section 136 of the Electricity Industry Act 2010 include that:

• conditions in resource consents that refer to a determination by the Commission regarding reserve generation capacity must be read as if they referred to the Authority making a reserve supply determination
• the Authority may make or rescind a reserve supply determination but only in accordance with criteria that it has made publicly available.

The Crown no longer owns Whirinaki and the Authority does not intervene in the market to suggest or require when generating plant ought to operate. However, the Authority is aware of two companies with hydro lake consent conditions linked to the Commission’s reserve generation capacity trigger point.

We've published the standing reserve supply determination to ensure continued access to hydro lakes at a trigger point that reflects the original expectations of the consenting authorities. This was last updated on 1 August 2019 following a review of the regulatory settings for official conservation campaigns.

Standing Reserve Supply Determination

In accordance with section 136(3) of the Electricity Industry Act 2010, the Authority makes the following standing reserve supply determination applicable from 1 August 2019.

A reserve supply determination is made when "the system operator reports that available hydro storage is less than or equal to the Alert Release Boundary for New Zealand or the South Island as described in clause 6.1C of the security of supply forecasting and information policy.

A reserve supply determination is rescinded when "the system operator reports that available hydro storage is greater than the Alert Release Boundaries for both New Zealand and the South Island as described in clause 6.1C of the security of supply forecasting and information policy.

We're aware of two companies with hydro lake consent conditions that depend on the reserve supply determination: Contact Energy for Lake Hawea and Genesis Energy for Lake Tekapo.

Contact Energy

Contact Energy has consent to use water from Lake Hawea for electricity generation. A condition within the consent enables the water level to be lowered from 338m to 336m when “the Electricity Commission (or any statutory body exercising like powers and functions to the Electricity Commission) determines that reserve generation capacity (such as that currently located at Whirinaki) should generate electricity.”

Genesis Energy

Genesis Energy has consent to use water from Lake Tekapo for electricity generation. A condition within the consent enables the water level to be lowered from 704.1m to 701.8m during October to March when “the Electricity Commission (or any statutory body exercising like powers and functions to the Electricity Commission) determines:

(i) that reserve generation capacity (such as Whirinaki Power Station) is required to generate electricity: or

(ii) the National or South Island minzones (or their future equivalents) have been breached.”

Industry roles and responsibilities

The following parties are involved in security of supply:

• Commerce Commission – regulates the quality and reliability of service provided by electricity lines businesses and the national grid.

• Electricity Authority – We're responsible for ensuring that the regulatory environment promotes an efficient level of reliability for electricity consumers. For example, the cost of providing security of supply is appropriately traded off against the costs and risks associated with a loss of supply. In the event of a security of supply event, we may be called upon to communicate the security of supply policy framework and the system operator's responsibilities.

• Electricity generators – are responsible for managing their generation plant and fuel supply to make sure there is enough generation to meet demand.

• Security and Reliability Council – provides independent advice on the performance of the electricity system and the system operator, as well as reliability of supply issues.

• System operator – has operational responsibility for providing information on all aspects of security of supply and for managing supply emergencies. View Transpower's security of supply videos.

Security of supply policy

We establish the policy framework for security of supply with the system operator.