Change proposed for instantaneous reserve costs allocation

The Electricity Authority Te Mana Hiko is proposing to amend the Electricity Industry Participation Code 2010 (Code) to update the way instantaneous reserve procurement costs are allocated to generators.

We are proposing to change the cost allocation methodology so that more generators are required to pay an appropriate share of the instantaneous reserve procurement costs, both now and in the future.

Currently, the formula for allocating instantaneous reserve costs does not allow costs to be allocated to groups of generating units based on the need for instantaneous reserves to cover the potential sudden loss of their generation.

We want to amend the Code so that groups of generating units receive the same instantaneous reserve cost allocation as single generating units that pose the same level of risk to the power system.

We believe this will level the playing field between different generators, provide for a more resilient grid and a more affordable and reliable supply of electricity to consumers.

Under the current formula, new generation sources such as wind farms, solar farms and Battery Energy Storage Systems, which can be considered groups of generating units, are not required to pay for instantaneous costs despite them potentially being the cause for cover being procured.

We believe the proposed change would incentivise new generators to configure their assets in a way that reduces the quantity of instantaneous reserve procured and would promote efficient investments in flexible capacity to balance intermittent renewable generation.

We consider this would reduce costs to consumers through a lower total cost of producing electricity and ensure consumers’ electricity supply continues to be reliable during the transition to a highly renewable power system.

Submissions on the proposed change close on 23 August and cross-submissions close on 30 August.

View consultation: Instantaneous reserve cost allocation to groups of generating units