Strengthening the wholesale market: quarterly update

The Electricity Authority has published its first quarterly report on its delivery of recommendations to support resilient, affordable electricity for the future.

The Authority’s independent Market Development Advisory Group (MDAG) final report Price discovery in a renewables-based electricity system, delivered in December 2023, said the wholesale market continues to be the best approach for the future and recommended a series of measures to strengthen the electricity market.

MDAG’s report brings together significant contributions from industry, international experts and other stakeholders. Our advisory groups are an important way in which we listen, assess and form our work programme. The Authority is supporting the evolution of the wholesale electricity market for the future, and MDAG’s recommendations play an important role in delivering the Market 2.0.

In the April to June 2024 quarter, the Authority delivered decisions on MDAG’s priority recommendations, with work focused on:

• Recommendation 1 (short-term forecasts): We expect most new electricity generation in New Zealand to come from intermittent generation – generation that is reliant on external factors, like wind or solar. To help improve security of supply and outcomes for consumers the Authority has made decisions to improve forecasting for intermittent generation.
  
  These changes will contribute to more accurate price signals, so that the most efficient and lowest-cost sources of generation are dispatched, putting downward pressure on prices for consumers. In addition, the provision of a centralised forecast as part of the new arrangement will help reduce barriers to entry for innovator-developers, enhancing competition in the market for the long-term benefit of consumers. These new arrangements are planned to be in place by winter 2025.
  
  
• Recommendation 2 (hedge market transparency): Industry participants use risk management contracts to mitigate their exposure to price volatility. The Authority’s decisions broaden the type of information collected, including on Power Purchase Agreements.
  
  This is improving the Authority’s monitoring and helps participants to better manage risk, leading to more efficient prices for consumers, and providing clearer price signals for investment decisions in generation, storage and demand response. New hedge disclosure obligations will take effect from 30 October 2024.
  
  
• Recommendation 6 (new reserve product): The Authority intends to develop an ancillary service in the form of a five-minute variability management tool, which will help the electricity system deal with intermittency.
  
  This decision, as part of the potential solutions for peak electricity capacity issuesproject, will be achieved by repurposing the existing Multiple Frequency Keeping tool. This achieves the intent of MDAG’s recommendation for a new reserve product. The Authority has also delivered a number of other options to support security of supply for Winter 2023 and 2024.
  
  
• Recommendation 17 (information on development pipeline): Access to better information about the pipeline of new generation and load is important for participants’ investment decisions and helps the Authority and other stakeholders monitor long-term security of supply. We have increased publication of existing information about the pipeline of new generation with a dashboard and dataset. We also want to expand our reporting, and will shortly consult on a new approach to data collection that will enable more information to be published.
  

Next steps

Work has also begun on other priority recommendations, which the Authority sees as key to ensuring confidence in the level of competition in the wholesale market. These include:

• Recommendation 8 (standardised flexibility products)
• Recommendation 12 (competition dashboard)
• Recommendation 13 (high level outline of virtual disaggregation).

The Authority has added a further recommendation to our work programme, which we plan to complete next year:

• Recommendation 16 (scarcity pricing parameters): To ensure participants have confidence that the security of supply settings remain fit for purpose and provide robust signals for investment, we intend to update the Security Standards Assumptions Document. Included in this are considerations for updating the value of lost load and scarcity price settings.

The Authority sees these as key areas of work to deliver, to ensure confidence in the level of competition in the wholesale market is maintained.

About the MDAG wholesale market project