Instantaneous reserve cost allocation

We are seeking feedback on a proposal to include groups of generating units in instantaneous reserve cost allocation where instantaneous reserve are required to insure against the simultaneous loss of the group.

The Electricity Authority-contracted system operator procures instantaneous reserve to ensure that consumers’ electricity supply is not impacted in the event of a sudden loss of generation.

New Zealand will need a significant increase in generation in the coming years to support its transition to a high renewable energy-based economy as energy users shift to electricity from other sources. It is important that the tools and regulatory settings keep pace with the evolving landscape, to ensure a competitive, reliable, and efficient power system during the transition. This includes ensuring all participants appropriately face the instantaneous reserve costs their investment decisions cause.

This project is focused on improving the way in which the costs of procuring instantaneous reserve are allocated to industry participants. We consider the allocation of instantaneous reserve costs should:

• incentivise those participants causing the need for instantaneous reserve procurement to act in a way that reduces instantaneous reserve procurement costs
• maintain a level playing field between different types of generators.

This will create a level playing field between generators and incentivise decisions that lead to lower system costs and a more reliable supply of electricity.