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113-696: The New Zealand electricity market ( NZEM ) is a decentralised electricity market regulated by the Electricity Industry Participation Code administered by the Electricity Authority (EA). The authority was established in November 2010 to replace the Electricity Commission . Until 1987, New Zealand had a centrally run system of providers of generation , transmission , distribution , and retailing . Reform has since led to

226-462: A single buyer for electricity, in order to cut retail costs. The government responded by calling it "economic vandalism", comparing it to the Soviet Union , but Greens co-leader Russel Norman said it would boost the economy and create jobs. By the following day, shares in privately owned power company Contact Energy had fallen by more than 10 percent. The general election held on 20 September 2014

339-447: A centralized electricity market obtains the cost information (usually three components: start-up costs, no-load costs, marginal production costs ) for each unit of generation ("unit-based bidding") and makes all the decisions in the day-ahead and real-time ( system redispatch ) markets. This approach allows the operator to take into consideration the details of the configuration of the transmission system. The centralized market normally uses

452-468: A compensation for these costs to the producer (so called make-whole or uplift payments ), financed in some way by the market participants (and, ultimately, the consumers). Inflexibility of the centralized market manifests itself in two ways: Market clearing algorithms are complex (some are NP-complete ) and have to be executed in limited time (5–60 minutes). The results are thus not necessarily optimal, are hard to replicate independently, and require

565-438: A competitive sales process, TrustPower sold its lines business to United Networks Limited (formerly Power New Zealand) for $ 485 million. Trustpower also acquired the retail business from eight energy companies: Waipa Power , Wairoa Power, Marlborough Electric , Buller Electricity, Westpower, Electricity Ashburton , Central Electric, and Otago Power. Using the proceeds of the sale of these businesses Trustpower began purchasing

678-417: A conflict of interest by Tauranga 's Mayor, Bradshaw Dive . He was replaced by Claude W. Boak as electrical and general engineer. By 1928 the department had installed 232 water heaters and 120 electric stoves and was supplying 848 customers with a revenue of £22,116. With demand still continuing to increased through the 1930 the combined output of Omanawa Falls and McLaren Falls was proving insufficient. As

791-598: A draft set of Electricity Governance Regulations and Rules was issued on behalf of the Minister of Energy by the Electricity Commission Establishment Unit (ECEU). This set was for consultation purposes and after submissions were received and reviewed, a set of regulations and rules was recommended to the Governor-General. In September 2003 a revised set of draft rules and regulations was issued by

904-566: A factor of 117×. The Electricity Authority declared a UTS (undesirable trading situation) and subsequently dropped the final price to $ 3000 /MWh (€ 2000 /MWh). The Electricity Authority decision was challenged and the High Court of New Zealand found in favor of the regulator. In its submission, the Electricity Authority stated that "the high interim prices on 26 March 2011, if they are allowed to become final prices ... threaten to damage

1017-411: A future half-hour period (called a trading period) and is an offer to generate a specified quantity at that time in return for a nominated price. The System Operator (Transpower) uses a scheduling, pricing and dispatch (SPD) system to rank offers, submitted through WITS, in order of price, and selects the lowest-cost combination of offers from the generators to satisfy demand. The market pricing principle

1130-700: A half share in the Kaimai hydro power scheme . Meanwhile, the Rotorua Electric Power Board had also changed its financial structure to become the Rotorua Electricity Ltd. By 1995 Trustpower had built up a 67.7% shareholding in this new entity and in 1996 took full control. In 1995 Trustpower purchased Taupo Electricity Limited and Taupo Generation Limited which gave it a total of 89,000 customers to make it New Zealand's fourth largest power company and third largest power generator. While for many years

1243-523: A pioneer in deregulation in the early 1980s (the law of 1982 had codified the changes that were started in 1979). Only few years later the new market approach to electricity was formulated in the US, popularized in the influential work by Joskow and Schmalensee, "Markets for Power: An Analysis of Electrical Utility Deregulation" (1983). At the same time in the UK, Energy Act of 1983 made provisions for common carriage in

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1356-580: A poll of ratepayers in the board's area which covered 667 square miles (1,753 km2), including the towns of Katikati, Mt Maunganui and Te Puke the board raised a loan of £110,000 to construct its distribution system. Rather than build its own power stations the board arranged to obtain its electricity from the Electricity Department of the Tauranga Borough Council. Following his resignation from Tauranga Borough Council Lloyd Mandeno took up

1469-628: A position as general manager of the Tauranga Electric Power Board in January 1926. He was only in the position until he resigned on 25 May of that year, leaving the position in August, to go into private practice in Auckland. However the board retained him as their consulting engineer on an annual retaining fee of £250 plus travelling expenses, a position he retained until 1929. While involved with

1582-548: A result, the electricity department was forced to arrange with the SHD to take supply from its Aongatete and Te Puke. In 1962 the department began using underground cabling systems in new subdivisions. In the same decade the department decided to proceed with construction of two new power stations that utilised the waters of the Mangapapa and Wairoa Rivers, which had been designed by consultants Mandeno Chitty & Bell in whom Lloyd Mandeno

1695-740: A small amount of conventional generation capacity within their network but are not limited in the level of renewable generation capacity. There is no barrier to vertical integration from generation to retail. The overall arrangement of the industry creates some very interesting market behaviour amongst the players. Generation is dominated by five companies: Contact Energy , Genesis Energy , Mercury Energy , Meridian Energy , and Trustpower . The retailers are: Contact Energy , Ecotricity, Electra Energy, Electric Kiwi , Energy Direct , Energy Online , Flick Electric, Genesis Energy , Giving Energy, GLOBUG , King Country Energy , megaEnergy, Mercury Energy , Meridian Energy , Nova Energy , Opunake Hydro, Paua to

1808-582: A total of 48 trading periods each day. In addition to the core wholesale spot market there are two associated markets. A hedge market for CFD financial contracts is operated by the ASX Australian Stock Exchange, and an FTR market for Financial Transmission Rights is operated by Energy Market Services, a business unit of Transpower. These markets are linked to wholesale market prices at select locations, allowing market participants to manage their basis risk. The Electricity Authority contracts out

1921-421: A useful chronology of reforms up to 2015. Electricity is traded at a wholesale level in a spot market . The market operation is managed by several service providers under agreements with the Electricity Authority . The physical operation of the market is managed by Transpower in its role as system operator . Generators submit offers through a Wholesale Information and Trading System (WITS). Each offer covers

2034-437: Is a relatively recent phenomenon. Buying wholesale electricity is not without its drawbacks (market uncertainty, membership costs, set up fees, collateral investment, and organization costs, as electricity would need to be bought on a daily basis), however, the larger the end user's electrical load, the greater the benefit and incentive to make the switch. For an economically efficient electricity wholesale market to flourish it

2147-475: Is also traded on the ASX Australian exchange. There are a number of smaller companies in the electricity generation industry including WEL Networks , NZ Windfarms, NZ Energy , MainPower , Pioneer and Top Energy. The retail space is dominated by the five generating companies. The generation and retail companies use this vertical integration as a natural hedge to manage risks associated with volatility of

2260-533: Is dominated by five generators, which are Contact Energy, Genesis Energy, Mercury Energy, Meridian Energy, and Trustpower. These are all active in generation, the wholesale market and retail sales of electricity. Between these five companies they produce or control more than 95% of NZ's total electricity generation. All of these five companies are listed and traded on the NZX stock exchange. The New Zealand government has 51% ownership of Genesis, Mercury, and Meridian. Contact

2373-688: Is essential that a number of criteria are met, namely the existence of a coordinated spot market that has "bid-based, security-constrained, economic dispatch with nodal prices". These criteria have been largely adopted in the US, Australia, New Zealand and Singapore. Markets for power-related commodities required and managed by (and paid for by) market operators to ensure reliability, are considered ancillary services and include such names as spinning reserve, non-spinning reserve, operating reserves , responsive reserve, regulation up, regulation down, and installed capacity . Wholesale transactions (bids and offers) in electricity are typically cleared and settled by

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2486-575: Is known as bid-based security-constrained economic dispatch with nodal prices . The highest-priced bid offered by a generator required to meet demand for a given half-hour sets the spot price for that trading period. Electricity spot prices can vary significantly across trading periods, reflecting factors such as changing demand (e.g. lower prices in summer when demand is subdued) and supply (e.g. higher prices when hydro lakes and inflows are below average). Spot prices can also vary significantly across locations, reflecting electrical losses and constraints on

2599-569: Is popular in Latin America: in addition to Chile, it is used in Bolivia, Peru, Brazil, and countries in Central America. A system operator performs an audit of parameters of each generator unit (including heat rate , minimum load, ramping speed, etc.) and estimates the direct marginal costs of its operation. Based on this information, an hour-by-hour dispatch schedule is put in place to minimize

2712-444: Is possible (e. g., Chile with its preponderance of hydro power, in the US when the local market power is sufficiently high, some European markets ). A less-obvious issue is the tendency of market participants under these conditions to concentrate on investments in the peaker plants to the detriment of the baseload power . One of the advantages of the cost-based market is the relatively low cost to set it up. The cost-based approach

2825-755: Is quite complex. Markets often include mechanisms to manage a variety of relevant services alongside energy. Services may include: A simple "energy-only" wholesale electricity market would only facilitate the sale of energy, without regard for other services that may support the system, and experienced problems once implemented alone. To account for this, the electricity market structure typically includes: The competitive retail electricity markets were able to maintain their simple structure. In addition, for most major operators, there are markets for transmission rights and electricity derivatives such as electricity futures and options , which are actively traded. The market externality of greenhouse gas emissions

2938-444: Is sometimes dealt with by carbon pricing . Electricity market is characterized by unique features that are atypical in the markets for commodities or consumption goods. Although few somewhat similar markets exist (for example, airplane tickets and hotel rooms, like electricity, cannot be stored and the demand for them varies by season), the magnitude of peak pricing (peak price can be 100 times higher than an off-peak one) sets

3051-464: Is that all the major generators also own retailing arms. The companies are thus commonly known as "gentailers" (generator–retailers.) Proceeding 2021 TrustPower was also a gentailer until selling their retail arm to Mercury under the TrustPower brand and re-branding the remaining generation business as Manawa Energy. Manawa is now NZ's largest independent electricity generator, representing around 5% of

3164-574: Is the outcome of a joint venture takeover made by a wholly owned subsidiary of Trustpower and KCEPT, initiated in December 2017, that sought to acquire the balance of KCE's ordinary shares at $ 5 per share. Trustpower now controls 75% of KCE, with KCEPT controlling the remaining 25%. KCE sold its retail business to Trustpower in July 2018. Trustpower sold its Australian hydro-power generation assets operator GSP Energy Pty Limited for A$ 168 million ($ 129.46 million), as

3277-680: Is used in some deregulated markets, most notably in the Midcontinent Independent System Operator (MISO), PJM Interconnection , ERCOT , New York, and ISO New England markets in the United States, New Zealand , and in Singapore. Manawa Energy Manawa Energy limited is a New Zealand electricity generation company that offers bespoke electricity products to commercial and industrial customers across New Zealand. Manawa energy currently operate 26 power schemes from

3390-473: The Omanawa River to generate electricity and circulate it throughout the borough and surrounding area. With plans underway to build its new Omanawa Falls Power Station the Tauranga Borough Council established on 5 October 1914 a municipal electricity department to market and distribute the electricity that would be produced by the new station. Its supply area ranged from the causeway bridges leading through

3503-540: The Tiwai Point Aluminium Smelter. There are four major generators: Contact Energy , Genesis Energy , Mercury Energy , Meridian Energy . These four together produce about 90% of New Zealand's electricity. Meridian Energy, Genesis Energy and Mercury Energy are 51% majority owned by the New Zealand government, while Contact is a 100% publicly traded company. An important feature of the New Zealand market

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3616-636: The Whirinaki Power Station from the government (although Meridian eventually declined to accept). The transfer of Tekapo A and B was completed on 1 June 2011. On 1 November 2010, the Electricity Authority commenced operations, taking over from the Electricity Commission. In April 2013, the Labour Party and the Green Party said if they were to win the 2014 election, they would introduce

3729-533: The independent transmission system operator or ITSO model). While some operators in Europe are involved in structuring the day-ahead and intra-day markets, the other ones are not. For example, the UK market after the New Electricity Trading Arrangements in UK and the market in New Zealand let the markets sort out all the frictions before real-time. This reliance on financial instruments leads to

3842-406: The utility frequency (either 50 or 60 hertz ) to increase or decrease. However, the frequency cannot deviate too much from the target: many units of the electrical equipment can be destroyed by the out-of-bounds frequency and thus will automatically disconnect from the grid to protect themselves, potentially triggering a blackout . There are many other physical and economic constraints affecting

3955-682: The 20th century, and up to the present, there have been deep changes in the economic management of electricity. Changes have occurred across different regions and countries, for many reasons, ranging from technological advances (on supply and demand sides) to politics and ideology. Around the turn of the 21st century, several countries restructured their electric power industries, replacing the vertically integrated and tightly regulated "traditional" electricity market with market mechanisms for electricity generation , transmission , distribution , and retailing . The traditional and competitive market approaches loosely correspond to two visions of industry:

4068-1074: The Bay of Plenty in the north, to Otago in the south. The company is listed on the New Zealand stock exchange , but its ownership structure is dominated by its two major shareholders: Infratil which owns 51.0% and the Tauranga Energy Consumer Trust (TECT) which owns 26.8%. The remaining 22.2% is widely held. Mercury NZ Limited acquired Trustpower Limited’s retail business for the final acquisition price of $ 467 million. The acquisition will double Mercury’s total customer connections. Trustpower’s retail business sells electricity, gas, fixed and wireless broadband, and mobile phone services, totalling approximately 416,000 connections. The combined business will have approximately 787,000 connections creating New Zealand’s leading multi-product utilities retail business. Mercury Chief Executive Vince Hawksworth says that Mercury and Trustpower customers will continue to receive

4181-650: The Companies Act, Electricity Act, Resource Management Act 1991 , Commerce Act 1986 , and Fair Trading Act 1986 provide the framework for regulating normal commercial and environmental transactions. The government has increased the extent of intervention through the Electricity Industry Reform Act 1998, which forced power companies to divest either their energy or their lines business. The Electricity Amendment Act 2001 led to another round of industry reform concentrating on achieving better governance of

4294-736: The ECEU for submissions by the end of October. The set did not include proposed transmission regulations, which were still being drafted. Also in September the Minister of Energy announced the chair and members of the Electricity Commission. Roy Hemmingway, whose most recent position was chairperson of the Oregon Public Utility Commission in the US, took on the role as chairperson of the commission. The final set of Electricity Governance Regulations and Rules (excluding rules for transmission) became effective on 1 March 2004. The final chapter of

4407-554: The Electricity Governance Rules, on transmission, was gazetted on 28 April to become effective on 28 May 2004. A Ministerial Review of Electricity Market Performance was initiated on 1 April 2009 and led by an independent Electricity Technical Advisory Group, appointed by the Minister for Energy and Resources, with assistance from officials from the Ministry of Economic Development . There were 29 recommendations arising from

4520-588: The Electricity Industry Participation Code (EIPC), and is overseen by the market regulator, the Electricity Authority . Trade takes place at more than 200 pricing nodes across New Zealand. Generators can make offers to supply electricity at grid injection points, while retailers and some major industrial users make bids to withdraw "offtake" electricity at grid exit points. The market uses a locational marginal pricing auction which takes generators' offers and retailers' bids, and computes final prices and quantities at each node. These auctions are held every half-hour for

4633-480: The Electricity Industry Reform Act 1998 which was intended to change the structure of the electricity industry to encourage competition. This Act required the operational separation of lines and generation business activities by 1 July 1999 and separation of the ownership by 1 January 2004. As by now Trustpower had built up a substantial generation portfolio it elected to be a generator/retailer and so sold its lines and its contracting business, PowerLink Limited. Following

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4746-448: The LMP, and the dispatch goal is minimizing the total cost in each node (which in a large network count in hundreds or even thousands). The centralized markets use some procedures resembling the vertically integrated electric utilities of the era before the deregulation, so the centralized markets are also called integrated electricity markets . Due to the centralized and detailed nature of

4859-614: The McLaren Falls power station. This began generating on 25 June 1925. The falls and the power station were to named after a couple who operated a cookhouse during construction and whose son had been killed in World War I. In addition to his duties as an employee of the Tauranga electricity department, Mandeno was also a consultant to Te Puke Town Board and the newly constituted Tauranga Power Board. In 1925 Mandeno resigned after being accused of

4972-548: The New Zealand generation capacity. Retailers purchase electricity from the wholesale market, and on-sell it to consumers. Competition for retail customers varies across the country but since 1999, when full retail competition was introduced, customers have switched at a rate between 9% and 14% per annum. Consumer NZ , with support from the Ministry of Consumer Affairs , provides a website called Powerswitch that enables consumers to compare electricity and gas prices from different retailers and to switch suppliers. MBIE published

5085-564: The People, Payless Energy, Powershop , Pulse Energy, Tiny Mighty Power and Trustpower . Many of the retailers are owned by generating companies. For example, Mercury Energy owns GLOBUG and Tiny Mighty Power. Some retailers are restricted to certain geographical locations, such as King Country Energy which supplies to the King Country region of the Waikato. The electricity sector in New Zealand

5198-792: The Waitomo, King Country and Ruapehu Districts. King Country Energy was incorporated in 1991. On 18 December 2015, Trustpower announced that it was considering a process to demerge its wind assets in Australia and New Zealand, separating into two New Zealand incorporated listed companies by way of a Court-approved scheme of arrangement. The Demerger, effective on 31 October 2016, resulted in the creation of two new companies, Trustpower and Tilt Renewables . The demerger enables each business to focus on their respective areas of specialisation. In 2018, Trustpower and King Country Electric Power Trust (KCEPT), assumed full ownership of King Country Energy Limited (KCE). This

5311-540: The additional names for the decentralized markets: exchange-based , unbundled , bilateral . The system price in the day-ahead market is, in principle, determined by matching offers from generators to bids from consumers at each node to develop a classic supply and demand equilibrium price , usually on an hourly interval, and is calculated separately for subregions in which the system operator's load flow model indicates that constraints will bind transmission imports. The theoretical prices of electricity at each node on

5424-399: The agreement with another producer to provide the actual energy). Centralized markets make it easier to accommodate non-convexities, while the decentralized allow intra-day trading to correct the possibly suboptimal decisions made day-ahead, for example, accommodating improved weather forecasts for renewables. Due to the difference in the grid construction (US had weaker transmission networks),

5537-415: The amount of electricity that can be transmitted from one tighly-coupled area ("node") to another, so a generator in one node might be unable to service a load in another node (due to " transmission congestion "), potentially creating fragments of the market that have to be served with local generation (" load pockets "). After its first few years of existence, the electricity supply industry was regulated by

5650-621: The characteristics of the set of assets being represented. A wholesale electricity market , also power exchange or PX , (or energy exchange especially if they also trade gas) is a system enabling purchases, through bids to buy; sales, through offers to sell. Bids and offers use supply and demand principles to set the price. Long-term contracts are similar to power purchase agreements and generally considered private bi-lateral transactions between counterparties. A wholesale electricity market exists when competing generators offer their electricity output to retailers. The retailers then re-price

5763-424: The clearing can use one of two arrangements: In PAB, strategic bidding can lead producers to bid much higher than their true cost, because they will be dispatched as long as their bid is below the clearing price . In the absence of collusion , it is expected that MPS incentivizes producers to bid close to their short run marginal cost to avoid the risk of missing out altogether. MPS is also more transparent, as

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5876-490: The company focuses on its core New Zealand business. In May 2022, Trustpower sold its mass market retail business, retail customer base and the Trustpower brand to Mercury NZ Ltd . The company retained its hydro-electricity assets to become NZ's largest independent electricity generator, representing around 5% of the New Zealand generation capacity and changed their name to Manawa Energy, Manawa means ‘heart’ and it speaks to

5989-492: The company held by the public. In June 1993 Tauranga Civic Holdings Ltd took full control. By that year the company had 5,576 customers. Using the provisions of the Electric Power Boards Act of 1918 proposals were put to create a power board to supply the rural areas of the Bay of Plenty. As a result, the Tauranga Electric Power Board was established and held its first meeting on 13 September 1923. The following year

6102-498: The council had expanded its reticulation to supply rural areas as far as Gate Pa , Otumoetai , Papamoa and Oropi . By 1923 the department had 845 customers generating a revenue of £10,470. In 1921 Lloyd Mandeno undertook some investigations and proposed that the borough consider building a new power station using the head generated by fall on the Wairoa River. With demand increasing the borough council agreed to build what became

6215-444: The day-ahead dispatch, it stays feasible and cost-efficient at the time of delivery, unless some unexpected adverse events occur. Early decisions help to efficiently schedule the plants with the long ramp-up times. The drawbacks of the centralized design with LMP are: Price of a unit of electricity with LMP is based on the marginal cost , so the start-up and no-load costs are not included. Centralized markets therefore typically pay

6328-458: The deregulation was transforming electricity from a public service (like sewerage ) into a tradable good (like crude oil ). As of 2020s, the traditional markets are still common in some regions, including large parts of the United States and Canada. In recent years, governments have reformed electricity markets to improve management of variable renewable energy and reduce greenhouse gas emissions . The structure of an electricity market

6441-501: The design of wholesale markets in the US and Europe had diverged, even though initially the US was followed the European (decentralized) example. To accommodate the transmission network constraints centralized markets typically use locational marginal pricing (LMP) where each node has its own local market price (thus another name for the practice, nodal pricing ). Political considerations sometimes make it unpalatable to force consumers in

6554-539: The directors of Tauranga Electricity had been opposed to merging with other companies to create a Bay of Plenty wide energy company as they were of the opinion the resulting monopoly would push up prices. Eventually however the City Council after receiving many proposals over the years agreed to merge with Trustpower. The merger which occurred on 31 October 1997 guaranteed that the City Council's shareholding in Trustpower would provide an annual revenue of NZ$ 3.3 million over

6667-408: The electricity and take it to market. While wholesale pricing used to be the exclusive domain of large retail suppliers, increasingly markets like New England are beginning to open up to end-users. Large end-users seeking to cut out unnecessary overhead in their energy costs are beginning to recognize the advantages inherent in such a purchasing move. Consumers buying electricity directly from generators

6780-401: The electricity market and tighter control of monopoly functions. The "threat of regulation" was extended to the production of a set of regulations that would be brought into effect if the industry's self-regulation did not meet the government's criteria. On 16 May 2003 the result of a referendum by industry participants and customer representatives on a proposed set of self-regulating rules

6893-401: The electricity market apart (the summer price for a beachfront hotel room can be 3–4 times higher than the off-season one), the hotel/airline markets can also use retail price discrimination , unavailable in the wholesale electricity market. The peculiarities of the electricity market make it fundamentally incomplete . Electricity is typically available on demand. In order to achieve this,

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7006-468: The electricity market itself can be centralized or decentralized. In the centralized market the TSO decides which plant should run and how much is it supposed to produce way before the delivery (during the "spot market" phase, or day-ahead operation ). In a decentralized market the producer only commits to the delivery of electricity, but the means to do that are left to the producer itself (for example, it can enter

7119-415: The electricity network and the market, with some creating non-convexity : Electricity networks are natural monopolies , because it is not feasible to build multiple networks competing against one another. In order to address this, many electricity networks are regulated to address the risk of price gouging . The two main types of network price regulation are: The design of transmission network limits

7232-504: The electricity networks, enabling a choice of supplier for electricity boards and very large customers (analogous to " wheeling " in the US). The incorporation of distributed energy resources (DERs) has inspired innovative electricity markets that emerge from a hierarchical deregulated market structure, such as local flexibility markets , with upstream aggregating entities representing multiple DERs (e.g., aggregators). Flexibility Markets refer to

7345-432: The energy. The market still has the central operator that exclusively controls the system in real-time, but with significantly diminished powers to intervene ahead of delivery (frequently just the ability to schedule the transmission network for day-ahead operation ). This arrangement makes operator's ownership of the transmission capacity less of an issue, and European countries, with the exception of UK, permit it (following

7458-527: The following day, unless there are irregularities or disputes. Using the offer prices as established two hours before the trading period and volumes as established during the trading period. Differences between forecast, dispatch, real-time and final prices can be significant. In 2009, the Commerce Commission released a report by Stanford economist Frank Wolak on the ability of the four largest electricity suppliers to exercise unilateral market power in

7571-546: The generation assets being shed by those energy companies that had opted to be a lines company. This led to it purchasing the following hydro power stations and schemes: Arnold , Branch and Waihopai, Kumara, Mangorei , Motukawa , Paerau, Patearoa, Patea (for $ 72m) Wahapo, Waipori (for $ 70m) as well as the Tararua Wind Farm (for $ 49m). Thus by March 1999 it had 421.5 MW of installed capacity, capable of generating up to 1,769 GWh per annum. In March 2003 Trustpower completed

7684-421: The grid exit points to the end consumers' premises is the responsibility of about 30 distributors, also known as lines companies , who have monopoly control of the lines services on their networks. Ownership of distributors is through trust-owned companies, such as Auckland Energy Consumer Trust , and public companies. Some major industrial users are directly connected to the grid, such as New Zealand Steel and

7797-557: The heart of the company's operations in the Bay of Plenty. The name was gifted by Ngāti Hangarau hapū in the Kaimai area. It traces the company's origins back to the first hydro-electric power station on the Omanawa River. Trustpower continued to operate under the Trustpower brand and offer bundled services for power, gas, broadband and mobile, until the sale to Mercury Energy in May 2022 (when it

7910-433: The incentive for strategic bidding. To handle all the constraints while keeping the system in balance, a central agency, the transmission system operator (TSO), is required to coordinate the unit commitment and economic dispatch . If the frequency falls outside a predetermined range the system operator will act to add or remove either generation or load. Unlike the real-time decisions that are necessarily centralized,

8023-409: The integrity and reputation of the wholesale market for electricity". Regulation of the electricity market started in a light-handed fashion but there has been an increasing trend towards more heavy-handed regulation. Light-handed regulation is based on the threat of regulation providing an incentive on companies with market power to exercise self-regulation. The normal regulatory legislation such as

8136-414: The market involves the direct cost calculations by the market operator (producers no longer submit bids). Despite the obvious problem with generation companies incentivized to inflate their costs (this can be hidden through transactions with affiliated companies), this cost-based electricity market arrangement eliminates the market power of the providers and is used in situation when an abuse of market power

8249-461: The market operator or a special-purpose independent entity charged exclusively with that function. Market operators may or may not clear trades, but often require knowledge of the trade to maintain generation and load balance. Markets for electricity trade net generation output for a number of intervals usually in increments of 5, 15 and 60 minutes. Two types of auction can be used to determine which producers are dispatched: To determine payments,

8362-500: The market participants to trust the operator (due to the complexity sometimes a decision by the algorithm to accept or reject the bid appears entirely arbitrary to the bidder). If the transmission system operator owns the actual transmission network, it would be incentivized to profit by increasing the congestion rents . Thus in the US the operator typically does not own any capacity and is frequently called an independent system operator (ISO). The higher degree of centralization of

8475-452: The markets in which Distribution System Operators (DSOs) procure services from assets linked to their distribution system, aiming to guarantee the operational safety of the distribution network. This concept is relatively new, and its design is currently a subject of active research. In this sense, different entities can act as aggregators, e.g. demand response aggregators, community managers, electricity service providers, and more, depending on

8588-585: The name zonal pricing ) or a "region" ( regional pricing , the term is used primarily for very large zones of the National Electricity Market of Australia, where five regions cover the continent). In the beginning of 2020s there was no clear preference for any of the two market designs, for example, the North American markets went through centralization, while the European ones moved in the opposite direction: A transmission system operator in

8701-481: The national grid. Bids and offers start 36 hours before the actual real-time consumption or trading period. Up to four hours (pre-dispatch) before the trading period starts a new forecast price is calculated to guide participants in the market. From four hours to the start of the trading period every half-hour a dispatch price is calculated and communicated. One hour before the start of the trading period bids and offers can no longer be revised (with some exceptions) and

8814-512: The national grid. Final prices at each node, taking account of grid losses and constraints, are processed and confirmed the following day. All electricity generated is required to be traded through the central pool, with the exception of small generating stations of less than 10MW. Bilateral and other hedge arrangements are possible, but function as separate financial contracts. Trading develops by bids (purchaser/demand) and offers (generator/supply) for 48 half-hour periods for each pricing nodes on

8927-420: The network is a calculated " shadow price ", in which it is assumed that one additional kilowatt-hour is demanded at the node in question, and the hypothetical incremental cost to the system that would result from the optimized redispatch of available units establishes the hypothetical production cost of the hypothetical kilowatt-hour. This is known as locational marginal pricing ( LMP ) or nodal pricing and

9040-578: The new bidder already knows the market price and can estimate the profitability with his marginal cost, to do well with the PAB, the bidder needs information about other bids, too. Due to higher risks of the PAB, it gives an extra advantage to the large players that are better equipped to estimate the market and take the risk (for example, by gambling with a high bid for some of their units). However, MPS results in producers being paid more than their bidding prices by design, leading to calls to replace it with PAB despite

9153-428: The new prices reflect Transpower's adjustments in load forecasts and system availability. During each half-hour period Transpower publishes a new real-time price every five minutes, and a time-weighted 30-minute average price. The real-time prices are used by some large direct-connect consumers to adapt their demand. The prices are however guidelines only as the final prices are calculated ex-post—normally around 10:00am

9266-480: The new untried electricity. By 1924 68 homes out of the 700 in the borough were using electric cooking. Lloyd Mandeno was made chief electrical engineer in 1917. Local citizen R. S. Ready was so sure of the advantages of electricity that he built on 5th Avenue the first house in New Zealand that relied solely on electricity. Mandeno designed a hot water cylinder for the house, that was built from galvanized iron insulated with 150 mm of pumice. Within four years

9379-543: The next five years. By 1998 the addition of the Tauranga City's customers meant that new company was supplying 96,513 customers. In 1998 the state-owned Electricity Corporation of New Zealand sold five of its smaller hydro stations, of which Trustpower purchased Coleridge (NZ$ 91 million), Highbank/Montalto ($ 37 million) and Matahina ($ 115 million) hydro power stations. In 1998 the New Zealand Government passed

9492-473: The ownership of cross-sector investment (that is energy and lines functions). This means a generation company cannot own or have an interest in a distribution company and a distribution company cannot retail electricity or deal in electricity hedges. There are two exceptions to the regulations: generation companies can own the lines required to transport electricity from their power stations to the grid or local distribution network; and distribution companies can own

9605-415: The ownership was held in a consumer trust, 49% was directly held by customers with the remaining 1% in an employee share ownership scheme. On 18 April 1994 Trustpower listed on the New Zealand stock exchange. This allowed the specialist infrastructure and utility investor Infratil Ltd to acquire 11 million shares and become its largest shareholder. By this time it had approximately 40,000 customers as well as

9718-560: The potential for market abuse under nodal pricing, particularly when the transmission system becomes congested. Genesis Energy was "net pivotal" north of Hamilton on 26 March 2011. The HVAC network was under scheduled maintenance with 2 of 6 220   kV lines out and 3 of 5 110   kV lines out, thereby restricting supply from the South Island. Extreme bids by Genesis Energy sent Auckland spot prices to $ 23 047 /MWh (€ 15 000 /MWh), these prices later returned $ 197/MWh (€125/MWh) –

9831-403: The potential trade gains large enough to justify some wholesale transactions: On the retail side, customers were charged fixed regulated prices that did not change with marginal costs , retail tariffs almost entirely relied on volumetric pricing (based on the meter readings recorded monthly), and fixed cost recovery was included into the per- kWh price. The traditional market arrangement

9944-495: The power board also began manufacturing pre-stressed concrete power poles. It is believed that it was one of the first power boards to do this in New Zealand. In 1958 the SHD was renamed the New Zealand Electricity Department (NZED). By the early 1990s the power board was supplying those areas the city of Tauranga, where it had expanded out of the defined city electricity department's geographical inner city area,

10057-534: The power board he invented, developed and introduced into service the single wire earth return reticulation system. This allowed the board to reduce the cost of distributing electricity across its predominantly rural customer base. In response to the State Hydro-Electric Department (SHD), introducing charging for peak demand the power board in 1952 introduced what is believed to have been the world's first automatic load control system. That same year

10170-564: The previous service provider M-co in June 2009. The owner of the national transmission grid is Transpower , a state-owned enterprise. Transpower is also the System Operator, responsible for ensuring real time electricity supply security and quality. Transpower is the market scheduler, predicting demand to help generators make offers, as well as the dispatcher, in charge of matching demand and supply in real time. Distribution of electricity from

10283-720: The purchase of the Cobb Power Station for $ 92.5m from NGC. In 2003 Trustpower bought back some of its shares. Infratil did not participate in the buy-back, which lead to it increasing its shareholding to 33.5%. In 2006 Infratil purchased Allient Energy's shareholding for NZ$ 6.20 a share, which gave it 51% and thus majority control of Trustpower. In 2013, Trustpower bought Energy Direct , a Whanganui electricity and gas company. In 2015, it bought 65% of King Country Energy Ltd from Nova Energy. King Country Energy generates all of its electricity from renewable sources (principally hydro-electric generation) and supplies electricity to

10396-476: The review. One of the key recommendations approved by Cabinet was the transfer of ownership and operation of some power stations between Genesis Energy and Meridian Energy in order to increase retailer competition in both islands and to give Genesis a South Island generating base. It was decided that Genesis would receive the Tekapo A and Tekapo B hydroelectric power stations from Meridian, and Meridian would receive

10509-499: The same geographic locations. For example, the majority of Meridian Energy's generation assets are in the South Island, and that's where their retail strongholds are. Mercury Energy's generation assets are exclusively in the North Island, and its customer base is also primarily in the North Island. Electricity market The electric power industry began in the late 19th century in the United States and United Kingdom. Throughout

10622-682: The same high standard of service they’ve known from both retail brands. In 1913, the Tauranga Borough Council applied to the Department of Lands to have the Omanawa Falls vested in their body corporate for the purposes of water power generation. They also applied under section 268 of the Public Works Act 1908 for a licence to generate electricity. In October 1914, the Public Works Department gave its approval for water to be taken from

10735-427: The same territory, but connected to different nodes, to pay different prices for electricity, so a modified generator nodal pricing (GNP) model is used: the generators are still being paid the nodal prices, while the load serving entities are charging the end users prices that are averaged over the territory. Many decentralized markets do not use the LMP and have a price established over a geographic area ("zone", thus

10848-444: The separation of the monopoly elements from the contestable elements to create competitive markets in energy retailing and generation. Regulation has also been imposed on the natural monopolies of transmission and distribution. Since about 2000, the market is split as follows: regulation, administration, generation, market clearing, transmission, distribution, metering and retail. The wholesale market for electricity operates under

10961-459: The services required to run the electricity market. The Reconciliation Manager who reconciles all metered quantities, the Pricing Manager who determines the final prices at each node and Clearing and Settlement Manager who pays generators for their generation at the market clearing price and invoices all retailers for their offtake, are all contracted to New Zealand Exchange (NZX), who acquired

11074-471: The spot market. For example, during a dry year, the high prices in the wholesale market price benefit the generation arm but hurts the retailers who buy at wholesale prices and sell electricity to consumers at fixed prices; when prices are low, the loss of profits in the generation side is offset by the profits in the retail business. These five companies have now extended their risk management strategy further by aligning their retail and generation businesses to

11187-434: The supply must match the demand very closely at any time despite the continuous variations of both (so called grid balancing ). Frequently, the only safety margins are the ones provided by the kinetic energy of the physically rotating machinery ( synchronous generators and turbines). If there is a mismatch between supply and demand the generators absorb extra energy by speeding up or produce more power by slowing down causing

11300-555: The surrounding Tauranga country and the towns of Te Puke and Mt Maunganui. In 1990 it had a staff of 201, 43,158 customers and was making a profit of 2.55 million. In response to the introduction of the Energy Companies Act in 1992, the Tauranga and Rotorua Electric Power Boards proposed to merge, but it was rejected both by the public and the government. The power board investigated other options and in 1994 changed its name to Trustpower and its financial structure so that 50% of

11413-421: The total direct cost. In the process, the hourly shadow prices are obtained for each node that might be used to settle the market sales. Decentralized markets allow the generation companies to choose their own way to provide energy for their day-ahead bid (that specifies price and location). The provider can use any unit at its disposal (so called "portfolio-based bidding") or even pay another company to deliver

11526-407: The town, 17th Avenue in the south to Sulphur Point in the north, a total of 210 square miles (544 square km). In 1915 the borough council hired Lloyd Mandeno as its electrical engineer, with responsibility not only for building the distribution system that will take power from the new power station but also to convince the population of 1,540 to give up their candles, kerosene lamps and town gas for

11639-413: The transmission system (e.g. higher prices in locations further from generating stations). Trades take place at approximately 285 nodes (grid injection points and grid exit points) across New Zealand every half-hour. Generators make offers to supply electricity at 59 grid injection points (GIPs) at power stations, while retailers and major users make bids to buy electricity at 226 grid exit points (GXPs) on

11752-416: The various levels of government. By the 1950s, a wide variety of arrangements had evolved with substantial differences between countries and even at the regional level, for example: These diverse structures had a few unifying features: very little reliance on competitive markets, no formal wholesale markets, and customers unable to choose their suppliers. The diversity and sheer size of the US market made

11865-409: The wholesale electricity market and the economic rents (any payment in excess of the cost of production) that may have resulted. Using empirical industrial organization techniques, Wolak estimates these rents to be $ 4.3   billion over the 7 years he studied when compared with a perfectly competitive market. The methodology he used and the results are also described in a working paper. His report

11978-559: Was a principal. Approval to proceed was granted by the New Zealand government in 1963 continual upon the station's output being equally shared with the Tauranga Electric Power Board. As a result, the Tauranga Joint Generation Committee was established in 1965 to develop, control and sell electricity generation. As a result of this initiative the original two planned stations, the Lloyd Mandeno Power Station

12091-449: Was announced: As there was not a substantial majority of all classes in favour of the proposal it was not implemented. The result put paid to the prospect of a multilateral agreement on the governance and operational arrangements for the electricity market. The New Zealand government invoked the regulations already prepared to meet this contingency. The "threat of regulation" had been insufficient to stave off regulation. On 2 July 2003

12204-670: Was commissioned in 1972, and the Ruahihi Power Station in 1981. In between these two dates an additional station, the Lower Mangapapa Power Station had been commissioned in April 1979. All three stations were operated as part of the Kaimai hydro power scheme . By 1981 the Tauranga Joint Generation Committee was making a profit of NZ$ 1.29 million and had 231 employees. In 1989 the McLaren Falls Power Station

12317-563: Was criticised for aspects of its methodology, with the Electricity Technical Advisory Group (ETAG), Ministry of Economic Development , claiming that there is no evidence of the sustained exercise of market power. The Commerce Commission decided not to act. Rex Ahdar, University of Otago , later opined that competition law in New Zealand is inherently ill-suited to tackling a network industry such as electricity. An agent-based model (ABM) developed at Auckland University

12430-473: Was decommissioned. Following the introduction of the Energy Companies Act in 1992, after consulting with local citizens the Tauranga City Council transferred the assets of its electricity department to the newly established Tauranga Electricity Ltd. The majority shareholder in the new company was the council owned Tauranga Civic Holdings Ltd, which held 5,099,994 shares with the remaining six shares in

12543-431: Was designed for the state of the electric industry common pre-restructuring (and still common in some regions, including large parts of the US and Canada ). Schmalensee calls this state historical (as opposed to post-restructuring emerging one). In the historical regime almost all generation sources can be considered dispatchable (available on demand, unlike the emerging variable renewable energy ). Chile had become

12656-429: Was used to analyse the New Zealand wholesale electricity market. The model suggests considerable market abuse and quantified the combined market rents for 2006 and 2008 to be $ 2.6   billion, when compared with a perfectly competitive market as counterfactual. In terms of residential electricity prices, a 2015 report found these were twice as high under retail competition. There have been long-standing concerns about

12769-527: Was won by the National Party . Share prices of listed electricity companies rose significantly when the share market opened on the Monday following the election. The New Zealand electricity market is split into the following areas: administration and market clearing , regulation, generation , transmission , distribution and retailing. The current legislation ( Electricity Industry Reform Act 1998 ) prevents

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