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Monday Tuesday Wednesday Thursday Friday

January 723 1605 1497 748 594

February 1887 452 314 1038 808

March 1353 1646 733 1104 242

April 1395 972 346 962 206

May 137 1010 1190 1965 1666

June 1751 894 1163 1175 1148

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Single buyer power marketEPOC WorkshopUniversity of Auckland5 September 2013

John Small

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Outline

• Caveat

• Short-run operations

• Long-run capacity issues

• Competition effects

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Caveat

• No inside knowledge of current plans

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Ricardian rent

Variable Cost

Price ($/MWh)

Quantity (MWh)

Demand

P*

Q*

Surplus revenue paid to lower cost generation plants

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Operational issues

• Power purchase contracts with each plant• Three part tariff

• Fixed cost component• Running cost component • Availability component

• Plants submit supply offers to S.O.• Volume only, because price is known

• Merit order, constraint checking etc• Economic dispatch similar to status quo

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What about hydro?

• Ideally, use same opportunity cost approach as now• Expected future spot prices = f(running payments, hydrology)

• Design choice: who runs these models?• Should make choice based on information resources

• Centralised modelling inside NZPower, or• Decentralised to power stations

Would need incentive payments / information rent

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Capacity adequacy

• Few energy-only markets in the world• Most have added capacity mechanisms, or are doing so

• Peaking plant difficult to justify in energy-only• Need very big price spikes, which carry political risk

• In NZ, tendency to build base load• Grid upgrades also help

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Who picks the reserve margin?

• In NZ currently: no-one• It is the outcome of (regulated) market processes

• Under single-buyer…..?• Some options

• The single-buyer acting alone• The single-buyer subject to GPS, like RBNZ’s policy targets agreement• Any others?

• NB: reasonable chance of a higher reserve margin• Which is more costly

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Will investment be forthcoming?• Yes

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Competition & efficiency

• It is effectively vertical separation• Regulated generation sector

• with tender-based competition for new plant contracts• Single buyer would sell tranches of hedges to retailers

• Stand-alone retailers would be viable• Retail competition would probably intensify quite a bit

• Possibly some risk pooling benefits?