Edit the table below as desired
Monday
Tuesday
Wednesday
Thursday
Friday
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
January
1
Single buyer power market
EPOC Workshop
University of Auckland
5 September 2013
John Small
Outline
• Caveat
• Short-run operations
• Long-run capacity issues
• Competition effects
3
Caveat
• No inside knowledge of current plans
4
Ricardian rent
Demand
Price
($/MWh)
Variable
Cost
P*
Surplus revenue paid to
lower cost generation
plants
Q*
Quantity
(MWh)
5
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
6
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
7
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
8
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
9
Will investment be forthcoming?
• Yes
10
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?
11