Electricity

Description

Background and history

157. Electricity is an important input for energy-utilising/energy-intensive services. In order to sustain such services, it is important that there is sufficient infrastructure to support electricity generation and transmission.

158. Electricity was produced and distributed by a government department until 1986. This became a corporation under the State Owned Enterprises Act, the Electricity Corporation of New Zealand (ECNZ). In 1999, the ECNZ was split into one transmission company (Transpower, an SOE) and four separate generating companies, one of which was sold (Contact Energy), the other three becoming individual State Owned Enterprises (SOEs). Some power stations were sold to other companies such as Trustpower. As a result, arrangements for the production of electricity have changed from a state-owned monopoly to a mixed-ownership competitive market.

159. Recent additions to generation capacity are as follows:

Source: Ministry of Economic Development / Electricity Commission, 2009 (based on information supplied by generation companies)

160. The sufficiency of generation capacity can be judged from the winter energy margin graph further below.

Assets

161. New Zealand has five main suppliers of electricity. The location, source and total generation capacity is outlined in the graphic that follows. Renewable energy sources are a dominant feature of the market, accounting for nearly 60 per cent of total capacity.

Main Suppliers

Source: Ministry of Economic Development, 2009.

Institutional arrangements

162. Transpower owns and operates the national electricity transmission system.[40] The national grid is an AC transmission system, incorporating a DC connection from the southern South Island (Benmore station on the Waitaki River) across Cook Strait (by undersea cable) to the southern end of the North Island (the HVDC system). Transpower uses high-capacity and high-voltage transmission lines to supply regional distribution companies and provide electricity directly to some large industrial companies.

1. System Operator/Clearing Manager: This function is carried out by Transpower under contract with the Electricity Commission. Transpower is responsible for the real-time operation of the electricity system.
2. Distribution: 28 lines companies own the local distribution networks throughout New Zealand. Distribution companies are a mix of public listings, shareholder co-operatives, community trusts and local government ownership, with most lines companies owned by trusts. Lines companies differ in size with one (Vector) making up one third of the sector (by number of connections) and the largest four (Vector, Powerco, Orion and Unison) supplying 66 per cent of all connections.
3. Retail: The five main retail companies are also the main generating companies. These companies compete with each other to meet consumers' electricity needs and often provide bundled services for consumers. The retailers' charges to the end users include the cost of the electricity supplied to the consumer as well as charges for transmission and distribution services.

163. The diagram below outlines how the price for electricity is set.