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National
Infrastructure Unit
Publication

Infrastructure: Facts and Issues: Towards the First National Infrastructure Plan

Electricity (continued)

Description (continued)

Funding and pricing

How price is set in the electricity market.
Source: Ministry of Economic Development, 2009

Planning

164. Current planning is specific to electricity companies that invest in generation capacity based on market opportunities. Planning for transmission investment is performed by Transpower under the supervision of the Electricity Commission.

Analysis

165. The New Zealand electricity sector has some unique characteristics that lead to increased volatility in market outcomes. These include the inability to import electricity and a long history of non-commercial decision-making that has led to a hydro-dominated system (hydro represents around 60 per cent of annual generation), with limited hydro storage due to the small sizes of the reservoirs. There is also limited ability for demand response from the residential sector. New investment will reduce the proportion of hydroelectricity and improve the transmission system, while metering developments may improve the responsiveness of the domestic sector to electricity shortages. These factors will reduce the risk of blackouts, but it will take time before they have a significant impact. The dominance of South Island-generated power creates a heavy reliance on the capacity of the North South Island transmission link to ensure security of supply and the market to function properly.

166. The Ministry of Economic Development predicts that the supply margins (which are a measure of security of supply) will either remain constant or increase in the future (see below).

Winter energy margin 1985 - 2015
Winter energy margin 1985 - 2015.
Source: Ministry of Economic Development, 2009

167. Security of supply is also significantly affected by the configuration of the transmission system. Under-investment has been a feature of transmission over recent decades. However, significant new investment is now underway under the new regulatory arrangements under Part F of the electricity governance rules. These arrangements give Transpower greater power to pass on costs for grid upgrade projects approved by the Electricity Commission.

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