New Zealand Electricity Market - Overview

Overview

Until 1987, New Zealand had a centrally run system of providers of generation, transmission, distribution, and retailing. Since then, a step-by-step process of industry reform has led to the separation of the monopoly elements from the contestable elements to create competitive markets in energy generation and electricity retailing, while imposing regulation on the natural monopolies of transmission and distribution. Currently the market is split into the following areas: regulation, generation, administration and market clearing, transmission, distribution, metering and retailing.

The wholesale market for electricity operates under the Electricity Industry Participation Code, 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. The auction is held every half hour.

The Authority contracts out the services required to run the electricity market. The Reconciliation Manager, who reconciles all metered quantities, 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 (the NZX), who acquired 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 likely demand to help generators make bids, and the dispatcher, in charge of matching demand and supply in real time.

Distribution of electricity from the grid exit points to the end consumers' premises is the responsibility of 28 distributors who have monopoly control of the lines services on their networks. Ownership of distributors, also known as lines companies, is through trust-owned companies and public companies. Some major industrial users are directly connected to the grid, such as New Zealand Steel and the Tiwai Point Aluminium Smelter.

As of October 2011, there are five major generators in New Zealand: Meridian Energy, Genesis Power, Mighty River Power, Contact Energy, and TrustPower. These five together produce about 95% of New Zealand's electricity. The first three are state-owned enterprises; the others publicly traded companies. An important feature of the New Zealand market is that all the major generators also own retailing arms. The companies are thus commonly known as "gentailers". Retailers purchase electricity from the wholesale market, and on-sell it to consumers. Retailers currently active are: Bay of Plenty Electricity, Bosco Connect, Contact Energy, Energy Direct, Empower,Energy Online, Genesis Energy, Just Energy, King Country Energy, Mercury Energy, Meridian Energy, Nova Energy, Powershop, Simply Energy, Pulse Energy, Tiny Mighty Power and TrustPower.

Most of the retailers are linked to generating companies or have common ownership. For example Empower is backed by Contact Energy, Powershop is owned by Meridian Energy, Bosco Connect is a brand owned by Mighty River Power, Energy Online is owned by Genesis Energy, Mercury Energy is owned by the generator Mighty River Power, and Nova Energy and Bay of Plenty Energy have common ownership. Not all retailers supply to all locations, for instance Bosco Connect only supplies to Auckland inner-city apartments. 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.