Wholesale Spot Market
Electricity is traded at a wholesale level in a spot market. The market operation is managed by several service providers under agreements with the Electricity Authority (NZ). The physical operation of the market is managed by Transpower in its role as System Operator.
Generators submit offers (bids) through a Wholesale Information and Trading System (WITS). Each offer covers a future half-hour period (called a trading period) and is an offer to generate a specified quantity at that time in return for a nominated price. The System Operator (Transpower) uses a scheduling, pricing and dispatch (SPD) system to rank offers, submitted through WITS, in order of price, and selects the lowest-cost combination of offers (bids) to satisfy demand.
The market pricing principle is known as bid-based security-constrained economic dispatch with nodal prices.
The highest-priced bid offered by a generator required to meet demand for a given half-hour sets the spot price for that trading period.
Electricity spot prices can vary significantly across trading periods, reflecting factors such as changing demand (e.g. lower prices in summer when demand is subdued) and supply (e.g. higher prices when hydro lakes and inflows are below average). Spot prices can also vary significantly across locations, reflecting electrical losses and constraints on the transmission system (e.g. higher prices in locations further from generating stations).
Trades take place at approximately 285 nodes (grid injection points and grid exit points) across New Zealand every half-hour. Generators make offers to supply electricity at 59 grid injection points (GIPs) at power stations, while retailers and major users make bids to buy electricity at 226 grid exit points (GXPs) on the national grid.
Final prices at each node, taking account of grid losses and constraints, are processed and confirmed the following day.
All electricity generated is required to be traded through the central pool, with the exception of small generating stations of less than 10MW. Bilateral and other hedge arrangements are possible, but function as separate financial contracts. Trading develops by bids (purchaser/demand) and offers (generator/supply) for 48 half hour periods for each pricing nodes on the national grid.
Bids and offers start 36 hours before the actual real-time consumption or ‘trading period’. Up to 4 hours (pre-dispatch) before the ‘trading period’ starts a new ‘forecast price’ is calculated to guide participants in the market. From four hours to the start of the trading period every half hour a ‘dispatch price’ is calculated and communicated. Two hours before the start of the ‘trading period’ bids and offers can no longer be revised (with some exceptions) and the new prices reflect Transpower's adjustments in load forecasts and system availability.
During each half hour period Transpower publishes a new real-time price every five minutes, and a time-weighted 30-minute average price. The real-time prices are used by some large direct-connect consumers to adapt their demand. The above prices are however guidelines only as the ‘final prices’ are calculated ex-post (normally noon the following day, unless there are irregularities or disputes) using the offer prices as established two hours before the ‘trading period’ and volumes as established during the ‘trading period’. Differences between forecast, dispatch, real-time and final prices can be significant.
Read more about this topic: New Zealand Electricity Market
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