Business School


Electricity

New Zealand needs to develop improved market mechanisms for scheduling and integrating intermittent energy sources, especially wind, but potentially also improved demand response, solar and wave power. The Energy Centre is currently engaged in the following projects.

Correlation analysis of wind and hydro resources with electricity demand and prices


Studying the correlation between the seasonal patterns of wind, hydro, electricity demand and prices is important in a country like New Zealand that depends on hydro power availability and has experienced high price volatility due to low levels of hydro availability in dry seasons. Whether wind power development will help balance the situation or not, depends on its seasonal availability, particularly during those critical periods.

In our approach, we separate daily deviations from the expected seasonal value, and show that for some locations it is the anomalies that have a more significant correlation with electricity prices than the seasonal patterns themselves. This indicates that the correlation results for anomalies from different wind sites across the country can give valuable information on wind resource availability in these critical periods of the year, and thereby enables identifying sites that can most optimally balance price volatility during these periods while potentially also maximising profits to investors.

The work has been developed in R-software - the data and R-code are available on request.

Research team: Kiti Suomalainen, Geoff Pritchard, Basil Sharp, Golbon Zakeri

Integration of wind energy in New Zealand’s electricity market


Last year we had a project where we explored the use of a stochastic auction to clear electricity markets with large amounts of wind. The research for this project is largely complete. This year Javad Khazaei will give several presentations on the results to audiences in New Zealand and overseas, and we will submit the research for publication.

This year Ben Gusson, an Honours student, has elected to work on the impact of expanding wind generation on pricing and dispatch in the existing New Zealand market. This research will use the NZEM Simulation model developed by David Young.

Research team:

  1. David Young, Javad Khazaei, Golbon Zakeri (EPOC).
  2. Steve Poletti, David Young, Ben Gusson.

Electricity markets and security of supply


The research aims to understand why existing markets may not provide adequate security of supply. A model of imperfect competition in both the retail and wholesale markets is used to analyse the impact of market power on security of supply. Preliminary work describes conditions where the optimal level of supply may be achieved. Market power tends to exacerbate security of supply issues.

Research team: Steve Poletti, Julian Wright (National University of Singapore).

Agent-based modelling of the New Zealand electricity market


Last year we created an agent-based simulation model of the New Zealand electricity market. The software for this model is complete, but the underlying transmission, demand, and generation data could be improved. This year we will be working to calibrate the model with real NZEM data, and write a paper discussing the model. This work will be presented at the INFORMS conference in Austin, Texas, in November of this year.

Alex John, an honours student in engineering science, is doing a research project to determine which simplified model of the National Grid gives prices and dispatch closest to reality. This is jointly supervised by Dr Golbon Zakeri (EPOC) and David Young. The results of this research will determine the underlying transmission model used by the software.

Two other economics honours students will be incorporating this software into their projects this year. Ben Gusson is using it for wind integration in New Zealand (see above), and Kin Chong will be studying the use of electric cars in New Zealand.

There are plans for Tony Downward, a postdoctoral scholar in engineering science, to start simulations incorporating hydrology this year. The start date of this will be determined by when he finishes his PhD, and no outputs are expected this year.

Research team: David Young, Alex John, Golbon Zakeri (EPOC), Tony Downward.

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Asset swapping in the New Zealand electricity market


Last year, Tony Downward, David Young, and Golbon Zakeri submitted a paper to the Energy Journal on the impact of asset swapping on wholesale electricity prices. This year we plan to continue this research by explicitly including the retail market in our model to examine the impact on retail pricing. Additionally, the three researchers are co-supervising an honours student, Veselina Pencheva, who is working to modify the wholesale model used in last year’s paper with more realistic generator data.

Research team: Tony Downward, David Young, Golbon Zakeri (EPOC), Veselina Pencheva.

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Assigning ETS obligation rights – generators or users?


We have had discussions with industry over how ETS obligations should be assigned in the electricity market. If these discussions prove fruitful, we may write a research report on the issue. This is still provisional.

Research team: Bart van Campen, Rob Kirkpatrick, David Young (provisional).

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Exploring a market for firm energy as part of the New Zealand electricity market


New Zealand has gone through three dry year ‘crises’ and one near-crisis in less than a decade. The government has recently introduced changes to the electricity market design that is aimed in part at managing dry year security of supply concerns. The project will investigate alternative market designs which focus on firm energy payments to ensure security of supply. A market design for such a scheme will be developed specifically for New Zealand.

Research team: Bart van Campen, Steve Poletti and Robbie Turner.

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Welfare implications of consumers switching to real time pricing plans with imperfect competition


We examine the social welfare implications of consumers switching to real time pricing plans (and away from traditional contracts where consumers pay a flat rate per unit of electricity consumed whether or not it is consumed during the peak period) in a setting where there is imperfect competition. With perfect competition expected efficiency gains are large, however this is far from clear once markets are modelled as imperfectly competitive.

Research team: Steve Poletti.

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Economics of renewable sources of electricity


The national energy strategy of 90% energy generation from renewable sources has significant implications for the location and development of wind farm sites, geothermal and marine resources. Continued, and increased, use of water resources for hydroelectricity generation is now facing increased competition from other users, notably agriculture. It is quite remarkable that very little peer reviewed literature is available on the economics of renewable source of electricity generation. At a more applied level, Environment Court decisions have signalled a lack of economic analysis that could be used to guide decisions. This research programme will apply a range of economic models to renewable sources of electricity.

Research team: Basil Sharp, Bryce Hool.

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