Electricity industry markets and operational structure

The Commission oversees and regulates the electricity industry operations and its wholesale and retail markets.

New Zealand’s electricity sector has four main components:

• generation (electricity production stations)
• transmission (the high voltage network known as the national grid)
• distribution (local lines companies)
• retail (electricity retail companies compete to buy wholesale electricity and compete to retail it to consumers)

Electricity markets

The wholesale market is the market in which generators compete to sell their electricity to electricity retailers and other purchasers such as major commercial and large industrial users.

The retail market is a market where electricity retailers compete to sell the electricity they have purchased on the wholesale market, to consumers including small-scale industrial and commercial users and domestic consumers. Retailers can also purchase electricity directly from embedded generators (smaller generators connected directly to distribution networks such as biomass, landfill, and wind turbine generation).

The Commission oversees the markets by ensuring adherence to market rules and making recommendations for new rules. The Commission is also responsible for ensuring that the electricity industry and markets operate efficiently on a day-to-day and longer-term basis. To achieve this it has contractual service provider agreements with a number of organisations for managing the operations.

The Commission also oversees industry governance which includes consideration of any alleged rule breaches by industry participants and applications for exemptions to the rules.

The spot market - the buying and selling of wholesale electricity is done via a ‘pool’, where electricity generators offer electricity to the market and retailers bid to buy the electricity. This market is called the spot or physical wholesale market.

Industry structure

Generation

Electricity in New Zealand is largely generated from hydro, gas, coal and geothermal resources with an increasing development of wind generation. Electricity is produced at generation stations and connected at high voltage to the national electricity transmission network, called the national grid, at grid injection points (GIPs).

There are some 40 major electricity generation stations connected to the grid. The stations are owned and operated by the following main generator companies which compete to supply electricity to retailers.

• Contact Energy Ltd
• Genesis Power Ltd
• Meridian Energy Ltd
• Mighty River Power Ltd
• Todd Energy Ltd
• TrustPower Ltd

Transmission

The electricity transmission system is owned by state-owned enterprise Transpower. The grid is the physical hub of the electricity system bringing electricity from remote generation sites to customers some distance away. High voltage electricity is transmitted across the grid from the GIPs to the points of distribution at the grid exit points (GXPs). At the GXPs electricity is reduced to lower voltage at transformer substations for distribution on local networks to consumers.

Transpower owns the high voltage national electricity grid. The Electricity Commission manages a contractual service provider agreement with Transpower to ensure the grid management in real time.

Distribution

There are around 28 lines companies that own the local distribution networks throughout New Zealand. The lines companies are connected to the national grid at the GXPs. Low voltage electricity is distributed via the local networks to end commercial and domestic consumers. Generally the lines companies sell their distribution or lines services to retailers who manage the electricity supply agreements with end consumers. Some commercial and industrial consumers contract directly with lines companies for electricity supply.

Retail

A retailer is a company that buys wholesale electricity at spot prices from the generator companies (which is transmitted across the grid and transformed to lower voltage for distribution via local networks to consumers). The retailer’s charges to an end user include the cost of the electricity supplied to the consumer as well as charges for transmission and line services.

Some of the electricity retailers in New Zealand are:

• Contact Energy Ltd
• Empower Ltd
• Energy Online
• Genesis Power Ltd
• Meridian Energy Ltd
• Mercury Energy Ltd
• Bay of Plenty Electricity
• King Country Energy
• TrustPower Ltd

Consumption

Consumers are the end users of electricity. They can choose between retailers for electricity supply.