Network Reliability and Firm Power Capacity with Distributed Energy

Report No. IRL99440.01

NETWORK
RELIABILITY AND FIRM
POWER CAPACITY
WORKSHOP

HELD AT INDUSTRIAL RESEARCH LIMITED,
GRACEFIELD, FRIDAY 16TH DECEMBER 2005

ISSUES, NEEDS, CONCLUSIONS AND ACTION
POINTS

Prepared by: Dr. Iain Sanders,
Sustainable Innovative Solutions Ltd.
(for Industrial Research Limited)

Network Reliability and Firm Power Capacity Workshop: December 2005 (IRL, Wellington)

Table of Contents
1. Introduction Page 3

1.1 Summary Page 3

1.2 Background Page 3

1.3 What is Firm Power Capacity? Page 4

1.4 Why is Network Reliability an Page 4
Issue for New Zealand?

1.5 Overview of the Rest of this Report Page 4

2. Key Conclusions Page 5

3. Action Points Raised Page 12

4. Workshop Summary Page 15

5. Supplementary Feedback from Participants Page 41

6. Appendices Page 42

6.1 Workshop Agenda Page 42

6.2 List of Attendees Page 43

6.3 Alternative Policy Frameworks for DG Page 45

6.4 Capacity Metering for General Customers Page 59

Editorial Statement: We have attempted to faithfully report and draw
conclusions from the presentations and discussions at the workshop. Neither
Industrial Research Limited nor Sustainable Innovative Solutions Limited
necessarily endorse these findings.
Alister Gardiner, Industrial Research Limited.
Iain Sanders, Sustainable Innovative Solutions Limited.

Disclaimer: The Commerce Commission does not comment on policy
matters. The Commission has participated only to explain its approach to
assessing breaches of quality thresholds by electricity lines businesses where
caused by extreme events, and has not participated in discussions on nor
makes any comment in regard to other technical matters or industry design
matters.
Paolo Ryan, Manager, Network Performance Group.

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1. Introduction
1.1 Summary
On Friday December 16th, Industrial Research Limited held a workshop in
Gracefield, Lower Hutt, Wellington, on “Network Reliability Requirements” to
which electricity industry stakeholders contributed.

The purpose of this workshop was to provide an industry forum to discuss key
reliability issues facing network operators in relation to the growing interest in
connection of distributed generation plant.

The workshop presenters in order of appearance were:

• Alan Jenkins, Chief Executive, Electricity Networks Association
• Rodney Doyle, Chief Advisor, Network Performance Group, Commerce
Commission
• Gareth Wilson, Manager of the Electricity Group, Ministry of Economic
Development (MED)
• Robert Reilly, Senior Advisor Retail, Electricity Commission
• Duncan Head, Divisional Manager Business Development, Vector Networks
• Brent Noriss, Engineering Manager, The Lines Company
• Matt Todd, CEO, Eastland Networks Limited
• Robert Reilly (speaking on behalf of Roy Hemmingway, Chair, Electricity
Commission
• Todd Mead, Generation Development Manager, MainPower
• Iain Sanders, CEO, Sustainable Innovative Solutions Limited (formerly of
Industrial Research Limited)
• Alister Gardiner, Hydrogen and Distributed Energy Platform Manager,
Industrial Research Limited

These presenters discussed regulations, policies, technical issues, business
development and research opportunities and challenges associated with
delivering firm power capacity in Distribution networks from conventional
network infrastructure assets (e.g. lines and poles and underground cables)
and alternatives options, including: load management, embedded distributed
generation and storage systems.

1.2 Background
Network reliability is essential to the safe and secure operation of New
Zealand’s electricity delivery infrastructure. Distributed generation adds a new
level of complexity for operating networks. This workshop explored some of
the needs for reliable firm power capacity in New Zealand’s electricity network
infrastructure. Reliability issues were examined from conventional network
delivery and alternative energy generation perspectives.

This workshop was the first in a series of two workshops. The second
workshop (to be held around the middle of 2006) will report on and
demonstrate models and techniques developed by Industrial Research for

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evaluating the impact of distributed energy resources on network reliability, to
providing a means for objective comparison of different distributed energy
resources against network capacity costs.

1.3 What is Firm Power Capacity?
Firm power capacity is defined as “the provision of power capacity when and
where it is required, with a high degree of certainty” (Industrial Research
Limited). This constitutes firm power capacity as described in this report and
as discussed during the workshop.

1.4 Why is Network Reliability an Issue for New Zealand?
Network reliability is affected by the age and cost of maintaining infrastructure
assets. Alternative energy supply options such as distributed energy
resources may in some circumstances provide more reliable and affordable
energy delivery solutions.

Ageing infrastructure assets can cost too much to maintain – there just isn’t
enough revenue generated from the service provided.

In other places, network delivery capacities are exceeded because growth in
peak demand cannot be met by existing infrastructure capacity.

Complimentary localized dispersed generation can address some of the
network reliability issues mentioned. This is only possible if affordable
distributed generation resources can match the network reliability
requirements of the energy demand needs they address.

1.5 Overview of the Rest of this Report
In the next section (2. Key Conclusions), a summary of the main conclusions
derived from the workshop are presented under appropriate headings that
best define the key points raised.

Following the “Key Conclusions”, is a section that presents a series of action
points (3. Action Points Raised) or recommendations towards helping to
address some of the issues identified as needing urgent attention.

After section three, there is a summary of the entire workshop (4. Workshop
Summary), outlining the main points raised, issues addressed and specific
needs identified by each speaker and the audience in the Q&A sessions
following each formal presentation.

The final section (5. Appendices), provides the workshop agenda (5.1), and a
list of attendees (5.2). A couple of appendices (5.3 and 5.4) describe in further
detail some of the conclusions from a technical, commercial and regulatory
perspective.

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2. Key Conclusions
The following conclusions were derived from the forum discussion and the
question and answer sessions held after each presentation.

These high level conclusions indicate concern about governance in the
industry affecting future reliability through an uncertain investment climate, of
which the future for distributed generation is only one component.

“Sustainable development” was frequently used in the workshop as the
primary need for the industry and government to address. No attempt is made
to define the meaning intended by participants, although network “reliability” is
clearly an important contributor to this concept.

Ref. Key Conclusions

C1 Long-term needs not addressed by short-term political agendas.

a. The energy industry of New Zealand is the economic engine critical
to the nation’s survival and prosperity over the next 25 years.

b. Therefore we need to do a lot more evaluation about what the way
forward for the electricity supply sector ought to be.

c. There are major concerns about the overall lack of integration and
mismatch of issues in the energy sector regarding possible energy
futures and mapping out a suitable path forward.

d. The central generation electricity market model needs to be
supported with reinforcement. We have a bureaucratic structure for
energy policy in New Zealand that is: “confused and has a great deal
of difficulty making decisions” (forum participant).

e. Many reports are being written, submissions made, requests for
information given etc., but no decisions are being made that address
the issues and concerns raised.

f. New Zealand needs an energy strategy to address mid- to long-term
needs.

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C2 Untapped potential for sustainable development due to
fragmented markets.

a. Sustainable development is possible if there is the political will to
succeed, backed by a commitment to make the hard decisions and
consistently pursue policies and directives critical to achieving this
outcome.

b. Sustainable development includes the significant adoption of
distributed energy resources, energy efficient design and utilization,
load management, and energy conservation in buildings, industrial
processes etc.

c. With respect to sustainable development, the question is: what is
technically possible if we have the will to achieve it? What is technically
possible within the timeframes required? Considering grid-
interconnection guidelines, the Resource Management Act (RMA),
Power Purchase Agreements (PPAs) etc.?

d. Credibility is a key issue for policymakers to address if progress is
going to be made. If it is desirable and doable, then why aren’t we
making it happen? I.e. putting structures and policies and standards
and regulations etc. in place that will facilitate the uptake and
establishment of a more sustainable energy market in New Zealand for
our long-term growth and prosperity?

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C3 Many opportunities missed or lost due to lack of coordinated
planning between Government and industry stakeholders.

a. If barriers to investment in distributed energy resources were
effectively reduced and removed, the New Zealand electricity industry
could experience a transformation, through competition driving
innovation, technology advances, business process and practice
improvements, new product developments and practical contractual,
regulatory and policy design.

b. The electricity market only accounts for about 9% of New Zealand’s
CO2 emissions. Farming is responsible for half the country’s
emissions, and transport takes care of most of the rest. Industrial
transformation would be possible if the electricity industry could help
substantially to reduce farming and transport greenhouse gas
emissions, by focusing on security of supply without increasing CO2
emissions from the energy resources required to achieve it. How much
more can the electricity grid be used to supply the energy demands
that are currently being met by non-electrical thermal conversion
processes? E.g. fuel substitution and methane gas conversion.

c. Poorly thought out strategies for banning wood burning for
environmental reasons is placing an increasing strain on already
capacity-constrained peak loading of networks (and doesn’t account
for peak generation fossil fuel CO2 emissions). Here we have
disincentives for better load management and conservation of energy
resources. How do we create incentives for more efficient and effective
energy management and delivery solutions?

d. There is a major lack of coordination between new generation
planning and network infrastructure utilization for delivering it.
Consequently, many new generation and network infrastructure
investments are suboptimal. Long-term needs are not addressed
through lack of coordinated optimal design of solutions because they
involve competing electricity market stakeholders. Short-term vested
financial interests take priority over long-term sustainable security of
supply.

e. There are great opportunities for New Zealand to implement
sustainable renewable energy options, but it only takes one barrier e.g.
the Resource Management Act to bring an entire project to a halt
indefinitely.

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C4 Short-term micro-management drives decision-making process
because of distrust between Government and industry.

a. How do we reconcile: assurance from Government to industry: for
Government to implement consistent long-term policies that work,
versus assurance from industry to Government: that industry will
deliver solutions that work? Unless we are really clear about
reconciling and balancing the need for the former with the need for the
latter, we will not know what we can technically do if we have the will to
achieve it.

b. How do we build a market system that starts to account for and
incorporate external costs and benefits as part of the total value
equation; and, furthermore, Government must take responsibility for
leading the sustainable development of New Zealand’s energy future.

c. How well do we manage and utilize our energy resources, and how
can we do it better? What do investors need for sustainable energy
development to become a practical reality?

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C5 Current decision-making framework is inadequate for developing
a consensus amongst Government and industry stakeholders to
take appropriate action to address sustainable development of
the electricity sector.

a. Government agencies want views and opinions of energy market /
industry stakeholders to be expressed and presented with concrete
evidence-based facts and case studies for proposals for making
changes, taking action etc. It is evident that the existing processes
used to collect this information are not achieving the desired results to
address present Government needs.

b. Proper discussion and consideration of individual submissions from
members of the public and industrial organizations is not possible
because Government agencies do not have the expertise or the
resources to properly consider and assess all the options put forward.

c. Submissions are not coordinated and expressed in such a way as to
effectively address integrated industrial and public concerns of different
electricity market shareholders: responses are fragmented and
contradict one another – confusing the primary concerns and needs
addressed from lesser secondary concerns and interests.

d. Lack of coordination amongst various ministries and government
agencies has made it difficult to move forward with a cohesive strategy
for tackling current electricity market needs. There are no clearly
defined boundaries or guidelines for linking the various responsibilities,
interests and policy objectives of separate agencies and ministries into
a unified cohesive framework or plan that links New Zealand’s
sustainable economic growth and prosperity with its security of energy
supply.

e. Government needs policies that are: “long(-term), loud and legal”.

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C6 Insufficient vision and uncoordinated focus, fragmented scientific
and technological research, and inadequate human and financial
resources are preventing significant economic benefits being
derived from sustainable energy.

a. “Think Global, Act Local”. New Zealand Inc. needs a clear vision:
e.g. “New Zealand completely self-sustainable in energy resources by
____?”. If you provide a stable infrastructure environment that people
are confident in remaining stable, reliable and dependable for a long
period of time, with long-term hedge-type products with reliable
investment and pricing indicators that people can start banking against,
then the other stuff will follow. E.g. the Orion Networks pricing model
for investing in distributed generation. The same thing is observed with
transport infrastructure investments. We must have a stable long-term
focus.

b. Universities, Crown Research Institutes and other academic
institutions need to work much more closely with industry to facilitate
more effective commercialization of research, and ensure research
funding / investments are relevant to developing and improving the
industrial capabilities required to realize the market benefits possible.

c. The group of shareholders using and benefiting from distributed and
other sustainable energy resources do not necessarily represent the
same group of investors needed to facilitate their adoption. This
problem can be resolved if the distribution networks are given /
possess the technical capability, the financial capacity, the cooperation
and support of the public at large and local communities (beneficiaries
/ recipients of the services provided), and most importantly of all: the
will and clout of the political establishment to support: business
investment, R&D funding, long-term incentives, efficient and effective
rules and regulations etc. to make it all work.

d. In order to work out these issues, a research institute that addresses
the technological, political, commercial and legal issues should be set
up to facilitate and coordinate the reliable and useful adoption of
sustainable distributed energy resources through the lines companies,
and plot the smooth transition of New Zealand’s energy industry
towards delivering a long-term sustainable, secure and competitively
priced energy infrastructure that meets the needs of New Zealand Inc.
for generations to come.

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C7 Government needs to establish a Leadership Task Force of
people who know how the whole electricity system works and
how to effectively incorporate distributed energy resources for
optimum operating efficiency, reliability and security of supply.

a. Government policymaking for the electricity industry is a rudderless
affair. There are too many disparate parties attempting to steer
electricity policy in different directions. Lack of coordination is
responsible for much confusion.

b. There is significant overlap and hence confusion regarding the roles
of different yet similar political / governmental agencies competing for
influence and resources.

c. Government and industry must take a more hands-on approach
towards maintaining and developing New Zealand’s energy
infrastructure and untapped energy resources – including new /
improved load management strategies, smart metering and distributed
renewable energy resources.

d. Government and industry must take a more hands-on approach
towards improving the reliability and security of delivering New
Zealand’s energy requirements today and for future generations.

e. Greater integration and proactive coordination of industrial and
economic development policy with energy security policy and
environmental protection policy required.

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3. Action Points Raised
From the key conclusions (C1 to C7) and issues raised / specific needs
identified by participants, a list of action points are proposed. A1 to A4 are
derived from C1 to C7 and A5 to A6 have been drawn from the workshop
proceedings.

Proposed
Ref. Issues Action Points
Participation

A1 Support long-term • Long-term contracts for Energy
planning. energy supply and demand Minister;
required. Electricity
a. Long-term needs not Commission;
addressed by short-term • Pricing arrangements MED;
political agendas. (C1) should deliver long-term Commerce
contractual arrangements Commission;
that help new investors get Energy Users;
established and give Generators;
consumers who put a Retailers;
premium on security, T&D
contractual certainty. Networks.

A2 Constructive stakeholder • Views and opinions of Energy
cooperation. energy market / industry Minister;
stakeholders need to be Electricity
documented and presented to
a. Untapped potential for Commission;
the MED, Electricity
sustainable development Commission, Commerce MED; MfE;
due to fragmented markets. Commission and other NZTE;
(C2) Government ministries and Climate
agencies. Change
b. Many opportunities Office;
missed or lost due to lack of • Responses to Government Office of the
coordinated planning Requests for Information Parliamentary
between Government and (RFIs) should provide Commissioner
industry stakeholders. (C3) concrete, evidence-based for the
information; and, specific
Environment;
proposals for making
c. Short-term micro- changes, taking action etc. Commerce
management drives should be given where Commission;
decision-making process possible. Energy Users;
because of distrust between Generators;
Government and industry. • Government needs to be Retailers;
(C4) informed by stakeholders T&D
about problems associated Networks.
with regulations and policies
affecting the operation,
efficiency and effectiveness of
the electricity and energy
markets.

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Proposed
Participation

A3 Effective decision- • Chains of command, Energy
making framework. accountability and Minister;
communication need to be Electricity
a. Current decision-making improved within and amongst
Commission;
framework is inadequate Government structures.
MED;
for developing a Commerce
• A more robust, transparent
consensus amongst and technically-qualified Commission;
Government and industry decision making process is Energy Users;
stakeholders to take necessary. Generators;
appropriate action to Retailers;
address sustainable • Industrial stakeholders must T&D
development of the be engaged collectively by Networks.
electricity sector. (C5) Government in such a way that
interaction amongst different
b. Government needs to organizations is supported and
establish a Leadership enhanced to achieve better
results.
Task Force of people who
know how the whole • Acquire timely information,
electricity system works and the management of that
and how to effectively information, with appropriate
incorporate distributed smart metering technology.
energy resources for
optimum operating • Adopt Area and Time Specific
efficiency, reliability and Marginal Capacity [ATSMC]
security of supply. (C7) cost programmes.

A4 Concentrate resources to • Restructure R&D investment Energy
achieve a specific so that it supports NZ Inc., and Minister;
outcome. a common long-term vision for Electricity
New Zealand’s sustainable Commission;
a. Insufficient vision and economic growth and
MED; MfE;
prosperity.
uncoordinated focus, NZTE; R&D
fragmented scientific and • Create a guiding industrial- organizations;
technological research, Governmental coalition with Academia;
and inadequate human the resources needed to Climate
and financial resources are achieve the vision developed. Change
preventing significant Office;
economic benefits being • Empower broad-based action, Parliamentary
derived from sustainable by getting rid of the obstacles Commissioner
energy. (C6) and structures that undermine for Environ.;
the vision created.
Local govt.;
• Encourage risk taking and Chambers of
innovation by visibly Commerce;
recognizing and rewarding the Commerce
organizations that make a Commission;
difference towards progressing Energy Users;
the vision’s outcomes for New Generators;
Zealand. Retailers;
T&D Networks

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Proposed
Participation

A5 Encourage greater • Support the development Energy
diversity of supply and of distributed energy minister;
demand to reduce risks. resource portfolio business Banks and
investment tools and other lending
a. A well-structured, models. institutions;
diverse portfolio of Business
distributed energy (supply- • Encourage banks and investors and
& demand-side) resources, other lending institutions to owners;
that can balance provide the equivalent of R&D orgs.;
fluctuating loads with revolving home loan MfE; Climate
fluctuating weather accounts for distributed Change
patterns, is needed for energy resource project Office;
long-term investment. finance. Electricity
Commission;
• Support collaboration MED; NZTE;
between business / project Generators;
investors and load / Retailers;
renewable energy T&D
forecasters to develop Networks.
acceptable & reliable
financial risk management
metrics.

• Ensure coordination of
energy investment signals
with energy and capacity
pricing signals, and energy
and capacity usage.

A6 Ensure multi-stakeholder • Government intervention is Energy
benefits derived from required to reconcile Minister;
new energy investments benefits derived from Electricity
cover their costs. investing in energy supply- Commission;
and demand-side products, MED; Project
a. Economic and other processes and services, Investors;
benefits derived from with the costs borne by Commerce
investing in distributed project investors. This Commission;
generation and demand means energy and capacity Energy Users;
side management are not benefits obtained by energy Generators;
readily realized by the wholesalers, retailers, T&D Retailers;
project sponsor or system networks, insurance firms T&D
operator. etc., recompense part of the Networks.
investor’s project capital
and operating expenditure,
as applicable, by law.

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4. Workshop Summary

ISSUES SPECIFIC
PRESENTER MAIN POINTS
RAISED NEEDS

• Historically, the ‘Planning Division’ definition of ‘reliability’: enough plant and fuel • Long-term • Can the
available to meet 7% more than normal load in a winter where lake inflows had been contracts for industry
85% of the mean. energy supply provide the
required. reliability NZ
• Historically the ‘Electricity Division’ definition of ‘reliability’: based around maintaining needs?
frequency and voltage through a centrally coordinated generation and transmission • Pricing
Alan Jenkins system operated to defined engineering standards. arrangements • Who pays for
should give R&D?
(Electricity • The new market structure has created the view: ‘the market will provide’, overlooking local
Networks the need to plan ahead. Consequently, focus is on creating an environment for generation as • Can CPI-X
Association) competition to flourish, not on delivering reliability. well as more deliver an
remote economically
Presentation: • In the interests of creating a flat commercial playing field, NZ has tended to have a generation sustainable
transmission-centric system. options a network
What is Reliable reasonable infrastructure
Firm Power • Transmission nodal pricing is one manifestation of possessing a transmission-centric chance of for NZ’s future
Capacity? Why system. succeeding. energy delivery
Do We Need it? reliability
• People don’t like building power stations near a local node, because even a relatively • Pricing requirements?
small volume of new generation there will mean that the price of power from remote arrangements
competing stations plummets. The net result: no significant investment, either in plant or should keep
long-term contracts. old, back-up
power stations
• NZ’s deregulated electricity market is operationally-focused on generation and nodally- in reserve for
driven by trans-mission. when things go
wrong, or
• It is not clear how much customers are willing to pay for reliability, and who should pay demand gets

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for what within the mix of customers. ahead of
supply.
• Between 1992 and 1998, network companies were very focused on supply security,
and providing two-thirds of the new capacity being built at that time. The state was no • Pricing
longer carrying the responsibility for building power stations, and new stations were arrangements
actually being built close to loads. should ensure
that the parties
• The Bradford reforms of 1998 brought an end to this era, heavily influenced by a belief selling
that the networks’ involvement in generation was occurring because local monopolies electricity are
were imprudently building generation capacity that the country didn’t need – leaving selling a
local consumers to carry the cost through inflated lines charges. package that
includes
•The Bradford Electricity Reform Act of 1998 was driven by the belief that it would defined,
‘ensure that costs and prices in the electricity industry are subjected to sustained minimum
downward pressure”. reliability levels.

• Since 1998: distribution and transmission prices have decreased by: 10%. • Pricing
arrangements
• Since 1998: energy wholesale prices have increased by: 45%. should give the
parties who are
• Since 1998: total energy retail prices have increased by: 18%. best equipped
to put
• As a result of the 1998 reforms: there is a ban on networks trading in energy hedges. commercial
pressure on
• As a result of the 1998 reforms: there is a ban on exercising any sort of influence over transporters
a generation subsidiary, which must be managed through its own officers, with its own responsibility
board. for paying
transmission
• The Electricity Commission was established to address problems of: and
- security of supply; distribution.
- transmission losses;
- grid capacity constraints; • Pricing
- no liquidity or transparency in forward wholesale electricity prices; and, arrangements
- limited competition emerging / occurring in generation and retail. should
incentivise
• If network companies were investing in generation it would help Government and the consumers to

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Electricity Commission achieve their objectives. make a
contribution to
• After the 1992 crisis, electricity system operations were working around a hydro reliability.
‘minizone’ (storage availability) to decide when, and if, back-up capacity is needed. Do
we need to revert to these centrally imposed security arrangements? • Pricing
arrangements
• There are not effective contingency plans in place to keep old, back-up plant available, should deliver
as a consequence of constructing the electricity market in the mid-1990s around spot long-term
nodal prices without any imposed longer term pricing arrangements such as loss of load contractual
probability payments. arrangements
that help new
• Existing network-level regulatory signals are very poor at dealing with supply reliability investors get
problems. The Commerce Commission’s price control formula linking volumes established and
distributed and allowed income deters: a. energy conservation and b. uptake of give consumers
distributed generation options that take load off parts of their systems (source of who put a
revenue). premium on
security
• Bad signals from the regulatory regime also disincentivise spending on research and contractual
development. The CPI-X thresholds only allow R&D expenditure to come out of profits certainty.
and under no circumstances be passed through to consumers.

• The annual minus-X adjustment erodes network profits and gives them the same
immediate, operational focus that dogs the wholesale electricity market.

• Does New Zealand need a major power crisis resulting in a substantial economic
recession to get reliability back firmly on the policy agenda?

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ISSUES SPECIFIC
RAISED NEEDS

• For Lines Companies to comply with Part 4a of the Commerce Act defining thresholds • If a subjective
for declaration of control of lines businesses: they must demonstrate no material process is used
deterioration in reliability to define an
“extreme
• SAIDI/SAIFI thresholds screening mechanism – are used to identify breaches that may event”, why use
warrant further investigation. an objective
mathematical
• Businesses may avoid post-breach inquiry if they demonstrate: Breach due to an process to
extreme event. analyze it?
• Views and
• What is an extreme event? Definition from the Assessment and Inquiry Guidelines: opinions of • The existing
Rodney Doyle
“Where one or a small number of rare but high impact events has a significant and energy market / process
material impact on a business’ reliability performance”. industry proposed for
(Commerce
stakeholders to handling
Commission)
• Difficult to use meteorological definitions of extreme events. Extreme weather limits are be expressed extreme events
location specific, open to argument, and Extreme events may not be meteorological. and presented cannot make
Presentation:
to the decisions fast
• Extreme events are self-defining. Key requirements for defining a measure Commerce enough to
Extreme Events
to identify extreme events: Commission. address the
needs raised.
Consistency – Applicable to all networks large or small, urban or rural.
• Priority is to
Efficiency – Clear classification of normal and extreme data. encourage best
practice in
Practicality – Should facilitate metric setting. outage
mitigation,
Suitability – Should use readily available data. supply
restoration and
Simplicity – Easy to understand and apply. network design.

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There-fore
• Steps to identifying an extreme event: proposal aimed
at improving
1. Collect up to five years of historical outage data existing
practices more
2. Calculate natural log of daily SAIDI figures. than providing
an effective
3. Calculate alpha (α) (mean of the log values). method for
dealing with
4. Calculate beta (β) (standard deviation of the log values). real-time
operational
5. Formula for an extreme event day boundary: requirements.
Focus is on
e(α + 2.5 β). reducing
problems and /
• If an extreme event is identified: or improving
responsiveness
Exclude data for extreme event days from SAIDI records. to current
problems.
Calculate average daily SAIDI of residual (last 5 years).
• Extreme
Substitute extreme event days SAIDI figures with average. weather events
are very difficult
Calculate new annual SAIDI figure. to anticipate
from historical
Test if threshold is exceeded. data, weather
patterns and
Decide on action. the shear
complexity of
• Need consistent reporting practices from lines businesses; Standardised reporting the statistical
information for those in breach; Issues in reporting of “Step” restoration type models (and
interruptions; hence their
Appropriate allocation of outage cause; Evidence of extreme events to be notified to reliability)
Commission a.s.a.p. to facilitate investigation and decision. involved.

• The Commerce Commission recognise the geographic diversity; • Conclusion:

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Distribution businesses should still identify best practice: outage mitigation, industry is very
supply restoration procedures, and network design; Aim of improving overall service nervous and
reliability. wants to be
heard over the
Commerce
Commission’s
proposed
thresholds
regime.

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ISSUES SPECIFIC
RAISED NEEDS

• Electricity Commission (EC) responsible primarily for: • Wide range of
possible
- overseeing electricity industry and markets. options and
- ensuring dry-year reserve. alternatives to
- Conducting electricity efficiency programmes; and transmission
- regulating Transpower. upgrade in the
Akld region
• Transpower proposes Grid Upgrade Plans (GUPs) to EC. Focus: 400kV Whakamaru- have been
Otahuhu transmission upgrade. considered.
Robert Reilly
Options
(on behalf of Roy
• EC involved because: favoured
Hemmingway)
include:
- Load in Auckland is growing. building surplus
(Electricity
- A solution needed to meet demand at peak times by about 2010. capacity into
Commission)
- Transpower requires EC approval to be able to pass costs of investment on to existing
its customers. proposed
Presentation:
- EC must decide if Transpower’s proposal is best solution. Assessment includes solutions to
application of GIT. address future
Alternatives to
- EC must ensure other options have been analysed, including generation and needs and
Transmission
demand-side alternatives. reduce overall
costs, and
• Generation options considered: incorporate
small
- G1: Baseload co-generation (84MW co-generation at Marsden by 2010.) intermediate
- G2: Baseload coal generation (320MW coal generation at Marsden by 2010 and investments to
320MW additional coal generation at Marsden by 2016.) buy time (defer
- G3: Baseload gas generation (385MW CCGT at either Rodney or Otahuhu by investments)
2010 and 2 x 200MW gas generators in Auckland by 2010, and 400MW CCGT
at either Otahuhu or Rodney by 2015, and 400MW CCGT in South Auckland by

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2025.)
- G4: Wind generation (75-150MW of wind generation in Auckland region by
2015.)
- G5: Relocation of Whirinaki (155MW Whirinaki re-located to Auckland by 2010.)
- G6: Peaking plant (Peaking diesel generation in Auckland by 2010.)
- G7: Alternative technologies (200-250MW of emerging generation technologies
from 2015.)

• Demand-side alternatives considered:

- D1: Interruptible load (IL) (Up to 200MW of IL by 2010.)
- D2: Distribution Network Load Management (DNLM) (130-245MW DNLM by
2015 and 15MW ripple control replacement by 2010.)
- D3: Energy substitution (70MW gas substitution in Auckland by 2015 and 1-
22MW solar water heating from 2015.)
- D4: Energy efficiency measures (Range of measures including 25MW
residential lighting by 2010, 17-63MW residential heating by 2015, and 25MW
commercial measures by 2015.)

• Transmission alternatives:

- T1: duplex the WKM-OTA 220kV A and B lines, then install 400kV between
WKM and OTA in 2021.
- T2: install 220kV between WKM and OTA in 2017.
- T3: install HVDC between WKM and OTA in 2017.
- T4: install 400kV between WKM and OTA in 2017.

• Next steps:

- Assessment of ‘short short-list’ of alternatives (generation, demand-side, and
transmission) by applying GIT (now underway).
- Comparison of short-listed alternatives and Transpower’s proposal (Jan 2006)
- Draft decision on Transpower’s proposed 400kV project (Feb/Mar 06)
- Consultation (Mar/Apr/May 06).
- Final decision (Jun 06).

Page 22 of 67


ISSUES SPECIFIC
RAISED NEEDS

• Lines companies can own: Non renewable generation up to 50 MW or 20% of lines • Advanced
capacity. metering
provides value
• Lines companies can own: Unlimited new renewable generation (e.g. wind). for managing
existing and
• Lines companies can own: Reserve generation contracted to Electricity Commission. new energy
options more
• Capacity above 5MW or 2% is subject to arms length restrictions. effectively –
Submissions
who is
Gareth Wilson should provide
• Lines companies also prevented from trading in electricity generally and buying and investigating
concrete,
selling hedges. these
(MED) evidence-
opportunities?
based
• Exemptions from some or all of the restrictions may be granted on a case by case Where is the
Presentation: information;
basis. funding to
and, specific
research how
Facilitating proposals for
• Restrictions in place to minimise the opportunity and incentive for lines businesses to: new
Investment in making
inhibit competition; and/or technologies
Generation by changes, taking
cross-subsidise generation and retail activities. can improve
Lines action etc.
the operation of
Companies should be given
• Should arms length rules be relaxed? the electricity
where possible.
market?
- Should the capacity threshold be raised?
- What rules should apply to generation connected to another line owner’s • No research
network? has been done
on whether the
• Should the legislation explicitly set out criteria for exemptions? market
structure we
• Should lines companies be able to trade in hedges? If so, to what level? now have is
appropriate.

Page 23 of 67


• How could legislative uncertainty be reduced?
• It is not clear
• Discussion paper to be released March 2006 for comment from relevant stakeholders. how the various
government
departments
and agencies
are
coordinating
their activities,
let alone
cooperating to
achieve an
integrated
cohesive
electricity
market
development
and
management
strategy.

Page 24 of 67


ISSUES SPECIFIC
RAISED NEEDS

• The EC is responsible for: ensuring that electricity is produced and delivered to all • Small scale
classes of consumers in an efficient, fair, reliable, and environmentally sustainable generation only
manner; and, promoting and facilitating efficient use of electricity. gets value for
capacity from
• Key outcomes: separate
agreements
- Investment in (distributed) generation, transmission, energy efficiency and with distribution
Robert Reilly demand-side management. networks –
• Electricity retailers do not
(Electricity Commission value capacity
- Remove barriers to distributed generation.
Commission) wishes to be delivered.
informed about
- Access to lines for distributed generation.
Presentation: problems • The cost of
associated with installing export
- Arrangements for the sale of surplus small scale generation.
The Electricity the model meters could
Commission’s arrangements be a barrier to
Role and - Switching and reconciliation of small scale distributed generation. for the sale and DG uptake.
Distributed purchase of
Generation • The Government proposes to introduce regulations prescribing reasonable terms and surplus
conditions on which line owners and electricity distributors must enable generators to be • Separate
electricity. agreements are
connected to distribution lines.
needed with
• The objective is to facilitate the use of distributed generation by ensuring that it does the retailer and
not face undue barriers in connecting to lines. the distributor
to gain full
value from
• The Electricity Commission will have responsibility for administering the regulations
operating DG.
and for proposing amendments as required.

• The Electricity Act 1992 provides powers to regulate terms and conditions for the

Page 25 of 67


purchase by retailers of small surpluses of electricity from generating units owned or
operated by consumers.

• It can be difficult for owners of distributed generation units to negotiate terms and
conditions with local retailers to purchase small surpluses of electricity generation.

• The Government would like to see this barrier to the development and uptake of
distributed generation reduced by setting appropriate terms and conditions for purchase
of small electricity surpluses by local retailers.

• The Government envisages that this policy should apply to consumers with generation
units capable of generating up to 40,000kWh over a year.

• A key principle however is that retailers should not incur ongoing financial losses by
the requirement to purchase such electricity.

• The Commission should seek to develop non-regulatory arrangements to achieve
these objectives, but should recommend regulations or rules if voluntary arrangements
are unsuccessful in achieving the policy outcomes the Government seeks.

• The Commission has a role in facilitating Distributed Generation.

• Model Retail contracts have provision for the sale and purchase of surplus electricity
from small scale generation.

• Existing rules do not prevent retailers from trading small scale generation.

• Proposed rules will facilitate trading and switching of the output from small scale
generation.

Page 26 of 67


ISSUES SPECIFIC
RAISED NEEDS

• Load management is useful when aggregated – due to scale and diversity. • Purchase of
cheap
• Demand-side is the ability for customers to effect an outcome on the electricity system controllable
/ market. load (from
customers) is a
• Load management involves an agreement with a customer to turn off a nominated big opportunity
appliance or replace dependence on the network for an agreed duration. for lines
companies to
• There are a variety of historical technologies in place. Future ability and scope is increase
Duncan Head growing with convergence of communications and energy infrastructures. network asset
management
(Vector Networks • Demand-side participation is not a “public good”, and it depends on the consumer’s • Coordination efficiency and
Ltd.) choice between price and quality. It is left to value-seekers to incentivise uptake. of energy economic value
investment – but load
Presentation: • Demand-side has many valuing-adding applications: signals with management
energy usage solutions must
Mass Market - Transmission: congestion relief, alternatives, emergency management. required. provide value
Load Control - Distribution: capital deferment, asset utilization. to all
Issues - Customer: transmission pricing, load management (under time of use pricing). stakeholders in
- Retail/Generation: energy hedging, portfolio & risk management. the value chain.
- Other: energy hedging, spot market influence, compliance management,
ancillary energy market services (e.g. voltage, under frequency). • Issues for
effective load
• It is doubtful whether any real long-term benefit is provided by the Transmission Pricing management
Methodology (‘TPM’). include: gaining
benefit from the
• Controlling to TPM targets can bring forward investment in distribution network without transmission
minimizing Transmission build. pricing
methodology

Page 27 of 67


• Ability to reconcile actual benefits to third parties limiting demand-side application to including
non-distribution users. reconciling
peak load
• Alignment of basic building blocks will enable value of demand-side to be realized. reductions with
GXP price
• Load management needs to create value for those involved. reductions
(current
• An integrated system is required to gain network benefits from load management. difficult).

• Specific outcomes for network distribution load management are: network • An integrated
management, asset deferral, and satisfactory customer price-quality trade offs. system is
required to gain
• Focus on reducing numbers of customers on traditional controlled appliances through network
fuel substitution and personal choice. benefits using
SCADA
• Technology will change the current network load management paradigm. technology.

• Vector Networks is currently embarking on a significant rethink of load management. • Vector is
looking to
• Vector Networks is looking to review incentives for customers to participate in demand- review
side management, and how they participate. incentives for
customers to
• Vector Networks is looking at reducing free riders, so that demand-side benefits go participate in
where they are created. load
management
• It is essential to be able to recognize value (created by demand-side participation etc.) options.
and to be able to pass it on.
• Load
• Change in technology creates opportunities to establish next generation demand-side management
systems and strategies, so that ripple plant’s days and historical ownership structures needs to create
may be numbered. more value for
those involved.

• Ripple-relay
control systems
act like a

Page 28 of 67


‘sledge
hammer’ – no
longer
appropriate for
managing
loads
effectively.

• Transmission
pricing does
not reflect
system peaks.

Page 29 of 67


ISSUES SPECIFIC
RAISED NEEDS

• Technical issues associated with installing network-embedded DG include: Connection
Arrangements; Protection;
Over and Under-voltages;
Stability; Auto Re-closing;
• The option of
Ferro-resonance; Metering; Islanding; Current Flows; Power factor; Under Frequency
separating
Protection; Harmonics.
electricity
Brent Noriss
generators and
• Commercial issues associated with installing network-embedded DG include: • Market rules
retailers in the
(The Lines Recovery of Costs including Engineering; Transpower Avoidance Calculations; Loss required to
NZ electricity
Company) Factor Calculations; Power factor; support the
market might
Dedicated Assets; Connection Contracts. complexity
make it harder
Presentation: associated with
to address the
• Industry issues associated with installing network-embedded DG include: Electricity connecting
technical
The Market ability to handle complex Distributed Generation Situations; Innovative Network distributed
issues
Experiences of Solutions; and, Plant Reliability. generation to
associated with
a Network networks in
installing and
Engineer in The • DG is exciting but involves a lot more engineering than most people realize. reality.
operating
King Country
network-
• There is significant difficulty in getting the various stakeholders to understand the
embedded
issues (let alone work together to address them!)
generation.
• It is not clear who is going to pay for what with DG installations and operations, let
alone ensure that sufficient benefit is concentrated in few enough hands to justify project
commencement.

Page 30 of 67


ISSUES SPECIFIC
RAISED NEEDS

• Eastland Networks Limited (ENL) has commercial and operational motivations for • Transpower’s
investigating DG. plans to
upgrade
• ENL network characteristics include: low consumer density, low average consumer existing circuits
consumption, fed by a long radial transmission line with high nodal energy prices. is limited
considering
• Capacity is a key issue with 47MW uncontrolled and 39MW+ controlled. There is a forestry trends
single line, double circuit 110kV line, running through rugged erosion prone back- and the growth
country. in regional
Matt Todd
processing and
• A well-
• The transmission assets are becoming n-1 constrained. log exports.
(Eastland structured,
Networks) diverse
• 38MW per circuit during the summer. • ENL needs
portfolio of
non-
Presentation: distributed
• Peak consumption could grow to 80MW by 2011. transmission
generation
solutions that
Maximising required to
• Price is a key issue affecting the network: large customers have been paying 4 to 7 will address
Value from make it (DG)
c/kWh, new contracts (3 years) are being offered at 10 c/kWh. energy delivery
Distributed work.
prices and
Generation
• For forestry processing energy is a top 3 input cost. capacity
constraints.
• Investors in the region planning new developments need certainty around energy:
price, supply (capacity) and contract terms (of supply / price). • The current
electricity
• Typical problem / challenge involves: investing in a forestry processing plant with a 25 regulatory
year $100m investment to make, where energy is one of its top 3 input costs, and environment
energy has risen 30% over the last 3 years, with a maximum forward (hedge) term of 3 does not
to 5 years. provide
incentives for

Page 31 of 67

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