Transpower working with sector to manage winter capacity risks

23 May 2023

Discretionary demand essential tool for managing electricity supply shortfalls

Transpower has said it is committed to working together with the electricity sector to manage potential tight supply situations during cold snaps this winter and keep the power flowing for Aotearoa. 

These tight supply situations during short periods of peak demand are a result of increasing electricity demand as well as New Zealand’s transition to a future with a decarbonised economy powered by renewable electricity generation.  

Transpower CEO Alison Andrew said higher volumes of renewable but intermittent generation like wind have left the electricity system susceptible to equipment faults and changing weather conditions at times of high peak demand, particularly during winter cold snaps.  

“The transition to higher levels of renewables is critical but we also need other flexible generation capacity or demand response that can react quickly to support it during times of high usage,” she said. 

“Transpower is committed to doing what it can to ensure that consumers are not disconnected due to an electricity supply shortfall at these times, and we are working with the sector and government to put in place solutions.” 

Transpower in its role as System Operator highlighted these winter capacity risks in a paper last year. The paper came after it was forced to call five separate grid emergencies during 2021 and 2022 when equipment failures exacerbated tight supply situations.  

It demonstrated how demand at peak times in the mornings and evenings has grown significantly in the last two years, increasing the amount of electricity generation required for short periods. It also showed that New Zealand has sufficient generation capacity, but slow-start thermal (coal and gas) generation is not always offered into the market during peak demand periods.  

“This is especially true when full hydro lakes and wind generators are running at maximum capacity and depressing wholesale spot prices, as was often the case last winter,” Ms Andrew said.  

“If conditions change, such as the wind dropping and demand spiking, this can squeeze the buffer we keep in the system for security reasons, known as residual generation.”   

Ms Andrew said that Transpower in its role as the System Operator called for generators to make more electricity available on numerous occasions in 2021 and 2022 where forecast residual generation dropped below the minimum 200 MW buffer it aims to keep in the system.  

“When this happens, often the only generation that is not already committed is slow-start thermal generation, and this typically requires a number of hours to start up,” she said.

“Generators need to make a decision on whether to start up their plants to provide residual generation just in case it is needed, which can cost tens of thousands of dollars that they will not recover if it is not needed.”  

Around 1,100 MW of New Zealand’s 2,000 MW of thermal generation capacity is from slow-start units, which typically take 6 to 12 hours to start generating, or significantly longer if they are cold, making them unsuitable for managing winter peaks.  

In its winter capacity paper, Transpower has identified the need for additional flexible generation capacity or demand response to alleviate these winter capacity risks.  

It has also been working with the Electricity Authority and the rest of the sector on a range of initiatives to better manage winter peak capacity risks including making better information available on residual generation and wind forecasts.  

The Authority has also made a change to the Electricity Industry Participation Code to improve visibility and management of discretionary demand, or controllable load, in the system. This is typically residential and business hot water systems that local lines companies can switch off to lower demand when required by the System Operator during a grid emergency.  

Discretionary demand essential tool for managing electricity supply shortfalls 

Transpower General Manager Operations Dr Stephen Jay said the System Operator will continue to work closely with industry to make sure that residual generation margins are healthy going into winter peaks, providing extra security if faults happen on the system, but that demand management remains a critical tool.  

“If we do face tight spots, we are also able to work with lines companies and large industrial users to switch off discretionary demand to get us through,” he said.  

“Hot water systems are regularly switched on and off by lines companies to manage peak demand, and people will not notice this. We may also ask New Zealanders to help by switching off power in rooms they are not using and doing washing and charging devices and electric vehicles outside of peak times.” 

Dr Jay said that where there is an electricity supply shortfall as a result of a transmission or generation issue and discretionary demand is not enough to balance the system, Transpower may be forced to work with lines companies to switch off power for a short time to some customers. 

“We will continue to work with industry to ensure that we have enough residual generation as we go into periods of peak demand,” he said. “But if we face a situation where there isn’t enough electricity to meet demand for any reason, we will need to work quickly with lines companies to disconnect some consumers for a short time. 

“This will be a last resort until peak demand passes or until the electricity supply shortfall is restored and will prevent the risk of grid collapse, which would result in widespread uncontrolled outages that would last significantly longer.”  

Media contact: 

Nathan Green, Principal Communications Advisor
027 387 5256
[email protected]


Notes for editors

Transpower’s role

Transpower, as the electricity System Operator, is responsible for managing the real-time power system and operating the wholesale electricity market. Transpower does not own or operate any electricity generation.

Residual generation

The electricity system requires sufficient generation capacity to meet demand from consumers as well as to provide reserves. Reserves are a market product that generators are paid for that can be immediately called on to maintain system frequency in the event of a fault to the largest generator or to the HVDC system that carries electricity between the two islands.  

Residual generation is a buffer on top of reserves that generators are not paid for if it is not used. Transpower will typically issue a low residual Customer Advice Notice (CAN) if residual generation is forecast to drop below 200 MW for any trading period. The CAN calls for more generation to be made available, or demand to be cut. 

Transpower cannot instruct generators to offer capacity. It can only make information available about expected supply and demand, and it is then up to generators to decide how much capacity to offer and at what price. 

The electricity market – ‘the stack’

For every trading period (30 minutes), generators offer their generation into the market at a certain price and volume. Offers from generators are ranked from the lowest priced “spot” offer to the highest and placed in a stack. In its role as the System Operator, Transpower then takes offers from the cheapest to the most expensive in each trading period until there is enough electricity to power the country and provide for reserve generation. All offers that are taken from the stack then get paid the same amount as the highest offer taken. This is called the spot price for the trading period. 

Transpower takes the lowest combination of offers from generators to most efficiently meet demand. If cheaper renewable energy from hydro schemes and wind farms meets the bulk of demand then spot prices will be lower, but if more expensive thermal generation like coal and gas is needed then all generators will receive higher spot prices and the total cost to the system will be higher. 

Most electricity consumers don’t tend to notice these real-time price fluctuations because they buy their electricity from retailers on fixed contracts. Other major buyers of electricity may take out hedge contracts to smooth out volatility in spot prices. 

Discretionary demand – hot water control

Local electricity lines companies are able to turn some hot water cylinders on and off without affecting supply of other electricity to the premises. An average hot water cylinder contains approximately one day’s hot water usage and needs approximately 3-4 hours of heating per day to recharge. This means if it is turned off for a short period, consumers are unlikely to see any impact on their hot water supply. 

Every winter electricity lines company use hot water ripple control to manage load on the network to ensure it is not overloaded, during network issues and during maintenance. 

Discretionary demand – major industrial users 

Enhancements to dispatchable demand that took effect on 27 April as part of real-time pricing will allow large industrial consumers connected directly to the national electricity transmission grid to use discretionary demand to limit their exposure to high spot prices. They can do this by bidding controllable load into the wholesale market when prices are high and/or offering it as interruptible load in the instantaneous reserves market. 

Transpower can also ask large industrial customers to switch off discretionary demand in a grid emergency. Discretionary demand is typically electricity that is not needed for critical business processes.