AWARDS FINALIST: Real-time pricing

New generation types, grid scale and domestic batteries, distributed energy resources, and new technologies such as electric cars, home automation and AI have the potential to rapidly transform the energy sector.

To enable this transformation to proceed at the necessary pace, the Electricity Authority, Transpower and NZX joined forces to deliver the biggest change to the wholesale electricity market since its inception in 1996. The outcome was innovative in its delivery and execution and will drive innovation across the entire energy sector.

Real-time pricing was a multi-year and multi-million-dollar project involving complex regulatory change. Its launch, on 1 November 2022, changed the way spot prices for electricity are calculated and published, making it easier for generators, retailers and consumers to make real-time decisions about consumption and generation.

This was followed on 27 April 2023 by the integration of demand flexibility and lower-compliance dispatch products with the real-time pricing system – a move that will drive the uptake of rapidly evolving technologies like battery storage and smart appliances that depend on accurate and timely prices.

Dispatch products

The dispatch notification products open up a low-cost path for small-scale providers of distributed energy resources to bid and offer their resources into the wholesale market, enabling them to:

• develop new tools and processes to realise the full benefits of real-time pricing and the dispatch notification products
• offer new products to support customer retention
• use smart technologies to help consumers manage demand control and monitoring
• use domestic or commercial loads to provide physical peak price hedges, either managed in-house or by a third party

Enhancements to dispatchable demand will allow large industrial consumers to use load control to limit their exposure to high spot prices by bidding controllable load into the wholesale market when prices are high, as well as having an option to offer this load as instantaneous reserves.

The change in behaviour shift is made possible by real-time spot price information updated every time the market is dispatched. At the end of each half-hour trading period a time-weighted average of these prices is published immediately, as the final price for that period. Previously, this took two days.

Collaborative process

Making real-time pricing live involved a truly collaborative effort. As regulator, the Electricity Authority worked alongside Transpower in its role as system operator to look at how to drive innovation across the sector by making it easier for electricity consumers of all sizes to confidently make decisions about when to consume.

Providing usable and accurate real-time prices was key to achieving this. The EA developed the market design and oversaw the work, which was delivered and made operational by a large team across Transpower as well as major vendors QualIT and DXC (Redrock). This involved 130,000 person hours, with 60 people working internally at Transpower at the peak of the project. NZX as the manager of the related wholesale information and trading system (WITS) and operator of the market clearing and reconciliation arrangements also played a key role.

The project was world-leading in its real-time pricing market design and functionality. With no off-the-shelf alternatives available, it had to be designed and deployed in-house, with additional technical support as necessary.

The entire electricity sector was engaged in the design, delivery and execution. The EA led several rounds of consultation, and the design proposals that resulted were then tested and validated by overseas experts.

Behaviour change

Price certainty will mean consumers can act confidently to avoid high prices. And because pricing is more dynamic, spot prices will fall in real time if enough consumers respond to a high spot price by reducing consumption. By changing the way people interact with the power system, real-time pricing will pave the way for increased renewable generation and help displace thermal generation such as gas-powered peaking plants, driving New Zealand’s transition to a low emissions economy.

It will also help reduce the need for construction of new generation assets of all types and potentially expensive transmission infrastructure, with lower costs and other flow-on benefits.

The Innovation in Energy Award category is sponsored by Ara Ake