New Zealand has committed to achieving net zero emissions by 2050, with the Government aspiring to achieve 100 percent renewable electricity by 2030. Over the coming decades it is likely that heating and transportation in New Zealand will need to be electrified, causing a significant increase in demand for electricity. This will need to be met by large quantities of new renewable electricity generation.

Electricity markets worldwide, like New Zealand’s, have been designed on an assumption that at least a proportion of electricity demand is met by thermal generation. Fossil-fuelled thermal generation is characterised by relatively low investment costs, but high operating costs. In contrast, renewable technologies have relatively high investment costs but low short-run generation costs.

Since the New Zealand wholesale electricity market began operating in October 1996, around 1600 MW of new renewable generation has been built in this country, and around 1500 MW of existing thermal generation has been retired. Projections generally suggest that new renewable generation will need to be built at a rate materially faster than the industry achieved over the market’s first 15 years. See the Authority's submission on the Climate Change Commission's draft advice. [PDF, 357 KB](external link)

The Market Development Advisory Group (MDAG) has developed an options paper that’s focussed on how price discovery would work for the wholesale electricity market (including spot and hedge markets) under a 100% renewable electricity system.

MDAG is made up of 10 representatives from the electricity sector who provide independent advice to the Authority on issues in the Authority’s work programme that primarily relate to pricing and cost allocation, risk and risk management, and operational efficiencies.

The options paper proposes a range of options where change could be warranted as we transition towards 100% renewable electricity supply.

The paper is structured around the following key areas for future action, each with multiple options for consideration, as noted below:

  • Ensuring reliable and efficient operational coordination
  • Ensuring effective risk management and efficient investment
  • Lifting demand-side participation
  • Strengthening competition
  • Increasing market confidence

On 6 December 2022, the Authority published the paper for consultation. The consultation period will last three months (ending 6 March 2023).

The Authority and MDAG recognise that the sector has a key role to play as we transition towards a 100% renewable electricity system, and many options in the paper will impact sector participants.

The Authority and MDAG encourage stakeholders to make a submission. The Authority and MDAG welcome feedback on all options.

The MDAG will consider submissions on this consultation before developing final recommendations for the Authority in mid-2023.

The Price Discovery in a Renewables-Based Electricity System options paper is available here.