Review of instantaneous reserve event charge and cost allocation

The Wholesale Advisory Group (WAG) has completed its review of the instantaneous reserve event charge and cost allocation (IRECCA). The WAG reviewed whether the current IRECCA arrangements are consistent with the Authority’s statutory objective, and if not, whether an alternative approach would better promote the statutory objective. The WAG’s review took the November 2016 launch of the national market for instantaneous reserve into account.

The WAG unanimously recommended removing the event charge, and allocating instantaneous reserve costs on a ‘going Dutch’ basis when a generation asset sets the largest risk of tripping. The ‘going Dutch’ method allocates greater costs to the largest risk-setter than the current method.

When the HVDC sets the largest risk, a majority of the WAG recommended allocating those instantaneous reserve costs to sending-island generators on a proportional basis. If electricity is generated in the South Island and sent via the HVDC to the North Island, the South Island generator is the sending-island generator. However, a minority of the WAG recommended allocating these IR costs through the Transmission Pricing Methodology.

 The Authority is considering the WAG’s recommendations and intends to begin preparing a consultation paper in the 2017/18 financial year.