Before being appointed inaugural Chief Executive of the Electricity Authority, Carl Hansen was extensively involved in the evolution of the New Zealand electricity market as a Senior Executive and Director, independent Advisor and Economist. This background includes chairing several sector technical and advisory groups and acting as Principal Advisor to a number of industry bodies.
Q1: New Zealand relies heavily on renewable sources, especially hydro, to generate electricity. What is the level of interest and investment in developing renewable power projects?
Carl Hansen: The Electricity Authority regulates the electricity market in New Zealand and doesn't have a mandate to focus on renewable energy. What I can tell you, from the latest government data, is that a total of 77 percent of New Zealand's electricity generation came from renewable resources in 2011 due to record-high geothermal generation and good hydro inflows. This is the highest renewables percentage since 1996 and is third in the OECD.
An overview of the status of in-development and proposed generation projects (including renewable power projects) is available on the Electricity Authority Web site.
Q2: The NZ Electricity Authority has overcome challenges to build a competitive platform for electricity supply, trading and transmission. What are the key learning points from this process?
What the Authority has learned from the process has been to stick to the fundamentals and develop a rigorous approach to the spot market, as well as facilitate the hedge market. We have also encouraged consumers to proactively compare and, if they choose, switch providers in the retail market. Don't underestimate the importance of competition for achieving efficient security and reliability outcomes.
Q3: Looking ahead, what would be some new initiatives you have in mind to further enhance competition and reliability in the NZ electricity futures market?
Hansen: The main focus of the futures market is on embedding our stress testing regime, which helps people buying electricity on the spot market to know the risks they are taking. To support that initiative, we are producing a risk management guide to educate small and medium enterprises to understand these risks. We are also encouraging the provider of the electricity futures market to bring an option product to the market, which will enable people to manage risk better.
In the wider electricity market we are reviewing settlement and prudential arrangements, and reviewing pricing processes for transient situations in which a single generator can set spot market prices in a local area. The Authority also wants to create national markets for frequency keeping and instantaneous reserve (we are currently operating regional markets for these services).
Q4: The development in unconventional gas in the US is tipped to have an impact on power prices in Asia. From your vantage point, how will increasing LNG supply impact power prices, and what other power price trends do you foresee globally?
Hansen: For the New Zealand electricity market, the main impact of global trends is through diesel prices. That impact is felt through prices for diesel used in peaking generation when we have a shortage of water for hydro generation. The electricity price in New Zealand is more driven by factors affecting the long-run marginal cost of supply, for example, the exchange rate, international prices for steel, and so on.
Q5: How do you view the developments in energy connectivity in Asia in the coming decades?
Hansen: My understanding is that there are some significant cross-border transmission investments hopefully occurring in the coming decades that will be very positive. These investments would enable countries in Asia to use the cheapest source of energy across the region and should also improve the reliability of supply.