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New Zealand Transmission Pricing Project

28 August 2009
By Hamish Fraser et. al

In this report for the New Zealand Electricity Industry Steering Group -- and made available by the New Zealand Electricity Commission -- a NERA team explores ways in which to improve the efficiency of electricity transmission pricing arrangements in the New Zealand electricity market. The authors find that the locational marginal pricing arrangements, when combined with the application of the regulatory grid investment test for new investments and "deep" connection charges, may not play a sufficiently prominent role in preventing sub-optimal locational decisions by generators and load. The authors examine a number of potential reform options, including a "tilted postage stamp" methodology, designed to provide a price signal to generators of the long-run marginal transmission cost implications of investments made at different locations throughout the grid. The authors also discuss the respective merits of "deep" versus "shallow" connection charges, describe the practical complexities associated with facilitating market-based transmission investment through the allocation of financial transmission rights, and summarize the challenges arising from the underlying characteristics of transmission networks.