New Zealand electricity market

New Zealand's electricity market (NZEM) is regulated by the Electricity Industry Participation Code administered by the Electricity Authority (EA). The Authority was established in November 2010 to replace the Electricity Commission.

Until 1987, New Zealand had a centrally run system of providers of generation, transmission, distribution, and retailing. Reform has since led to the separation of the monopoly elements from the contestable elements to create competitive markets in energy retailing and generation. Regulation has also been imposed on the natural monopolies of transmission and distribution. Currently the market is split into the following areas:

Regulation, administration, generation, market clearing, transmission, distribution, metering and retail.

The wholesale market for electricity operates under the Electricity Industry Participation Code (EIPC), and is overseen by the market regulator, the Electricity Authority. Trade takes place at more than 200 pricing nodes across New Zealand. Generators can make offers to supply electricity at grid injection points, while retailers and some major industrial users make bids to withdraw "offtake" electricity at grid exit points. The market uses a locational marginal pricing auction which takes generators' offers and retailers' bids, and computes final prices and quantities at each node. These auctions are held every half-hour for a total of 48 trading periods each day.

In addition to the core wholesale spot market there are two associated markets. A hedge market for CFD financial contracts is operated by the ASX Australian Stock Exchange, and an FTR market for Financial Tramsmission Rights is operated by Energy Market Services, a business unit of Transpower. These markets are linked to wholesale market prices at select locations, allowing market participants to manage their basis risk.

The Electricity Authority contracts out the services required to run the electricity market. The Reconciliation Manager who reconciles all metered quantities, the Pricing Manager who determines the final prices at each node and Clearing and Settlement Manager who pays generators for their generation at the market clearing price and invoices all retailers for their offtake, are all contracted to New Zealand Exchange (NZX), who acquired the previous service provider M-Co in June 2009.

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