Like other energy retailers, we buy and sell electricity on the New Zealand Electricity Market. We also buy and sell Emission Units (carbon credits).
Trading is essentially the buying and selling of electricity in the New Zealand electricity market. The buying and selling occurs 24 hours a day, seven days a week, for each half hour period of the day. Generators sell their generation into the market; retailers buy this generation and sell it to customers as electricity. In summary, a trader determines whether to buy or sell electricity based on the spot price and the generation assets that they have available to them.
The New Zealand Electricity Market
The New Zealand Electricity Market opened in 1996 after the split of the Electricity Corporation of New Zealand (ECNZ) into two main generators, ECNZ and Contact Energy. In 1999 the remainder of ECNZ was split into Genesis Energy, Meridian Energy, and Mighty River Power, while Contact Energy was fully privatised.
Generators compete to generate by offering generation at different prices. The generator with the lowest priced offer gets priority to generate over more expensive offers from other generators. The market operates 24 hours a day, 7 days a week, with each offer being valid for one trading period (or half an hour).
The market is designed to reflect the most efficient means of generating at least cost to the consumer. In the short term, price signals are intended to give indications to generators and consumers as to the supply situation. When supply is tight, prices rise, but when supply is plentiful prices fall. A long term increase in the spot price is a signal to generators to invest in more capacity in the market.
The New Zealand Electricity Market is split into four separate areas. This includes generators, high-voltage transmission network owners (Transpower), distribution network owners and retailers. The main generators are also retailers in the various distribution network areas (i.e. Powerco, Vector etc).
The New Zealand Electricity Market was previously a self-regulated market overseen by M-Co and the market surveillance committee; however, as of March 2004 market regulation has been conducted by the Electricity Commission. The set of rules designed by the Electricity Commission to govern the New Zealand Electricity Market is known as the Electricity Governance Rules or the EGRs.
Genesis Energy has compliance obligations under the New Zealand Emissions Trading legislation and regulations (NZETS). Obligations arise from Genesis Energy's operational activities, including using gas to generate electricity. To be compliant Genesis Energy is required to procure and surrender Emission Units to the government to offset the obligation. The obligation is calculated in the Annual Emission Return as detailed in the legislation.
Emission Units are defined by the UNFCCC under the Kyoto Protocol and each is equivalent to one tonne of CO2. There are several types of unit, each having different qualities that affect their market value. Units are held in electronic registries administered by governments around the world. In many ways, units can be thought of as legal tender. Units are minted by the UNFCCC then held in registry accounts - much like bank accounts. Like internet banking, owners of units can transfer them around the world.
To be compliant Genesis Energy is required to procure and surrender Emission Units to the government to offset the obligation. The obligation is calculated in the Annual Emission Return as detailed in the legislation.