Glossary

A

Act

The Electricity Industry Act 2010 regulates the New Zealand electricity industry and is the legislation under which the Authority operates. Section 15 of the Act describes the Authority's statutory objective and section 16 lists the functions of Authority.

The Authority's website contains information about the Act, Regulations and Code.

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C

Clearing manager

The market operation service provider responsible for monitoring prudential security requirements and invoicing and settling electricity and ancillary service payments.

Code

The Electricity Industry Participation Code 2010 sets out the rules and responsibilities of all participants in the electricity industry.

The Authority's website contains information about the Act, Regulations and Code.

Concentration ratio

Concentration ratios measure the share of total output produced in an industry by a specified number of firms in the industry. The CR4 and CR8, for market share of the four and eight largest firms, respectively, seem to be the most commonly used concentration ratios. Concentration ratios can be used to infer the degree of competition that exists in an industry, as it is generally accepted that a less concentrated industry will be more competitive.

The concentration ratio ignores the relative size of firms in an industry. For example, an industry where the four largest firms had market shares of 60%, 10%, 5% and 5% would have a CR4 of 80%, or 0.8. Such an industry would be considered much less competitive than an industry where the four largest firms had market shares of 20% each, also giving rise to a CR4 of 80%. It is for this reason that the HHI is usually preferred to concentration ratios.

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D

Disclosing participant

A disclosing participant is defined in the Code in relation to the stress testing regime and includes a grid-connected electricity consumer or a person who buys electricity from the clearing manager.

Distributor

A company that owns or operates the power lines that transport electricity on local low voltage networks.

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E

Embedded network

An embedded network is defined in Part 1 of the Code and means a system of lines and equipment used to convey electricity between a local network or other embedded network to an ICP(s) or another embedded network. Electricity flow is quantified at the connection to the parent network by a metering installation.

Exchange-traded instruments (ETI)

Exchange-traded instruments represent a class of securities, commodities, derivatives and other financial instruments traded on a centralised, or organised, exchange. The instrument defines all of the attributes of that which is being traded, e.g. commodity type, expiration, location, etc. We refer to New Zealand electricity futures and options traded on the ASX platform as exchange-traded instruments. See also over-the-counter, and futures and options.

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F

Fast instantaneous reserve (FIR)

Fast instantaneous reserve is available within six seconds of an unexpected generator or transmission outage and must be able to operate for one minute. Instantaneous reserve is procured based on the size of the single largest contingent event that could occur during a particular trading period. Generators offer instantaneous reserves at the same time as they make energy offers.

Final price

Final prices are defined in Part 1 of the Code and are taken to mean a price in dollars and cents for each GIP, each GXP and each reference point (Benmore and Haywards) determined in accordance with the methodology specified by clause 13.135.

Final reserve price

Final reserve prices are defined in Part 1 of the Code and are taken to mean the price calculated in dollars and cents for fast instantaneous reserve and sustained instantaneous reserve determined in each island in accordance with the methodology specified by clause 13.135.

FTP

File Transfer Protocol (FTP) is a standard network protocol used to transfer files from one computer to another over a network or the internet. A secure form of FTP (SFTP) that requires authentication may also be used.

Futures and options

Futures and options are financial contracts that derive their value from an underlying physical asset. As expectations of the future price of the underlying physical asset change, so too will the price of the associated futures and options contracts. In the case of New Zealand electricity futures and options, the underlying physical asset is electricity traded in the wholesale spot market. Futures and options have standardised contract terms and conditions

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G

Gigawatt hour (GWh)

A unit of energy. One gigawatt hour is equal to one million kilowatt hours.

Grid

The grid is defined in Part 1 of the Code and means the system of transmission lines, substations and other works, including the HVDC link used to connect GIPs and GXPs to convey electricity throughout the North Island and the South Island of New Zealand.

Grid exit point (GXP)

A grid exit point (GXP) is defined in Part 1 of the Code and means any point of connection on the grid at which electricity predominantly flows out of the grid or is determined as being such by the Authority following an application in accordance with clause 13.28. Any such point of connection may, at any given time, be a GXP or a GIP, but may not be both at the same time.

Grid injection point (GIP)

A grid injection point (GIP) is defined in Part 1 of the Code and means any point of connection on the grid at which electricity predominantly flows into the grid. Any such point of connection may, at any given time, be a GIP or a GXP, but may not be both at the same time.

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H

Haywards (HAY)

The location on the national grid at which the HVDC link is connected to the North Island. Haywards is a reference node. A 220kV bus at Haywards is usually the reference point for the North Island, as defined in the Code.

Herfindahl-Hirschman Index (HHI)

The Herfindahl-Hirschman index, named after economists Orris Herfindahl and Albert Hirschman, is a measure of market concentration. Under certain conditions, it can be used as an indicator of the degree of competition that exists in a market. An HHI of 10,000 indicates the market is controlled by a single firm and is therefore not competitive, whereas a value under about 2,500 indicates a reasonable level of competition among competing firms is likely to be present.

The HHI is defined to be the sum of the squares of market shares for the 50 largest firms within an industry, or all firms if there are less than 50. The HHI is often preferred over measures such as concentration ratios because it penalises, or gives greater weight, to firms with a larger market share.

High voltage direct current (HVDC)

The high voltage, direct current transmission link that transports electricity in both directions between the North and South Islands.

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I

Installation control point (ICP)

A point of connection on a local network or an embedded network which the distributor nominates as the point at which a retailer will be deemed to supply electricity to a consumer. A local or embedded network is not the grid. An ICP is defined in Part 1 of the Code.

Instantaneous reserves

Generation capacity that is made available to be used in the event of a sudden failure of a generating or transmission facility in order to maintain system frequency at 50 Hz. Fast instantaneous reserve (FIR) is available within six seconds and must be able to operate for one minute. Sustained instantaneous reserve (SIR) is available within 60 seconds and must be available for 15 minutes.

Intermittent generation

Generation for which the source is intermittent and not easily predicted, eg wind or wave generation.

Interruptible load

A type of instantaneous reserve that is provided by load that can be quickly disconnected, eg hot water heating.

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K

Kilowatt (kW)

A unit of capacity. One kilowatt is equal to 1,000 watts. A generating plant operating at a capacity of one kW for one hour would produce one kWh of energy.

Kilowatt hour (kWh)

A kilowatt hour is a unit of electricity and is the basis of retail sales of electricity.

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L

Liquidity

Liquidity is a measure of how easily an asset can be bought or sold – preferably without affecting the asset's price. Greater liquidity generally equates to more efficient pricing. From a risk management perspective, it also lowers the transaction costs of managing hedge positions. In the case of futures and options markets, signs of greater liquidity can be indicated by higher trading volumes, higher levels of open interest, and tighter bid-ask spreads.

Local network

A local network is defined in Part 1 of the Code and means a system of lines and equipment that are used to convey electricity between the grid and one of either, an embedded generator, an embedded network, or ICP(s).

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M

Megawatt (MW)

A unit of capacity. One megawatt is equal to 1,000,000 watts. A generating plant operating at a capacity of one MW for one hour would produce one MWh of energy.

Megawatt hour (MWh)

A unit of energy. One megawatt hour is equal to 1,000 kilowatt hours. Megawatt hours are the standard metering unit for the wholesale market.

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N

Network participant

A network participant is the participant with responsibility in the Code for the ICP identifiers that are connected to electricity line assets. For local or embedded networks this is the respective distributor and for network extensions this is the network distributor to which the extension is connected.

Network reporting region (NRR)

Network reporting regions are used for reporting purposes and are not defined in the Code. They are generally formed by historic Electricity Power Board networks (with some aggregations) and align with pricing regions commonly used in the retail market today. Specifically Network reporting regions are defined by a group of Network supply points (NSP). These mappings are provided in the NSP table report.

Network supply point (NSP)

A network supply point (NSP) is defined in Part 1 of the Code and means a point of connection between networks. A root NSP used in reporting is a point of connection between a local network and the grid.

Node

A node is defined in the Part 1 of the Code and means a bus

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O

Offer

An offer to sell a quantity of electricity at a specified price.

Offer stack

The stack generated by ranking, in order of price, all the offers to sell electricity.

Open interest

Open Interest is the total number of outstanding contracts that are held by market participants at the end of each trading day. In other words, it represents the number of contracts that have not yet been exercised (in the case of options), offset (by holding a contract with a counterbalancing obligation), or expired. Open interest is a measure of ‘skin in the game’ and is therefore an important indicator of liquidity.

Open interest should not be confused with traded volume. Because futures and options contracts are derivative financial instruments, it is possible that, on any given trading day, a large volume of trading might occur in contracts with offsetting obligations, resulting in no change to open interest. Open interest may register a decline as contracts reach their expiration date.

Options

See futures and options.

Otahuhu (OTA)

Otahuhu is a frequently used reference node.

Over-the-counter (OTC)

An over-the-counter market is a non-centralised method of organising a market and is often used for trading financial or derivative products. OTC markets enable participants to trade bilaterally, often after arranging terms and conditions by phone or email. Unlike centralised exchange markets, the products traded on an OTC market tend to be bespoke and the price discovery process less transparent. OTC markets are used to trade electricity hedge products. See also  

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P

Point of connection (POC)

A point of connection is defined in Part 1 of the Code and means a point at which electricity may flow into or out of a network. A PoC may be a grid injection point (GIP) or a grid exit point (GXP).

Pricing manager

The market operation service provider contracted by the Authority to calculate and publish final prices.

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R

Reconciliation

The process of matching the electricity supplied to customers by individual retailers with actual demand at a grid exit point.

Reconciliation manager

The market operation service provider contracted by the Authority to undertake the monthly reconciliation process and take responsibility for reconciling metering data against a register of contracts and passing the data to participants.

Reference nodes

The Authority uses the term reference node to mean one of eight 220kV nodes: Benmore, Haywards, Invercargill, Otahuhu, Stratford, Stoke, and Whakamaru. Reference nodes are not defined in the Code.

Registry

The database that identifies every point of electricity connection using an installation control point (ICP) reference, enabling energy flows between retailers to be reconciled. The registry also informs retailers when a customer switches supplier.

Reserve

Spare generating capacity or load reductions used to recover frequency immediately following a sudden generation or transmission line outage.

Retailer

A company that sells electricity to customers.

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S

Scheduling, pricing and dispatch (SPD)

The scheduling, pricing and dispatch software used by the system operator and the pricing manager.

Spot market

The buying and selling of wholesale electricity is done via a ‘pool’, where electricity generators offer electricity to the market and retailers bid to buy the electricity. This market is called the spot or physical wholesale market.

Spot price risk disclosure statement

Under clause 13.236A of the Code, a disclosing participant must submit a spot price risk disclosure statement on a quarterly basis to an agency appointed by the Authority to receive such statements. Clause 13.236E describes the contents of a spot price risk disclosure statement.

Spot prices

The half-hour price of wholesale (‘spot’) market electricity published by the pricing manager.

Supervisory control and data acquisition (SCADA)

The systems used by the system operator to collect and display information on how the system is operating on a moment-by-moment basis.

Sustained instantaneous reserves (SIR)

Sustained instantaneous reserve is available within sixty seconds of an unexpected generator or transmission outage and must be able to operate for fifteen minutes. Instantaneous reserve is procured based on the size of the single largest contingent event that could occur during a particular trading period. Generators offer instantaneous reserves at the same time as they make energy offers.

Switch type

The switch process for changing the responsible trader at an ICPs differs depending on the type of switch. There are three switch types:,More information is available in the in schedule 11.3 of the Code.

System Operator

The System Operator (currently Transpower) is the market operation service provider responsible for scheduling and dispatching electricity, in a manner that avoids fluctuations in frequency or disruption of supply.

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T

Trading period

A trading period is defined as a discrete half-hour period in which electricity may be traded on the New Zealand wholesale electricity market. Tables showing how trading period numbers relate to NZST and NZDT can be seen here.

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Z

Zone

Zones are used for reporting purposes and are not defined in the Code. They break down the county into five large regions, three in the North Island, and two in the South Island.

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