Under the current market configuration, generators are only paid to generate. To better utilise hydro’s ability to store energy, maybe there should be a payment mechanism to incentivise storage under some conditions. The incentive might vary with lake levels, time of year, weather outlook etc.
Yes, this is I suspect this is in essence where Meridian are trying to head with the addition of wind into their generation capacity. They will pull back on the hydro when they can deliver wind and then bias more to hydro when there is little wind. This is opposed to hydro going head to head with wind in a competitive market. Within a company this is an understandable approach and will help them better underwrite their contracts in dry years.
However, a wide boundary analysis of this approach suggest that it does lower the utilisation of existing infrastructure and that the overall network efficiency drops. This manifests as price inflation as efficiency drops but operational expenditure increases across a larger infrastructure base. Meridians break even base cost of generation will increase.
The payment mechanism you mention is known as a curtailment pricing. It is expensive and seen double digit percentage increases in consumer pricing wherever it has been applied in other countries and is generally seen as paying for thermal insurance capacity to firm the grid.
Thanks for reading and commenting. Apologies for the terrible grammar I have tidied up the post a bit this morning to make it easier to read.
Under the current market configuration, generators are only paid to generate. To better utilise hydro’s ability to store energy, maybe there should be a payment mechanism to incentivise storage under some conditions. The incentive might vary with lake levels, time of year, weather outlook etc.
Thanks Dave.
Yes, this is I suspect this is in essence where Meridian are trying to head with the addition of wind into their generation capacity. They will pull back on the hydro when they can deliver wind and then bias more to hydro when there is little wind. This is opposed to hydro going head to head with wind in a competitive market. Within a company this is an understandable approach and will help them better underwrite their contracts in dry years.
However, a wide boundary analysis of this approach suggest that it does lower the utilisation of existing infrastructure and that the overall network efficiency drops. This manifests as price inflation as efficiency drops but operational expenditure increases across a larger infrastructure base. Meridians break even base cost of generation will increase.
The payment mechanism you mention is known as a curtailment pricing. It is expensive and seen double digit percentage increases in consumer pricing wherever it has been applied in other countries and is generally seen as paying for thermal insurance capacity to firm the grid.
Thanks for reading and commenting. Apologies for the terrible grammar I have tidied up the post a bit this morning to make it easier to read.