Submitted on November 27, 2017

I’ve given talks recently at the Energy Trader Forum in Wellington and at the Otago Energy Research Centre’s annual symposium in Dunedin, and gave an overview of how recent upgrades on the HVDC link have changed the cost of transmission between the islands.

By Greg Sise, 27 November 2017

Subscribers to our Blog posts will have noted that I haven’t posted since the end of July.  Why not?  Just because we’ve been extremely busy, and posting has never made it to the top of my To-do list.  Until now that is.

Freeman Media holds the Energy Trader Forum every quarter and the last was on 15th November.  At this forum, and at the Otago Energy Research Centre’s annual symposium last week, I included some slides on the cost of sending power between the two main islands:  on the HVDC link.  The link runs overland from Benmore in the Waitaki Valley in the South Island’s Mackenzie basin, to the Haywards substation in Upper Hutt.  The Cook Strait cables are a part of the link, connecting the two land-based portions of the link.

The HVDC link can send power either south or north, but if we suppose it is sending north, then the power arriving at Haywards is, for all intents and purposes, a generator located at Haywards.  The cost of this generation, which we’ll imagine is at Benmore, is reflected in the price at which it offers its power into the spot market, plus the price difference between Benmore and Haywards.  Thus the cost of sending power over the link is just the price difference across it.

But we can refine our measure of cost by dividing the price difference across the HVDC link by the spot price at Haywards:  so if market prices move up generally, then the relative cost will tend to stay the same at the same power transfer.  This approach allows us to compare periods of generally different prices, e.g. higher prices during dry periods and lower prices during wet periods.

The chart shows the relative cost of power transfers on the HVDC link, averaged by month, starting in January 2011:  blue for northward transfers and orange for southward transfers.

It’s obvious that the cost has fallen on average, and got less volatile, since 2014, and this is because the last major upgrade of the HVDC was completed at the end of 2013.  A second upgrade took place about a year ago when the National Market for Instantaneous Reserves (NMIR) commenced.  As a result of this, generation at the sending end of the HVDC link is able to compete more effectively with generation located at the receiving end of the HVDC link, which (if all other things remain equal) must surely benefit consumers by lowering the total cost of generation.