INTRODUCTION AND CONTENT 3 CONDITIONS FOR IMPLEMENTATION 5 DESCRIPTION OF ANCILLARY SERVICES 6

Transcription

1 Schedule C5 - Contents Procurement Plan INTRODUCTION AND CONTENT 3 CONDITIONS FOR IMPLEMENTATION 5 DESCRIPTION OF ANCILLARY SERVICES 6 PRINCIPLES APPLIED IN MAKING NET PURCHASE QUANTITY ASSESSMENT 8 PROCESS FOR MAKING A NET PURCHASE QUANTITY ASSESSMENT (RULE 4.2.2) 10 ASSESSMENT OF NET QUANTITIES (RULE 4.2.3) 13 PROPOSED PROCUREMENT PROCESSES (RULE 4.2.4) 15 FINANCIAL INFORMATION RELATING TO PROCUREMENT (4.2.5) 16 TECHNICAL REQUIREMENTS AND KEY CONTRACTING TERMS (4.2.6) 17 ARRANGEMENTS FOR UNANTICIPATED PROCUREMENT OF ANCILLARY SERVICES (4.2.7) 20 COMMENT ON COMPETITIVE COST PRESSURES AND DEGREE OF MARKET INNOVATION INVOLVED (4.2.8) 21 SYSTEM OPERATOR REPORTING TO THE BOARD (4.2.9) 23 APPENDIX A 24 APPENDIX B 39 1

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3 Introduction and Content Introduction 1. This is the initial procurement plan under the Electricity Governance Rules 2003 ("rules"). It commences on 1 November 2004 and is intended to apply for 12 months or until amended or replaced in accordance with the rules. It sets out the process the system operator will follow in procuring ancillary services during the term of the procurement plan. 2. Terms used in this procurement plan which are defined terms under the rules have the same meaning as contained in Part A of the rules, otherwise in Appendix B. CONTENT 3. The content and structure of the procurement plan is consistent with the content and structure set out in rule 4.2 of Section IV of Part C of the rules and includes: 3.1. a brief description of the types of ancillary services that will be procured by the system operator; 3.2. the principles the system operator will apply in making a net purchase quantity assessment (rule 4.2.1); 3.3. the processes the system operator will apply in making a net purchase quantity assessment (rule 4.2.2) including: determining the requirements for complying with the principal performance obligations (rule ); and determining the requirements for achieving the dispatch objective (rule ); and assessing the contribution that compliance by asset owners with the asset owner performance obligations will make towards the system operator s compliance with the Principal Performance Obligations (PPOs) (rule ); and assessing the impact that dispensations and alternative ancillary service arrangements held by asset owners will have on the quantity of ancillary services required to be procured by the system operator to enable the system operator to comply with its (PPOs) under the rules (rule ); 3.4. an assessment of the net purchase quantities required for the 12- month term provided by this procurement plan (rule 4.2.3); 3.5. the proposed procurement process taking into account the matters provided for in rule (rule 4.2.4); 3.6. financial information relating to the administrative costs for each ancillary service proposed (rule 4.2.5); 3.7. the technical requirements and key contract terms to support the procurement plan (rule 4.2.6); 3.8. the rights and obligations of the system operator in relation to the procurement of that ancillary service in circumstances not anticipated 3

4 by the procurement plan and in circumstances where the assumptions made by the system operator in the procurement plan cannot be met (rule 4.2.7); 3.9. an assessment by the system operator of the competitive cost pressures and the degree of innovation it believes are involved in the procurement process (rule 4.2.8); and an outline of how the system operator will report to the Board on progress in implementing the procurement plan (rule 4.2.9). 4

5 Conditions for Implementation 4. The system operator will use reasonable endeavours to implement this procurement plan by entering into ancillary service procurement contracts with ancillary service agents to provide each ancillary service contemplated by this procurement plan in accordance with the terms and processes contained in this procurement plan. The obligations of the system operator and the ancillary service agent under any ancillary service procurement contract entered into in relation to the provision of ancillary services will be consistent with the obligations imposed by the rules as at the commencement date of this procurement plan. (Refer to rule 6 C.IV) 5. The system operator may depart from the terms and processes outlined in this procurement plan if the system operator reasonably considers that compliance with such terms or processes will result in the system operator being unable to fully comply with its PPOs of Part C of the rules. (Refer to rule 8 C.IV) 6. The system operator will provide a report to the Board in respect of any departure by the system operator from the procurement plan as referred to in paragraph 5. This report will contain the features outlined in rule 8.2, section IV of Part C of the rules. (Refer to rule 6 C.IV) 7. Implementation of this procurement plan is subject to the ancillary services actually being made available to the system operator on the terms contained in this procurement plan. 5

6 Description of Ancillary Services Services to Purchase 8. The system operator will purchase the following ancillary services from ancillary service agents: Frequency Regulating Reserve (frequency keeping) Instantaneous reserve Over frequency reserve Voltage support Black Start 9. The rules set out a generic description of the above ancillary services. In the context of this procurement plan this generic description is extended (as set out below) to clearly identify the services intended to be procured during the term of this procurement plan: Frequency regulating reserve ("frequency keeping") Instantaneous reserve Over frequency reserve Voltage support Black start The provision of spare synchronised capacity with a response time sufficiently fast enough to control the frequency within the normal band of 49.8 to 50.2 Hertz for small changes in frequency. The provision of interruptible load, partly loaded spinning reserve and/or tail water depressed reserve (in each case as either fast instantaneous reserve or sustained instantaneous reserve) available to counter an under frequency excursion arising from an event identified in the Risk Management Framework of Chapter 1 of Part A of the Policy Statement. The total response being fast enough and quantity being sufficient to arrest the fall in frequency (fast instantaneous reserve), and assist in the recovery of frequency (sustained instantaneous reserve). The provision of equipment that enables an automatic reduction in the level of injection into the power system to arrest an unplanned rise in system frequency arising from an event, the total response being fast enough and quantity being sufficient to ensure that the frequency does not exceed defined levels. Reactive power injection or absorption capability of assets and other reactive power resources provided to maintain voltage at a point of connection to the grid. Equipment that is made available to enable a generating unit isolated from a grid to be livened and connected to the grid, ready to liven the grid at 6

7 that grid injection point without any power being obtained from the grid. 7

8 Principles Applied in making Net Purchase Quantity Assessment Key Principles for Quantity Procurement (Rule 4.2.1) 10. In determining the quantity of ancillary services to be procured and in assessing the cost effectiveness of such ancillary services, the system operator will apply the following principles: Ancillary services will be procured on a fixed quantity and fixed price basis where the system operator assesses there is a requirement for a fixed quantity or a high availability (irrespective of dispatch) of the ancillary service. This type of procurement will be referred to as Firm Quantity Procurement In all other cases, ancillary services will be procured through a halfhour clearing market process whereby, for each ancillary service, ancillary service agents submit offers to the system operator. The market for that service is reconciled, priced and settled on a half-hour basis for such quantities as the system operator assesses to be practicable and cost-effective to procure. Before an offer can be submitted the ancillary service agent must enter into an ancillary service procurement contract for the particular ancillary service. The ancillary service procurement contract will set out the offer, pricing and settlement mechanisms for the particular ancillary service without stipulating specific offer quantities. This type of procurement will be referred to as Half-hour Clearing Market Procurement The system operator will apply one or a combination of the following pricing components in respect of each ancillary service procured by the system operator, as reasonably determined by the system operator to result in the most cost-effective outcome: - Utilisation or Offer Price is the price for the quantity of the service, expressed in $ or $ per unit capacity of the ancillary service over the period for which the quantity used is measured and reconciled. - Availability Price is the price for making the service available, irrespective of dispatch, measured in $ per period of time for which the service is made available; and - Event Price is the price for calling on the ancillary service capacity for a particular event, expressed in $ per event; 8

9 10.4. The system operator will consider the following in achieving the appropriate balance between cost and quality for each ancillary service purchased: the technical specification of the plant being offered, including any measuring equipment required; the minimum acceptable service standard; the number of suppliers offering the service and reasons for any limitations; the actual cost of providing the service over the ancillary service procurement contract term; and the liability for providing the service and the potential cost of failure. 9

10 Process for Making a Net purchase Quantity Assessment (Rule 4.2.2) The requirements for complying with the principal performance obligations (PPOs) (rule ) 11. The system operator will procure frequency regulating reserve with the objective of controlling frequency and frequency time as required by rule 2.2 of section II of Part C of the rules. 12. The system operator will procure instantaneous reserves to assist it to achieve the following objectives: avoid the cascade failure of assets leading to a partial or total failure of the power system (rule 2.1 of section II of Part C); ensure that the rate of occurrence of momentary frequency fluctuations experienced in both the North and South Islands of New Zealand does not exceed the statistical equivalent of the levels set out in rules 2.2.3, 3.1.1, and of section II of Part C; prevent the frequency from going outside defined limits for specified contingencies, in order that automatic under-frequency load shedding does not operate (rule 2.1, 2.2, and 3 of section II of Part C); and prevent the frequency from going outside of defined minimum limits for more severe defined events, in order to prevent cascade failure of the network, due to the frequency reaching unacceptable levels for generating plant operation (rule 2.1 of section II of Part C). 13. The system operator will procure over frequency reserves to assist it with the objective of preventing the frequency exceeding the over frequency limit (rule 2.1, 2.2, and 3.2 of section II of Part C). 14. The system operator will procure voltage support, where necessary, to supplement the static and dynamic reactive power provided by asset owners in complying with the asset owner performance obligations to limit voltage excursions that may result in cascade failure of assets (rule 2.1 of section II of Part C) and to maintain the requirements set out in Schedule C4 of Part C of the rules. 15. The system operator will procure black start to ensure that following a grid emergency there is the capability, if required, to re-energise the grid without the use of external power sources (rule 5 of section II of Part C). The requirements for achieving the dispatch objective (rule ) 16. The system operator will use reasonable endeavours to dispatch assets in a manner consistent with the dispatch objective. This will include the dispatch of ancillary services. 17. It is recognised within the rules that the meeting of the dispatch objective is subject to the availability and capability of generation and ancillary services. Accordingly, the system operator will dispatch ancillary services according to the dispatch objective provided there is sufficient availability of ancillary services. 18. The Policy Statement contained in Schedule C4 of Part C of the rules sets out the policies used by the system operator in scheduling and dispatching 10

11 ancillary services to assist it in planning to comply and complying with its dispatch objective. Asset owner contribution (rule ) 19. The system operator will assess the net purchase quantity of ancillary services required to achieve compliance with its PPOs, taking into account its assessment of the contribution that asset owners provide in achieving the PPOs through compliance with the asset owner performance obligations and technical codes set out in Part C of the rules. 20. The system operator s assessment of the contribution provided by asset owners will rely on the following: that asset owners will at all times comply with the asset owner performance obligations contained in the rules, including any dispensation or equivalence arrangement in respect of these obligations that has been granted by the system operator pursuant to the rules; that information contained in the asset capability statements provided by asset owners is correct; the contribution provided by asset owners in meeting the relevant asset owner performance obligations will be provided at no additional procurement cost when dispatched for energy; the existence of any contracts of the type and nature set out in rule 2 of section II of Part I of the rules; the existence of any contracts of the type set out in or otherwise specified in rule 2 of section V of Part I of the rules. IMPACT OF DISPENSATIONS, ALTERNATIVE ANCILLARY SERVICE ARRANGEMENTS AND LOCAL QUALITY AGREEMENTS HELD BY ASSET OWNERS Dispensations 21. The system operator will take into account all known dispensations from compliance with an asset owner performance obligation or Technical Code contained in Part C of the rules when determining the net quantity of procurement required for each ancillary service. 22. The costs of these dispensations will be paid for by the asset owner as a condition of the dispensation. 23. The allocable cost to be paid by ancillary service payers excludes the readily identifiable and quantifiable costs resulting from granting dispensations. Any dispensations awarded during the procurement plan period may affect the net quantity of procurement for each ancillary service but the cost to ancillary service payers will not be changed as the cost for the dispensation will be borne by the asset owner with the dispensation. Alternative Ancillary service Arrangements 24. At the time of the preparation of this procurement plan, no alternative ancillary service arrangements were in place. 11

12 Local Quality Agreements 25. In assessing the net quantities of procurement, the system operator will take account of: any existing contracts for higher levels of common quality that the system operator has entered into under rule 2 of section II of Part I. These are referred to as local quality agreements; and any equivalence arrangement under contracts that the system operator has entered into under rule 1 of section V of Part I. These contracts will be deemed to be validly made under this procurement plan. 12

13 Assessment of Net Quantities (Rule 4.2.3) 26. Quantity assessments for each ancillary service for the term of the procurement plan are set out in Appendix A. 27. Set out below is a summary of the methodology used to make a net purchase quantity assessment for each ancillary service to be procured by the system operator. Assessment Methodology for instantaneous reserves 28. All parties that can offer instantaneous reserves compliant with the system operator s technical requirements and the rules and who are prepared to enter into a standard form of ancillary service procurement contract with the system operator to provide instantaneous reserves on a half-hour clearing market procurement basis will be contracted by the system operator for provision of instantaneous reserves on that basis. Each such ancillary service procurement contract will be a contract to provide reserve offers for the purposes of rule 6.1 of section II of Part G. 29. The system operator will assess the net purchase quantity of instantaneous reserves for each trading period in accordance with the policies and measures specified in Schedule G6 and the Security Policy set out in Schedule C4 of the rules. Assessment Methodology for Frequency Regulating reserves 30. All parties that can and do offer frequency regulating reserves compliant with the system operator s technical requirements and the rules and who are prepared to enter into a standard form of ancillary service procurement contract with the system operator to provide a frequency regulating service on a half-hour clearing market procurement basis will be contracted by the system operator for provision of frequency regulating reserves on that basis. Each such ancillary services procurement contract will be a contract to provide frequency regulating reserves for the purposes of rule A of section III of Part G. 31. The system operator s determination of the net purchase quantity of frequency regulating reserve will be based on the extent to which the frequency regulating reserves currently procured contribute to the system operator s ability to achieve its objectives set out in rule 2.2 of section II of Part C. 32. The system operator will assess the net purchase quantity of frequency regulating reserves for each trading period in accordance with the policies and measures specified in the Security Policy set out in Schedule C4 of the rules. Assessment Methodology for over frequency reserves 33. The system operator will model the integrated performance of the assets connected to, or forming part of, the grid, taking into account the asset owner performance obligations and any approved dispensations, equivalence, or alternative ancillary services arrangements to assess the net purchase quantity of over frequency reserves required. Assessment Methodology for voltage support 34. The system operator will procure voltage support services as required from time to time from ancillary service agents who are prepared to enter into an ancillary service procurement contract with the system operator for the 13

14 provision of voltage support services. The system operator may only give dispatch instructions pursuant to Part G of the rules to ancillary service agents of voltage support services who have a valid and enforceable ancillary service procurement contract with the system operator and the dispatch instruction is consistent with that contract, except where the dispatch instruction is given for the purposes set out in Part G, rule (Part G, section III, rules and 4.6.6). The system operator purchases such services from one party for currently identified needs. 35. The system operator acknowledges that additional voltage support services are likely to be required and may need to be purchased during the term of this procurement plan. 36. At the date of publication of this procurement plan, the system operator is engaged in planning studies, expected to be completed in 2004, to identify existing and future voltage support requirements. Where these planning studies identify additional voltage support requirements, then the system operator will procure such services in accordance with this procurement plan. Assessment Methodology for black start services 37. The system operator will determine the net purchase quantity of black start services from historic performance of the power system, including (but not limited to) information about previous events on the system and the system operator s reasonable opinion about the risk and location of future events. 14

15 Proposed Procurement Processes (Rule 4.2.4) Tendering Process Invitation to Tender 38. The system operator will, prior to inviting tenders for ancillary services, inform existing and potential ancillary service agents of the type of ancillary services sought and contact details for further information regarding the tender process. Information Disclosure 39. Unless otherwise required by the rules, the system operator Service Provider Contract, or by law, the system operator will only disclose any information received during the tender process referred to above to the Board (if so required by the Board). Contracting Process 40. The system operator will enter into ancillary service procurement contracts with providers who can and do offer the required service compliant with the system operator s technical, contractual requirements and the rules, and who are prepared to contract with the system operator to provide an ancillary service on the terms contained in this procurement plan, subject to the system operator s net purchase quantity assessment for each ancillary service which is the subject of an ancillary service procurement contract. Market Mechanisms 41. The proposed mechanisms for procuring the quantities of each of the ancillary services required to meet the PPOs and the dispatch objective for each trading period are identified in Appendix A. 42. The system operator has determined that it is uneconomic to procure black start, over frequency reserves, and voltage support services during the term of this procurement plan using half-hour clearing markets. For these ancillary services the system operator will use its reasonable endeavours to procure the required quantity to achieve what, in the reasonable opinion of the system operator, is the most cost-effective outcome. 43. Where there is only one potential supplier for an ancillary service, the system operator will use reasonable endeavours to negotiate directly with that ancillary service agent to reach an outcome consistent with achieving the dispatch objective. The system operator will report to the Board if such a situation should arise. 15

16 Financial Information Relating to Procurement (Rule 4.2.5) 44. The costs associated with the procurement of ancillary services are: the administrative costs associated with establishing procurement processes, tendering, and entering into ancillary service procurement contracts; and the purchase cost of the ancillary services, as paid to ancillary service agents by the system operator. Administrative Costs 45. Identifiable administrative costs are those significant costs incurred by the system operator as a direct consequence of implementing the procurement plan and that are specifically attributable to an ancillary service and that have been agreed to by the Board and the system operator. The system operator will be entitled to recover these costs as an allocable cost in accordance with the ancillary service cost recovery methodology set out in rule 11 of section IV of Part C of the rules. 46. The administrative costs will be incurred at the standard charge out rate agreed with the Board. 16

17 Technical Requirements and Key Contracting Terms (Rule 4.2.6) Technical Requirements 47. The key technical requirements for each ancillary service are set out in Appendix A. ANCILLARY SERVICE PROCUREMENT CONTRACT TERMS 48. The system operator will enter into ancillary service procurement contracts with ancillary service agents for the provision of ancillary services. These ancillary service procurement contracts will include technical requirements and general contracting terms. The system operator will determine in its discretion the appropriate general contracting terms to be included in the ancillary service procurement contract, however such terms will include, and will not be inconsistent with, the key contracting terms listed below. 49. The system operator will amend the key contracting terms only as required to ensure appropriate legal drafting of such terms. Such amendments may only be undertaken by the system operator where the substantive effect of these key contracting clauses is not altered. 50. The system operator will include the types of general contracting provisions contained in Part A2 of Transpower s standard ancillary service procurement contract immediately prior to the commencement date of the rules where it considers it appropriate to do so and where they are not inconsistent with the key contracting terms. The system operator will amend such terms to take account of the rules, the Electricity Governance Regulations 2003 ("Regulations") and the relationship of the Board and the ancillary service agents with the system operator. 51. The key contracting terms are as follows: Disputes 52. In the event of a dispute on the terms of the ancillary service procurement contract, the parties can agree to refer the dispute for resolution by: mediation; or independent expert determination; or Rulings Panel determination under Part 7 of the Regulations. 53. In the event that the parties do not agree to refer an unresolved dispute to one of the above forms of dispute resolution, or having been referred to such dispute resolution the dispute is not resolved within 100 business days (or such longer period as the parties may agree), the parties will agree that the dispute will be referred to an arbitrator for resolution. The arbitrator will be agreed between the parties or, failing agreement, to an arbitrator appointed by the President for the time being of the New Zealand Law Society. Such arbitration shall be conducted under and in accordance with the provisions of the Arbitration Act Rule/Regulation Obligations 54. Nothing in the ancillary service procurement contract will limit any obligation of the ancillary service agent or the system operator to comply with the 17

18 rules or Regulations or limit any liabilities arising due to the breach of such rules or Regulations by an ancillary service agent or the system operator. Right to Terminate 55. A party will have the right to terminate an ancillary service procurement contract (or parts of such a contract) where a party reasonably believes that changes to the rules or the procurement plan that occur during the term of the ancillary service procurement contract materially change the obligations of the party to the contract from those applying at the date of execution of the contract. Whether such change is material is to be decided by independent dispute resolution where the parties cannot agree. Payment and Invoicing 56. The payment and invoicing contract terms will recognise and be consistent with the obligations of the parties under the rules in respect of payment and invoicing. Limitation of Liability 57. Where either the system operator or an ancillary service agent breaches an obligation of an ancillary service procurement contract which is also an obligation contained within the Regulations or the rules, the liability (if any) of that party will be determined under and in accordance with the Regulations and rules (including the limitations of liability contained in the Regulations and rules) and that party will have no liability under the ancillary service procurement contract. 58. The system operator s liability to ancillary service agents under the ancillary service procurement contract is limited to situations where the system operator has breached the provisions of the ancillary service procurement contract. For the avoidance of doubt, the ancillary service agent will have no claim against the system operator for failing to follow the procurement plan in any respect. 59. The system operator will only be liable to ancillary service agents for direct loss suffered by an ancillary service agent and caused by the system operator s breach of the ancillary service procurement contract. The system operator will not be liable for loss of use, revenue or profit, any third party damages, and third party settlement or any costs associated with such items, even where such losses may be direct losses. 60. The ancillary service agent s liability to the system operator under the ancillary service procurement contract is limited to situations where the ancillary service agent has breached the provisions of the ancillary service procurement contract. Ancillary service agents will only be liable to the system operator for direct loss suffered by the system operator and caused by the ancillary service agent s breach of the ancillary service procurement contract. The ancillary service agent will not be liable for loss of use, revenue or profit, any third party damages, and third party settlement or any costs associated with such items, even where such losses may be direct losses. 61. The maximum liability of each party to the other party under an ancillary service procurement contract will be as follows: $100,000 in any 12 month period in respect of all defaults of obligations contained in the general contracting terms irrespective of the number of defaults; and 18

19 61.2. In respect of all other terms agreed in respect of a particular ancillary service to be provided to the system operator by an ancillary service agent: Force Majeure the combined maximum liability for any single event or related series of events will be the lesser of 5% of the total amount of the expected annual fees payable for that particular ancillary service (such total to be set by the system operator prior to the execution of the ancillary service procurement contract) or $100,000; and the combined maximum liability in any 12 month period will be the lesser of 20% of the total amount of the expected annual fees payable for that particular ancillary service (to be set by the system operator prior to the execution of the contract) or $300,000, irrespective of the number of events. 62. The parties will be able to rely on force majeure in certain circumstances to limit any liability under the ancillary service procurement contract for a breach of the provisions contained in that contract. The following situations will be included in the definition of force majeure within the contract: any event or circumstance occasioned by, or in consequence of, any act of God (being an event or circumstance (i) due to natural causes, directly or indirectly and exclusively without human intervention, and (ii) which could not by any amount of ability have been foreseen or, if foreseen, could not by any amount of human care and skill have been resisted), strikes, lockouts, other industrial disturbances, acts of public enemy, wars, blockades, insurrections, riots, epidemics, aircraft, or civil disturbances; or the binding order of any Court, government or a local authority (except where the ancillary service agent seeks to invoke this paragraph and the local authority which made the binding order is the owner of, or is otherwise associated with or related to, the ancillary service agent); or any other event or circumstance beyond the control of the party invoking this paragraph and being such that, by the exercise of reasonable care acting in accordance with good industry practice, such party could not have prevented such failure. 63. Any force majeure provision will not apply to any liability of ancillary service agents which arises due to a breach of the regulations or the rules whether or not such obligation arises in the provision of ancillary services. 19

20 Arrangements for Unanticipated Procurement of Ancillary services (Rule 4.2.7) 64. The system operator will not depart from this procurement plan where to do so will result in the system operator incurring additional costs that are not able to be recovered under rule 6.4 or of section III of Part C. 65. During a grid emergency, the system operator will rely on ancillary service agents complying with their obligations set out in Part C, Schedule C3, Technical Code B of the rules. 66. Any departures from this procurement plan will be in accordance with rule 8, Section IV of Part C of the rules. 67. Where the system operator identifies a need to change any aspect of this procurement plan, then a request for variation pursuant to rule 7.2 of section IV of Part C will be made to the Board. 20

21 Comment on competitive cost pressures and degree of market innovation involved (Rule 4.2.8) 68. Rule of Section IV of Part C requires an inclusion in the ancillary service procurement plan of an assessment by the system operator of competitive cost pressures and the degree of innovation it believes are involved in the procurement process it is proposing for that ancillary service. These are set out in the following table: Ancillary service Frequency Regulating Reserve Instantaneous reserves Over frequency Reserve Voltage support Reserves Black Services Start Competitive cost pressures Low FRR has to be supplied separately for each HVAC island, and there are few stations with the capability. Low to medium Medium for generation, which has to be supplied separately to each island. Low for Interruptible load (IL), where ownership issues limit competition in practice. Low Most South Island generation plant owned by one of two companies Low to Medium Small number of providers because voltage support requirements tend to be localised. Medium Not many generators have black start capability, but cost of new entry is relatively low. Degree of innovation involved in procurement process (possible future developments are covered in the next table) Medium Procurement using half-hour clearing markets. Procurement process in line with international practice for the few markets that do not use AGC (automatic generation control). High Procurement using half-hour clearing markets. New Zealand s co-optimisation of energy and reserves is leading edge in electricity markets internationally. High A novel solution to a New Zealand-specific problem allowing better management of overall reserve costs. Medium The combination of generator AOPOs and tendering for alternative solutions is in-line with world standards. Low But, simple procurement approach is appropriate given the relatively low cost of this service. 69. The degree of innovation in ancillary service procurement processes is reflected also in plans for further development of them. While this is the responsibility of the Electricity Commission, the system operator will engage constructively with the Board, its Advisory Groups and the industry to pursue cost-effective development of ancillary services methodologies. The system operator s view on development initiatives relating to ancillary services, and their priority, reflects the work programme of the GSC as itemised in the following table: 21

22 Item Development initiatives Scope or comment Priority 1 National instantaneous reserve and frequency regulating markets 2 Multiple frequency regulating with AGC (automatic generation control) 3 HVDC reserve sharing and frequency regulating 4 Multiple frequency regulating without AGC 5 Review SO policies on normal-frequency management Move to a national instantaneous reserve and frequency regulating markets to increase competition and efficiency. Introduce competition to the frequency regulation market by enabling multiple frequency regulating stations, which will also reduce the technical requirements to enter the market. Investigate the capabilities of the HVDC to provide energy reserve capability, thereby reducing reserve and hence energy costs. Introduce competition to the frequency regulating market through allowing multiple frequency regulating stations, albeit that without Automatic Generation Control (AGC) there will be practical limits to the number of participants (perhaps two per island). Review from operational experience whether the normal frequency band specified in the EGRs (49.8 to 50.2 Hz) is appropriate. High As a precursor to item 2. High High As a precursor to item 1. Medium Priority dependent on cost-benefit as an intermediate measure pending item 2. Medium 70. The system operator Service Provider Agreement includes the specification of the scheduling, dispatch and pricing software (SPD) and the reserves management tool (RMT). Transpower owns and operates the software to meet these specifications and the EGRs. Transpower intends to modernise these market software systems, starting this year. 71. This presents an opportunity that the system operator is keen to make available for the Board to make improvements to the SPD and RMT software specifications at low incremental cost to the industry. Such improvements could include improved functionality and/or the acceleration of the ongoing industry development initiatives described above. 72. Automatic generation control (AGC) is established practice in most advanced overseas markets. Introducing AGC in New Zealand will improve system security in real-time, reduce the technical requirements for frequencyregulation, and introduce competition to the frequency regulating market. Updating the SPD and RMT software suite will enable AGC to be incorporated into a fully integrated system. 22

23 System Operator reporting to the Board (Rule 4.2.9) Reporting Information 73. The system operator will in its System Operator Monthly Report provided in accordance with Regulation 45 report to the Board in relation to the procurement of ancillary services as follows: settlement volumes, prices, costs, and administrative costs where appropriate any issues arising with respect to cost allocation, liability and disputes other general procurement issues to be contained within the system operator monthly report provided in accordance with Regulation

24 Electricity Governance Rules 16 September 2004 Appendix A Quantities, pricing & tender arrangements for each individual ancillary services 74. This appendix of the procurement plan, for each ancillary service, sets out: Its objective and purpose; the technical requirements; the performance requirements; any monitoring requirements; any testing requirements; the quantity required to be purchased; any alternative arrangements that prevail or might prevail; and forecast expenditure figures. 75. The forecast expenditure figures contained in Appendix A are estimates only and are subject to ancillary service agent offer prices, asset owner compliance, ancillary service agent performance, and the actual dispatch of the power system. Appendix A 24

25 Electricity Governance Rules 16 September 2004 A1 FREQUENCY REGULATING RESERVE ANCILLARY SERVICE Purpose and Objective of Frequency Regulating Reserve 76. The purpose of the frequency regulating reserve service is to balance any generation and demand inequalities with the objective of maintaining the grid frequency at or near 50Hz under normal operating conditions. Factors that contribute to inequalities under normal operating conditions include unanticipated load changes, differences in generator ramping, and the inherent inaccuracies between the modelled and actual system conditions. The system operator procures frequency regulating reserve to meet its obligations to manage frequency and frequency time error as outlined in rules 2.1 and 2.2 of section II of Part C of the rules. 77. The frequency regulating reserve service is defined as the use of spare generating capacity to continuously maintain The grid frequency at 50 Hz; and The system frequency to New Zealand standard time. 78. The system operator will procure the frequency regulating reserve service from ancillary service agents that can meet the system operator s requirements set out in this procurement plan. Performance Requirements and Technical Specification of Frequency Regulating Service 79. To be able to provide the frequency regulating reserve service the ancillary services agent will need to be able to provide: one or more generating units at a FRR site that collectively have a response rate of greater than 10 MW per minute; control equipment to regulate the output of generating units at an FRR site to enable the ancillary service agent to provide the frequency regulating reserve service; and monitoring equipment that accurately measures and records (in a time-tagged manner) output at a FRR site, frequency of the grid in Hertz, and frequency time error. 80. Subject to paragraph 84, when dispatched to provide the frequency regulating reserve service (in accordance with rule of section III of Part G), the ancillary services agent will use all reasonable endeavours to: commence to respond to the instruction in accordance with rule 4.11 of section III of Part G; continuously maintain the frequency of the grid as close as possible to 50 Hz, but at all times to within the normal band; continuously maintain frequency time error as close as possible to zero but at all times within the limits specified in rule of section II of Part C; and return frequency time error to zero at least once every day. 81. The ancillary service agent must ensure that sufficient generating units are available to provide the frequency regulating reserve service to the performance standards when an FRR site is dispatched to provide frequency regulating reserve. 82. The ancillary service agent must ensure that each generating unit at a FRR site is maintained in accordance with good industry practice. Appendix A 25

26 Electricity Governance Rules 16 September The ancillary service agent must ensure that each item of control equipment: is available when the relevant FRR site is dispatched; will continuously increase or decrease generation so as to endeavour to maintain frequency at 50 Hz when the relevant FRR site is dispatched; and is maintained in accordance with good industry practice. 84. In using all reasonable endeavours to meet the requirements described in paragraph 80, the ancillary service agent is not required to: generate outside the limits of the MW band contained in the dispatch instruction issued in accordance with Part G of the rules or above the relevant control max or below the relevant control min; or provide a response rate greater than that specified in the ancillary service procurement contract for the relevant FRR site. Monitoring requirements for Frequency Regulating Reserve 85. The ancillary service agent must provide recording equipment that accurately measures and records the following: output at a FRR site; frequency of the grid in Hz; and frequency time error. 86. When dispatched to provide the frequency regulating reserve service the recording equipment must: measure and record output at an agreed location in the grid system at least once every 10 seconds, each measurement accurate to within plus or minus 5%; measure and record frequency at least once every 2 seconds, each measurement accurate to within 0.01 Hz; measure and record frequency time error; and be maintained in accordance with good industry practice. 87. The ancillary service agent must ensure that the data recorded by the recording equipment is held by the ancillary service agent for at least 14 business days and is provided to the system operator within 5 business days of a written request from the system operator. 88. In the event that an ancillary service agent finds it cannot maintain the frequency or time error within the required targets the ancillary service agent must advise the system operator as soon as is practicable. Testing requirements for Frequency Regulating Reserve 89. Where the system operator has reasonable grounds to believe that the facilities at a FRR site are not performing in accordance with the technical requirements, it may require that tests be carried out at the ancillary service agent s expense, to verify the capability. Procurement proposal Appendix A 26

27 Electricity Governance Rules 16 September The system operator will seek tenders to secure at least one provider of frequency regulating reserve in each island. 91. The system operator may enter into contracts with other providers at any time throughout the period of this procurement plan. Offer period for Frequency Regulating Reserve 92. The system operator will procure frequency-regulating reserves from a half-hour clearing market. Offers will be sought for each trading period. 93. The ancillary service agent may, no later than 2 hours prior to a trading period, submit an offer to provide frequency regulating reserve for that trading period. Each offer submitted is valid until revised or cancelled in accordance with paragraph 95 or Each frequency regulating reserve offer must be transmitted to the system operator via the electronic facility contained in the information system. 95. The ancillary service agent may revise an offer to provide frequency regulating reserve by submitting a revised offer up to two hours prior to the beginning of the trading period in respect of which the offer is made. The ancillary service agent may cancel an offer to provide frequency regulating reserve up to two hours prior to the beginning of the trading period in respect of which the offer is made. 96. When submitting an offer to provide frequency regulating reserve, the ancillary service agent must include a control min that is greater than or equal to zero and a control max that is at least twice the range of the MW band. 97. The ancillary services agent may cancel or submit a revised offer to provide the frequency regulating reserve service later than two hours prior to the beginning of the trading period (but otherwise in accordance with paragraph 95) only in circumstances where a bona fide physical reason necessitates the cancellation or revision but not otherwise. Quantity requirements for Frequency Regulating Service 98. The system operator will dispatch the quantity of frequency regulating reserve for each trading period required to maintain the frequency standards set out in rule 2.3 and 3 of section II of Part C of the rules. Frequency Regulating Procurement Costs 99. The actual procurement costs for frequency regulating reserves for the procurement period 1 November 2002 to 31 October 2003 were $34 million The costs for the procurement of frequency regulating reserves during the period of this procurement plan will be dependent on the following: the offer prices and quantities received for frequency regulating reserves; the number of available providers of frequency regulating reserves; and the energy offer prices and quantities provided by participants The system operator will provide an update on the current level of procurement costs for frequency regulating reserves to the Board in its monthly report provided under paragraph 73. Appendix A 27

28 Electricity Governance Rules 16 September 2004 A2 INSTANTANEOUS RESERVE ANCILLARY SERVICE Purpose and objective of instantaneous reserve 102. The purpose of the instantaneous reserve ancillary service is to manage frequency recovery after an under frequency event, with the objective of arresting the frequency fall, and recovering the frequency after an under frequency event. The system operator procures instantaneous reserve to meet its obligations to limit the extent and the number of momentary fluctuations in frequency that occur as outlined in rule 2.1 and 2.2 of section II of part C of the rules The system operator will procure instantaneous reserve from ancillary service agents that can meet the system operator s requirements set out in this procurement plan The system operator will procure instantaneous reserve as: Fast instantaneous reserve (FIR); and Sustained instantaneous reserve (SIR). Performance Requirements and Technical Specification for Instantaneous reserves 105. To be able to provide instantaneous reserve the ancillary service agent must have equipment that can provide FIR and/or SIR. The definitions of FIR and SIR are set out in Part A of the rules. Only ancillary service agents that can meet the technical requirements of these definitions can provide instantaneous reserve An ancillary service agent must ensure that at all times the equipment that is the subject of the reserve offer: is maintained in accordance with good industry practice so that the equipment is able to provide instantaneous reserve that meet the standards set out in this procurement plan; is able to respond, when dispatched, within the timeframe applicable to either FIR or SIR, as the case may be; meets, where relevant, the requirements for frequency response and control set out in rule 5.1 of Technical Code A of the rules and has been approved by the system operator; is available and has the capacity to provide the quantity of instantaneous reserve specified in the reserve offer; and is available and has the capacity to provide the dispatched quantity of reserve An ancillary service agent dispatched to provide instantaneous reserve in accordance with Part G of the rules must provide either: additional generation automatically following an under frequency event which is consistent with the dispatched quantity of reserve; or reduced demand or load disconnection consistent with the dispatched quantity of instantaneous reserve whenever the frequency of the grid system falls to or below the trip frequency specified in the ancillary service procurement contract In determining the response capability specified in the definition of FIR and SIR set out in Part A of the rules, inertial response will be excluded. Monitoring requirements for instantaneous reserve Appendix A 28