Flexibility is a key ingredient for transition’s success

 

Flexibility has a critical role to play in New Zealand’s energy transition, helping keep the lights on when demand is high and renewable supply is low.

A smart, flexible system can also provide significant savings - of up to $14 billion per decade -through optimising network use and avoiding unnecessary infrastructure spend.

There’s been good steps forward in encouraging more flexibility in the electricity system, but there’s more to do for big gains. 

A lot of flex potential

Often discussions about flexibility focus on one particular area, such as what future industrial demand response could look like, the role of thermal generation or what’s needed to enable consumers to participate more fully. 

We need to be thinking about all of these things and more. 

Investment is required in a range of areas, from longer-term flexibility that can provide dry year storage, to establishing the smart system.

Ultimately all types of flexibility across all types of timeframes will be needed to ensure security of supply during season changes and daily peaks and unlock significant savings.

Hydro and thermal assets that can help balance intermittent renewables like wind and solar for long periods, batteries which provide storage, fast-start peakers and demand response (large and small) can all contribute. 

For industrial demand response, we anticipate arrangements are likely to be largely bespoke, driven by the customers’ appetite, as well as their ability to respond and be rewarded. 

Overseas, industrials are evolving to act like energy traders and adapting their operations based on electricity demand peaks and dips, which could be incentivised further here.

At the other end of the spectrum, households will play an increasingly important role in supporting the supply and demand balance of our electricity system. 

At Mercury, we reward EV owners for charging off-peak and buy back excess solar power generated by households. 

Further, we’ve been working for the past two years to enable more households to participate in demand management, focussing initially on things such as hot water load control and smart EV charging.

Our focus isn’t just on developing offerings which reward customers fairly, but also education and how we can meet the needs of consumers as we bring them on the journey. 

We need a plan

Ticking the many flexibility boxes for our system’s future requires coordinated, collaborative action.

This includes making enabling a smart, flexible system a policy and regulation priority, as identified in Sapere’s new report on priorities for the New Zealand electricity industry. 

Unlocking data access arrangements and funding for trials would go a long way, but ultimately a coordinated, longer-term plan for scaling flexibility is needed. The Flex Forum, which Mercury is a member of, has a Flexibility Plan 1.0 to help.

A vibrant, flexible market

Market signals are key. They need to reflect the value of flexibility in all parts of the system to support investment in flexible demand, generation and storage.

We welcome the Energy Competition Task Force’s work, to ensure households are rewarded for their flexibility (from solar and batteries working in tandem), and to establish standardised flexibility products. 

Standardised flexibility products will make it easier for all companies, including independent retailers, to participate in the transition. Buyers can have confidence they’re getting the best deal to manage their market risks, and in turn, this supports investment.

We participated in the first standardised super peak hedge product auction, alongside several other companies. We anticipate that standard offerings will evolve over time, including to help independent generators manage uncertainty.

We’re committed to doing our bit to make these arrangements effective, including market making if required.

Standardised products won’t suit everyone, however. Over-the-counter arrangements have a continued critical role. Our door is always open for discussions about these, and we’ll continue to price every request we receive. 

A part of a bigger picture

We should be proud of New Zealand’s electricity system. We’re among the best in the world for secure, affordable, renewable electricity. That means we’re well placed to use electricity for more things like transport, which is better in the long run. 

For Aotearoa to keep getting the most out of electricity we need to keep evolving and that requires collective effort.

Building more renewables is really important (and exciting) and there’s lots of activity underway, including $1 billion committed to three renewable builds by Mercury alone. 

But we need more flexible resources too, to help address challenges with security and reliability (which will in turn help address affordability). 

Getting the ‘trilemma’ balance right is tricky, but there’s plenty of upside opportunity in the transition if its managed well. Encouraging more flexibility in our system can help get us there.