1. Efficient procurement of extended reserve Workshop 3 – operational management 28 April 2016 - Auckland Clive Bull – Strata Energy Consulting

2. 1. CENTRALISED OR DEVOLVED? September 2015 workshop considered two options for the operational (day-to-day) management of extended reserve (ER) demand units (DUs) centralised management devolved management The Authority undertook to review these approaches in more detail and present findings at workshop 3 Strata Energy Consulting (Strata) has been helping with the review This session provides our conclusions for a way forward We have discussed this work with the EPER project steering committee (2 Feb), ENA reps (26 Feb) & MEUG (13 Apr) 2

3. 2. REVIEW CONSIDERATIONS We started by noting that the reliability and efficiency benefits - compared with the existing AUFLS scheme - are significant 4 blocks = better reliability efficient procurement = better feeder selection However, the options being considered for day-to-day operational management looked to be quite complex Since workshop 2, the ERM (NZX) has been developing the selection tool & accumulating input data we have studied the results from the development runs Selection tool uses historical DU load profile data to select DUs to arm in 1 of 4 blocks Without real-time monitoring of aggregate block loads, the basis for operating (ie arming and disarming) flexible DUs in real time is uncertain 3

4. 3. SELECTION TOOL INPUT DATA PROFILE Analysis of input data reveals relatively few large DUs but lots of small DUs 4 Notes: DU profile shown is based on information sent to the ERM by ER providers as at April 2016. All demand figures are DU average MW.

5. 4. OBSERVATIONS On the base case selection tool run, the tool selects: Block 1207 DUs279 MW Block 2166 DUs283 MW Block 3 88 DUs192 MW Block 4 95 DUs189 MW Total selected556 DUs943 MW Not selected 1347 DUs 1098 MW Ample DUs offered for the tool to select from Very good performance using historical DU load data no block min. violations very few block max. violations ERM is finalising selection methodology & will consult on it 5

6. 5. SMALL & LARGE DEMAND UNITS 6 ‘large’ ‘small’

7. 6. IDENTIFYING LARGE DEMAND UNITS Large armed DUs are more likely to trigger block minimum violations if they become unavailable – but how large is large? Working definition: a large DU is any DU likely to trigger a block minimum violation if it became unavailable An n-1 analysis after selection, take out each selected DU in each block in each trading period in turn and see if this triggers a min. violation However, at this stage we don’t know: which, if any large DUs will be offered for final selection or, if offered: which, if any large DUs will be selected and armed 7

8. 7. A SIMPLIFIED APPROACH? We think this is feasible & are proceeding with more detailed design of: a simplified approach to operational management accept that the loss of a few small DUs will not materially degrade block performance so: don’t replace small armed DUs with flexible DUs if they become unavailable due to planned/unplanned outage etc minimise operational complexity for providers where possible early & ongoing reviews of aggregate scheme performance to provide assurance that the simplified transition approach is performing as expected Look to introduce additional complexity only if it proves to be necessary 8

9. 8. ER PROVIDERS’ PROPOSED OBLIGATIONS We propose that an ER provider’s primary obligations are to: arm selected DUs use reasonable endeavours to keep selected small DUs armed and minimise any future periods of unavailability notify the ERM only if an armed DU becomes permanently unavailable monitor and periodically report AUFLS feeder/DU performance to the ERM average MW in each trading period IL netted off unit load files submitted quarterly 9

10. 9. MANAGING LARGE DEMAND UNITS (ONLY IF ANY ARE ULTIMATELY SELECTED) If large DUs are included in the final selection, we recommend more active management of these DUs only. Specific replacement DUs would be pre-allocated. For example: IF [large DU #1] is out and expected to remain out for > [x] hours THEN: arm own flexible DU #2 request [provider 2] to arm flexible DUs #3 and #4 (etc.) Rights and obligations to arm flexible DUs would be included in the terms and conditions At this stage, we think this is unlikely to be an onerous day-to-day activity because: relatively few large DUs exist that are suitable as ER DUs even fewer are likely to be offered for final selection even if offered and selected, outages of large DUs should be rare events 10

11. 10. SO HOW IS THIS ‘SIMPLIFIED’? No obligation to actively manage (replace) ‘small’ armed DUs on a day- to-day basis planned and unplanned outages feeder/load reconfigurations relay replacement/testing No requirement for a central coordinator Existing SO and ERM roles remain as planned Assurance of aggregate scheme performance is achieved by periodically analysing aggregate DU load data ER providers must collect, and periodically send to the ERM, load data for their armed DUs, initially at 3-monthly intervals Data transfer will utilise the format used in the December 2015 information request, but for unit load files of selected/armed DUs only ERM will validate data, providers must fix any errors identified and the ERM will compile a scheme performance report for the period 11

12. 11. IMPLEMENTATION Implementation will require a transition period During implementation: both active old AUFLS feeders and active new DUs will need to co-exist old and new blocks (2 old, 4 new) will operate in parallel, coordinated by the SO Implementation is a significant operational challenge for the SO & providers, so we propose: monitoring of all active (armed) AUFLS feeders and new DUs a 3-month reporting and review period, while initially possibly onerous, is prudent in terms of overall scheme risk mitigation Ongoing (long-term) monitoring and reporting of armed DU load data, at possibly increased intervals, is inevitable automation? 12

13. QUESTIONS … Q1. What do you think of the simplified approach to day-to-day management of selected (armed) DUs? small & large DUs no active management of small DUs but endeavour to minimise outages/big load changes/reconfigurations more active management of large DUs (only if any are selected) quarterly DU load data reporting & submission to ERM Q2. What can you do to automate the ongoing recording and submission of selected DU load data? 13