Evaluating the impacts of generation capacity cycles in New Zealand

Since the commencement of the Electricity Market (NZEM) in October 1996, generation expansion in New Zealand is made based on profit anticipation from the wholesale electricity spot price rather than through coordinated planning. This has caused boom and bust cycles in the generation capacity. Energy shortages occurred in 2001, 2003 and 2008. A new model based on System Dynamics (SD) is developed to study these cycles. Its results are compared to the results of the Generation Expansion Model (GEM), developed by the New Zealand Electricity Commission and published in the Statement of Opportunity 2008 (SOO2008). The model is able to identify some capacity cycles that are likely to happen in the future. The analysis is then extended to evaluate whether the cycles will result in energy shortages. The SD model shows that under some future scenarios, New Zealand is susceptible to electricity shortages due to the bust periods in the capacity cycles.