Faculty of Engineering

Mechanism design in electricity and gas markets

We aim to develop a detailed model of the electricity market which incorporates both the electricity and hydro networks as well as the gas market. The model can be used to assess the impact of regulatory change in any electricity market with a hydro generation component and can be applicable to any region that operates a gas and electricity system jointly.

What is the optimal strategy for investment in the gas/electricity infrastructure?

How does investment in transmission impact investment in generation and vice versa?

Mechanism design in electricity and gas markets

In this project, the model will be used to:

  • Study the effects of the structural changes suggested for the improvement of the NZ electricity market contained in The Wolak Report (commissioned by the NZ Commerce Commission, April 2009) and the subsequent Electricity Industry Bill (2010).
  • Study effects of generation of electricity from gas on the electricity market as a whole.

Key focus areas/issues

This project will apply the newly developed model to evaluate Wolak Report suggestions for the improvement of the performance of the NZ electricity market, such as:

  1. Ownership of generation capacity among the four large suppliers could be rearranged so that each firm owns capacity in both the North and South Islands, increasing the competitiveness of the market across the two islands.
  2. Reallocate assets among the four major generators so as to increase the competition between thermal generators.

We will also study the impact of the natural gas spot market that is to be introduced in New Zealand.


Current major developments

A preliminary study has shown that rearrangement of the electricity market as suggested in (1) above will lead to increased prices and decreased consumer welfare. This is due to transmission congestion that eventuates when competition is enhanced in one island leading to lower prices, but the link between the two islands becomes saturated as cheap electricity is imported to the other island.


Key achievements

We have developed an agent based simulation programme of the New Zealand electricity market, the outputs of which are shown in the image.

Key people


Golbon Zakeri
Phone: +64 9 373 7599 ext. 84613
Email: g.zakeri@auckland.ac.nz


Related publications

The following publications are from previous relevant research:

A. Downward, G. Zakeri, A. Philpott, 2010. Construction of Cournot Nash Equilibria over Capacity Constrained Electricity Networks. Operations Research58, 1194-1209.

G. Pritchard, G. Zakeri, A. Philpott, 2010. A Single Settlement Energy Only Electric Power Market for Unpredictable and Intermittent Participants.Operations Research 58, 1210-1219.

Ryan, SM, Downward, A, Philpott, AB, Zakeri, G, 2010. Welfare Effects of Expansions in Equilibrium Models of an Electricity Market With Fuel Network ,IEEE Transactions on Power Systems, Vol PP, no 99, pp 1-13.

Pritchard F, Zakeri G, and Philpott A, 2006. Nonparametric estimation of market distribution functions in electricity pool markets, Mathematics of Operations Research, vol 31, no 3, 621-636.

Pritchard G and Zakeri G, 2003. Market offering strategies for hydroelectric generators, Operations Research, vol 51, no 4, pp 602-612.