Location factor map

Report notes

1. A location factor (LF) is simply the ratio of two prices – the price at one node or location relative to the price at a basis node. Spatial price differences arise because of transmission losses and may be exacerbated if transmission constraints are present or traders are able to exploit a pivotal position in the market. Nodal pricing (or locational marginal pricing) in electricity markets is a key driver of the price signals that lead to efficient investment over the long term and the optimal utilisation of available resources in the short term.
   
   Historical location factors can be used to adjust pricing at one node to what it might be at another node or in another region. This type of information and understanding is useful when contemplating forward positions or when seeking to manage locational price risk. For example, an integrated generator-retailer might own generation at one location and simultaneously need to satisfy a customer load base at several other locations. Alternatively, a buyer of electricity at a specific location who is seeking to hedge that load would want to compare with the price at the location at which the forward contract is settled.
   
   Forward contracts are used by participants to manage risk. Such contracts may include bespoke over-the-counter contracts between two parties, exchange-traded standardised contacts settled at Otahuhu and Benmore where the counter-party is the exchange, and financial transmission rights (FTRs) between points on the grid at Otahuhu, Benmore, Haywards, Islington, Invercargill, Whakamaru, Kikiwa, and Redclyffe.
   
   Location factors are required in the context of the hedge arrangement disclosure regime – see subpart 5 of part 13 of the Code

2. The location factors in this report are derived across all trading periods equally; they are not weighted by demand or filtered by peak periods. In other words, they share a design aspect with base load futures contracts traded on ASX. Location factors for regions are derived from the simple average price of all nodes comprising the region. The data report (data tab) includes some additional information not shown in the graphical report, i.e. the proportion of time that a node is connected to the grid or, equivalently, has a price during the selected period.
   
   The report highlights regional location factors relative to a selected basis node on a map of New Zealand. A symmetrical colour bar shows factors greater that 1 (prices greater than the basis node) towards red, and factors below 1 towards blue. Factors outside the range will be coloured at the maximum although hovering over the region will display the factor in the tool tip.
   
   The show parameter allows selection of different distribution measures average or median etc. Displaying other distribution measures (max/min etc) in this report may not prove meaningful. If selected, current incomplete periods will track a location factor as the current period, e.g. a quarter or a month, progresses.
   
   The nodal prices used to compute location factors are available from the wholesale price report or in files able to be downloaded from wholesale datasets.

3. The basis node defines the denominator in the derivation of the location factor for the node or region in the series filter. For example, a location factor of 1.xx for the Upper North Island covering the 2018 calendar year using Benmore as the reference node tells us that the average nodal price in 2018 across all nodes in the Upper North Island was 1.xx greater than the the average 2018 price at Benmore.

4. Region types are either network-based or derived from standard statistical boundaries. The current network-based regions are nodes and zones. Mappings are provided in the NSP table which is available as a wholesale report.