Noninvasive Test Scheduling in Live Electricity Markets at Transpower New Zealand

In 2013, Transpower New Zealand commissioned a new high-voltage, direct current link to transfer electrical power between the North and South Islands of New Zealand. This was a substantial and prolonged undertaking, requiring approximately 400 in-situ capability tests. Transpower elected to perform these tests “live,” without suspending the normal operation of the wholesale electricity market. Instead, Transpower’s trading team attempted to create suitable flow conditions for each test by entering into innovative financial derivative contracts with power generation firms. We created a stochastic dynamic programming model to handle the contingent scheduling of the tests; its most important random variable was the state of water storage available to hydropower plants.