Bill Hogan on how FTRs provide enough money to cover all location risk

That Bill Hogan is a Professor of Energy Policy at Harvard University and Director of the enormously influential Harvard Electricity Policy Group is impressive. Locally, however, he has particular status as the guiding mind behind the design of New Zealand's wholesale electricity market.

One of Hogan's key recommendations in the establishment of the wholesale market was that Financial Transmission Rights ("FTRs") be created alongside it. This wasn't part of the original implementation but, 16 years later, the Electricity Authority has appointed an FTR manager with the responsibility of running our first FTR auction in May 2013.

Professor Hogan hasn't worked in New Zealand since the early 2000s but was interested and pleased to hear of this new development. He kindly agreed to talk to the podcast about FTRs and why they're so important.

To do this, we must first establish the purpose and design for the market to understand the role of FTRs within it. Last week, Bill explained how FTRs solve the problem that locational marginal pricing creates (that electricity prices change all over the country all the time). This week, he explains how they work and how central dispatch ensures there's always enough money to pay people with them.