Tariff changes are unlikely to assist low-income households with energy costs when their usage is structurally higher than that of other users and is also declining more slowly, Vector chief executive Simon Mackenzie says.
Energy usage in low socio-economic areas can be 21 percent higher per square-metre than others for a range of factors, including lack of insulation and the types of appliances used. Household usage is also falling three-times slower than in the wealthiest homes.
That is a real concern and ways to help vulnerable consumers is a legitimate focus of the government’s electricity price review underway, he told delegates at the Sustainable Energy Association conference in Auckland today.
But he said special tariff structures – such as the existing low-user fixed charge – were unlikely to provide an enduring fix.
“Sometimes putting a tariff in is not necessarily going to change the problem if they are using more energy,” he said. “How do we help with efficiency or other initiatives that actually put in enduring solutions rather than just handing out money?”
The review has been tasked with assessing the efficiency of the electricity industry, but particularly whether it is delivering fairly priced energy to all groups of consumers across the country. The future of the low-user charge is a specific remit of the inquiry which delivered its first issues paper earlier this month.
Mackenzie noted that falling energy consumption means 70 percent of Vector’s consumers – spread across all demographics – now qualify for the low fixed charge regime. Average consumption is now down to 6,900 kWh, when the threshold to qualify for the tariff was set at 8,000 kWh 14 years ago.
He said the government, the panel and the industry need to be more open to the potential of new technology like solar to really lower energy costs for consumers. The panel is looking at whether existing regulatory structures may hamper the take-up of new technology.
Mackenzie observed that the $700 winter energy payment the government introduced for beneficiaries this year could in 10 years fund a 3 kW solar array for most homes. And he said that cost could probably be reduced if the government tendered for the panel supply at scale.
That would not only reduce winter energy costs, but lock-in lower costs throughout the year.
“Maybe that would be a better outcome actually than just forking out $700 and not knowing where it ends up.”
The independent review panel found no evidence of excessive profiteering in the sector. But the government has continued to emphasise the increase in energy costs during the past two decades, particularly the higher rate of increase for residential users relative to commercial and industrial users, and higher costs in some parts of the country.
Mercury NZ chief executive Fraser Whineray told the company’s shareholders in Auckland today that the review and its consultants have been consulting extensively and haven’t found a “smoking gun.”
“Because there isn’t one.”
He said there will be changes the industry can make. But he noted that consumers in provincial New Zealand face higher network costs than users in the cities because their local lines are longer with fewer consumers to fund them.
And he said Mercury and other retailers have been working hard to find better options to help consumers struggling with energy costs.
Whineray said Mercury will be encouraging the review panel to have the courage to challenge the “negative narrative” being pushed by some groups and to present the facts to the government and consumers with balance.
“Any outcome must ensure that long-term harm isn’t done to New Zealand and New Zealanders for the purposes of needing something politically ‘big and bold’.”
He said the prices and level of service New Zealand’s power industry achieves is world-leading, given it operates in a competitive, unsubsidised, renewable, reliable and islanded electricity market.
And he urged people to look critically at the Australian and UK electricity markets, both of which have also been subject to government reviews. In the UK default tariffs have been implemented. They have been recommended in Australia.
“They are both in a shambles. They are in a shambles because of expedient, non-dynamic and politically-motivated tinkering – and in the case of Australia they’ve experienced a doubling of gas prices through liquid natural gas exports.”