Adjusting electricity network pricing to enable the uptake of new technologies is an “absolute prerequisite” for good long-term energy policy, a visiting Australian regulator says.
Cost-reflective pricing – which attempts to charge homes and businesses for the type of service they receive – has been “largely left on the table” by policymakers, says Tim Nelson, executive general manager of strategy and analysis at the Australian Energy Market Commission.
But he said the change in tariffs will be critical to maintaining networks as solar panels, batteries and electric vehicles change the way people use power and reshape the movement of electricity on local distribution grids.
And the change needs to be started before a lot of people have invested in solar, expecting big savings from current volume-based, average-cost network charges, he says.
“Cost-reflective pricing ahead of any significant uptake of batteries, EV or solar PV, again, is really important,” Nelson told officials and executives at a Mercury NZ function in Wellington last night.
“Don’t wait until you have a situation whereby one-in-four households now views any change to tariff structures as something that they will lose from, rather than something they will gain from through a more efficient deployment of capital in the first place.”
Many New Zealand power distributors are already changing the way they bill users, with some adding new charges to ensure owners of solar panels still contribute to the cost of the network they remain connected to, and others also moving to time-of-use pricing. The Electricity Networks Association last week issued a ‘roadmap’ for member companies to help them navigate the change.
But the Electricity Authority wants faster action from some firms. The government’s electricity price review panel appears to back the change but is also concerned that new tariffs are introduced in a way that softens potential price shocks for households.
Nelson said that in some parts of Australia one-in-four homes now have solar – often subsidised with previously generous feed-in tariffs.
For some homes, their biggest use of local power lines is when they export surplus power back to the grid, yet lines companies aren’t able to charge for that service.
Nelson said New Zealand is blessed with a high penetration of smart meters which will “profoundly change” the way consumers interact with their power suppliers in future. Abundant renewable supplies are another huge advantage the country has.
He urged policymakers to avoid trying to regulate energy prices, as they have in Australia and the UK.
He said such moves can have significant unintended consequences, including putting at risk some of the “digital enablement” now underway using smart meters.
On renewables policy, he warned politicians not to try favouring certain technologies or fuels when the best driver is a charge on the greenhouse emissions themselves.
In New Zealand, government ministers continue to publicly push for a 100 percent renewable generation system by 2035 despite the Interim Climate Change Committee already warning against the cost and risk from such a strategy. The coalition, which last year banned new offshore gas exploration, has also funded pilot projects for hydrogen development for use by industry and heavy transport, while Greenpeace continues to press for solar subsidies.
Nelson said Australia had suffered in the past decade from a tendency of governments to over-regulate without a clear idea of what they were trying to fix.
The national renewable energy target was effectively a production subsidy that encouraged renewable power generation whether it was needed or not and has tended to accentuate “boom and bust cycles” in generation development.
Nelson said the surprise early closure of some coal-fired generation, coupled with increased demand for gas for export, had resulted in a “really tight” supply-demand balance and contributed to a 50 percent increase in power prices since 2010. Export-parity gas prices had also been a “huge shock” for heavy industry.
Nelson said constant policy change had also contributed. In the past decade, carbon prices were introduced and repealed at both state and national level. The Renewable Energy Target had also been reviewed five times and materially changed three times.
“Not great for investor confidence.”
Nelson said the earlier New Zealand discusses the potential for gas imports and exports, the better the policy outcome will be. It should also keep firmly focused on emissions reduction as its policy goal.
“Price the externality – don’t pick a winning technology,” he said.
“That has been a huge issue that we have struggled with in Australia.
“The literature is really clear on this. The best way to get emissions down is to have some form of externality pricing and that’s what we don’t have back in Oz.”