New Zealand’s power market is ‘ugly’ and asymmetrical

Across a number of different experiments, researchers have shown that the more symmetrical the face, the more attractive and healthier that person is deemed to be.

That seems to be the case across different cultures and historical eras, but in New Zealand’s electricity market, there’s currently a real lack of symmetry and if you’re a customer with solar and batteries, it’s a bit ugly.

Today, most of the electricity distribution companies charge customers for network services using “time of use” tariffs, with higher prices during periods when the network is expected to experience the highest usage – usually mornings and evenings on winter weekdays.

These network tariffs are often combined with retail tariffs or time-of-use plans that do something similar and charge customers more for electricity during periods when the market price of electricity is expected to be higher – again, like winter mornings and evenings.

This means there is a strong financial incentive to reduce electricity consumption at certain times because it can reduce your costs.

Yet, customers with solar and a battery can not only reduce their consumption at peak times, they can potentially make their consumption negative – that is, they can export electricity from their home, farm or business back to the network when it is most needed. Effectively, they can help lower their neighbour’s peak too.

If this is done during times of high network demand, exporting has the same effect as other nearby consumers reducing their consumption.

However, based on today’s network tariffs, as soon as someone with solar and battery moves from consuming to exporting, the network tariff vanishes and they get only a (relatively paltry) retail reward, which significantly reduces the incentive to export.

There is nothing magically different between an additional kilowatt reduced and an additional kilowatt exported, but there is a major difference in terms of what that customer gets paid.

We believe there is an elegant way to fix this: the network price that is charged for peak consumption should be paid to customers if they export at peak times – something we call a symmetrical export tariff, or a two-way tariff.

If this was implemented, customers could be paid significantly more than what they currently receive to export at peak.

It would also bring a much needed degree of competition to monopoly network businesses and drive more innovation in the use of customer energy resources.

To be clear, this is not a subsidy in any way. This is just accurately reflecting the value these customers are contributing to the energy system, something network pricing is required to do (under the Electricity Authority’s distribution pricing guidelines) but currently only does in one direction.

There is another opportunity to ensure customers are paid more fairly.

Currently, most retailers will pay you a ‘buy back’ rate if you export from your solar array (again, when the output of your system is greater than your consumption). You could also call this an ‘export tariff’, but don’t confuse it with the network tariff above.

This is an additional source of value: as a result of your household or business producing power, your retailer ends up buying less power on the wholesale market, which reduces their costs.

Based on current data from Powerswitch, retailer payments for exported solar vary between 7c (USD 4c) / kWh and 15c / kWh. Over the past five years, the average wholesale market price during summer daytime – when export is most likely for the vast majority of homes and businesses – is around 14c / kWh.

This means that some retailers (both of which are gentailers) are paying customers 6c / kWh for their solar export and avoiding paying the full price on the wholesale market for that volume. Effectively, they are profiting from solar investments that have been funded by households and businesses.

If both distributors and retailers paid an export tariff reflective of the value to their networks and wholesale market positions, the customer would receive the ‘true’ overall market value of their export.

A more cost-reflective tariff would be a compelling price signal that would give more households the confidence to invest. The economics of solar and batteries already stack up in New Zealand, but this would mean the payback time would be shortened.

The electricity system was set up to be one way, from generators to homes and businesses. Our 21st century energy system needs to be smarter and more two-way and customers need to be thought of as a critical part of our energy infrastructure.

More rooftop solar, which is the cheapest form of delivered electricity available to New Zealand homes, could help keep water in our dams during a dry year (sunshine hours are, on average, 5% higher in a dry year compared to the average and 10 percent higher in April/May/June, which is actually critical so that we can go into winter with higher lake levels).

And just 120,000 homes (or 5% of households in New Zealand) with a medium-sized battery could potentially reduce the peak load as much as our largest hydro power station, Manapouri. While these batteries would not hold as much energy as Manapouri, they could output the same amount of power for an hour or two when the system really needs it.

Like a highway, the poles and wires that transport our electricity to where it needs to go are built to handle peak demand and are very rarely at capacity. But if a battery can provide electricity at a lower cost than expanding the network, then it should ‘win’ and be chosen to provide it.

Customers eventually pay for the upgrades to the poles and wires on their bills. And without pricing that properly reflects the value of solar and batteries, New Zealand runs the risk of a future with unnecessarily high costs.

The recently announced Energy Competition Taskforce is making the right noises about changes to the tariff system and in its release this week it says it’s looking at ways to encourage adoption of solar and batteries. That’s positive, but the language is important.

As mentioned above, symmetrical export tariffs are not a subsidy. They’re not a rebate either. They simply ensure customers get a true reflection of the value they provide to the electricity market. They are no more a rebate than the half-hourly prices in the wholesale market, paid to generators for their output.

Rewiring Aotearoa is advocating for a level playing field, not just a slightly less uneven playing field. Your oven doesn’t care where the electrons came from, so customers with power plants on their roof and batteries in their homes need to be able to compete fairly with large generators.

The current pricing structure is compromising New Zealand’s delivery of a secure and affordable power system; it fails to recognise that peak demand could be reduced with the help of household batteries; it perpetuates the idea that we need to spend tens of billions to upgrade our poles and wires to cope with that peak demand; and it is stifling demand for solar and batteries among New Zealanders because their true value is not being accurately reflected in the price paid for export.

Winston Churchill said: “Tidiness is a virtue, symmetry is often a constituent of beauty.”

We’re confident the taskforce will tidy up this export loophole and make things fairer, but it needs to be made mandatory and it needs to happen quickly. After an ugly dry year and plenty of focus on high prices and electricity shortages, a change that actually benefits customers would be a beautiful thing to behold.

Author: Mike Casey Chief Executive Officer Rewiring Aotearoa, New Zealand

This article was initially published in Newsroom and is republished here with its permission.

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