Transmission Pricing For A Low Carbon Future

The Electricity Authority has decided on new guidelines for transmission pricing.

James Stevenson-Wallace, Chief Executive of the Electricity Authority says the new guidelines will deliver significant benefits to consumers, through lower electricity prices at the times they want to consume electricity the most, and will support New Zealand’s transition to a low carbon economy at the least cost to consumers.

Mr Stevenson-Wallace says transmission pricing matters, and implementing the new guidelines is necessary and increasingly urgent.

“How Transpower recovers the cost of maintaining and developing the national grid impacts customers’ decisions on how and when to use the grid.”

“The current transmission pricing methodology is based on a peak charge which is often too high. Some consumers end up paying a premium when power is most valuable to them - even when there is plenty of transmission capacity available.

“This creates perverse results – you’ve got customers investing in alternative generation, including diesel generators, just to avoid using the grid at peak times despite there being plenty of supply. This behaviour just shifts costs to others and in some cases increases carbon emissions.”

“Some large industrial customers have become so good at this that they are managing to pay little if any interconnection charges.

“With emerging technologies and increasing distributed energy resources this problem will only get worse. It is already creating significant year on year pricing volatility, that is materially affecting some South Island consumers and export businesses.

“It’s crucial we get transmission pricing right to unlock New Zealand’s renewable potential and encourage the right investments, in the right place, at the right time says Mr Stevenson-Wallace

“Certainty is even more important right now as we deal with the impact of COVID-19 on our economy.”

“Investment in new generation will be necessary to support the projected increased electrification of transport and industrial processes and the national grid will play a key role as we transition to a low carbon economy.

The new TPM guidelines will support this transition at the least cost to New Zealand consumers.

The Authority considers transmission customers should pay for the service they receive.

A benefit-based approach is at the heart of the guidelines and means those who benefit from transmission investments will pay for them, unlike the current approach which spreads the cost of all transmission assets across the country regardless of benefit. The Authority’s decision means a rebalancing of transmission charges in the first year of implementation rather than an overall increase.

Mr Stevenson-Wallace says the new guidelines will mean changes for some consumers, but any changes to electricity bills will be modest. The Authority’s decision includes a price cap to protect consumers and businesses directly connected to the grid from big increases.

“This is a key decision for New Zealand’s future and is an important milestone in the long and contentious review of transmission pricing. It reflects years of analysis, expert review and engagement from across the industry.

“The new guidelines have benefited from diverse views, and the time and contribution of many interested parties.

“We’ve heard the concerns and we believe our decision and the new guidelines are in the best interests of New Zealand consumers.”

Transpower will develop a proposed new Transmission Pricing Methodology in keeping with the revised guidelines. It will submit its proposed Transmission Pricing Methodology to the Electricity Authority for consideration, consultation and ultimate approval.

A revised Transmission Pricing Methodology is expected to be in place by April 2023.

Read the decision paper and new guidelines

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