Electricity Authority Removes Requirement For Distributors To Make Payments For Avoided Cost Of Transmission

The Electricity Authority is removing the requirement for distributors to make avoided cost of transmission (ACOT) payments to certain pre-2017 distributed generators. Ending these payments ultimately means lower consumer power bills.

"The current regime of avoided cost of transmission payments is costly, poorly targeted, and inefficient," says Director of Network Pricing at the Authority, Tim Sparks. "Importantly, costs to consumers in many regions will be reduced with the removal of ACOT payments."

In making this decision the Authority considered, but did not accept, arguments from some submitters to retain ACOT payments for grid reliability or security of supply reasons. Mr. Sparks confirmed that "ACOT payments are an ineffective and expensive insurance policy that the Authority is not willing to ask New Zealand consumers to keep funding."

The Authority is confident that grid reliability and security of supply are more effectively supported through:

• wholesale electricity pricing, which better signals where and when generation can support grid reliability - and which has recently been enhanced by the Authority’s real-time pricing initiative
• Transpower deploying its full range of tools for managing near-term grid reliability risks
• the Authority and Transpower making targeted interventions for security of supply purposes ahead of winter 2023
• improving the efficiency of incentives for investment in distributed generation - noting there is a large amount of distributed generation investment in the pipeline.

The decision follows consultation in September this year which outlined two options for the future of ACOT payments: a Code amendment to remove the requirement to make ACOT payments as part of the new Transmission Pricing Methodology coming into force in April 2023, or a two-year phase out of the scheme. After considering stakeholders’ submissions and cross-submissions, and feedback from Transpower on grid reliability, the Authority has decided to amend the Electricity Industry Participation Code 2010 to remove the requirement on distributors to make ACOT payments to qualifying distributed generators following the implementation of the new Transmission Pricing Methodology in April 2023.

The decision paper is available here, and the initial consultation paper is available here.

Notes:

The Electricity Authority is an independent Crown Entity with the main statutory objective to promote competition in, reliable supply by, and the efficient operation of, the electricity industry for the long-term benefit of consumers.

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