Saturday, March 30, 2024

Rural power isn’t subsidised

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Urban power consumers are not subsidising people in rural areas, the Electricity Price Review Group says in its report to the Government. Providing services to rural consumers generally costs more than into urban streets though many network distributor companies do not differentiate between the two sectors.
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There had been claims to the review that amounted to an urban-to-rural subsidy but the report said it does not stand up to scrutiny when overall revenues and costs are assessed, except in the case of extremely remote rural consumers.

The report also quoted other views, including that forcing the use of separate urban and rural categories would add needless complexity and cost to network pricing. 

That could spur some rural people to disconnect from the grid and instead rely on solar panels and/or diesel generators, leaving others to pay the network costs, leading to inefficient outcomes.

Fairness in overall electricity pricing, especially for low-income people and families, is a major focus for the review group and it said that from a fairness perspective, forcing the use of urban-rural pricing will make it even harder for low-income rural consumers to pay their bills.

In some remote locations distributors already encourage on-site generation and batteries because that is more cost-effective than maintaining overhead wires. 

However, legislation protects customers from being disconnected from the grid without their consent.

Lower North Island lines company Powerco is seeking consent from some consumers to use alternative means of supply where economically viable and indicated the biggest hurdle is in getting consent from all affected customers.

Powerco suggested fine-tuning of the legislation to make that step easier but the review group believes the problem might be resolved when alternative technologies become more reliable and cheaper.

Though residential power prices have risen 79% since 1990, with commercial prices falling and industrial charges up by only 18%, the review found there is a high level of trust in power companies and the sector ranks highly by world standards. 

The initial report, with a final report and recommendations due early next year, said there is no evidence of excessive profits being made by Transpower, electricity generators, retailers and distributors. 

The review had some concern about generators’ spot-pricing market power at times when supply is tight at peak demand periods. Outdated pricing structures might be holding back distribution efficiencies.

There are concerns around the effectiveness of parts of the wholesale contract market and though the retail sector has become more competitive, low-income people are being effectively disadvantaged by early-payment discount programmes because they were generally unable to be part of them.

Many more savings could be achieved by consumers switching retailers but low-income people are generally not taking advantage of that. 

The report concluded overall switching numbers are dominated by a smaller number changing retailers often while many people do not change at all. 

Retailers can also offer savings to consumers who notify them of their intention to switch but again that is not an area where low-income people are generally involved.

The report mentioned the merits of a retailer of last-resort for consumers struggling to pay their power bills.

It said there are significant price differences between retailers and those consumers who don’t or can’t easily shop around are paying more, and more than they need to.

The five big generators, Contact, Genesis, Mercury, Meridian and TrustPower, control 90% of the generation capacity though there another 30 or so generators around the country. 

There are 36 electricity retailers, with the top five again dominant.

Electricity generation investment efficiency is at a good level, the report said. 

New power stations have been based on a lower-cost-per-unit focus. That contrasts with the period before generation competition in the mid-1990s when comparatively high-cost investments were made ahead of cheaper alternatives, meaning generation competition had brought cost discipline.

With 80% of ordinary year electricity generation being renewable, mainly hydro-generation, carbon emissions are very low by world standards.

However, coal and gas are the main fuels for industrial heating, making up a third of the country’s overall energy use.

As NZ moves to an economy-wide low-emissions regime the use of electric cars is increasing with a move away from coal and gas-fired industrial heating systems there will be significant growth in electricity consumption, which is expected to be met by greater renewable production, including more wind assets and solar power, including individual property solar panels.

A durable, robust transmission investment and pricing system will be needed to support the investment and send clear price signals. Wind and solar power are by nature intermittent and likely to become more so and reliable transmission lines will be required.

One issue is that hydro-lake inflows are lowest in June and July, also the lowest solar-output months. Generation companies have also told the review many existing wind farm consents might need reassessment or new consents because of technology changes, for example, bigger wind turbines.

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