The Electricity Authority (EA) has just issued a new consultation report on the implications of evolving technology for pricing of electricity distribution services, in other words how you pay for your local lines. This isn’t some far-away future: new technology like solar is already changing how we use and consume power and I welcome the conversation because there are real issues to talk about.
Solar panels, electric vehicles, smart appliances, energy efficiency, and batteries are all rapidly changing the electricity system and the industry finds itself at a cross-roads. If they approach it wrong, their customers will desert them. The international research raises the spectre of a “death spiral” as customers drop off the grid like dominoes, leaving the industry with billions of dollars of stranded assets.
The EA’s consultation report is downright gloomy on solar, raising some inaccuracies and red herrings as arguments. The main arguments are the old ones: solar doesn’t produce at the peak demand (think, winter evenings) therefore it’s a wasted investment, lines charges are subsidised by non-solar consumers who use more power, and solar could be detrimental to higher renewable electricity generation.
Before I address these points I’d like to look at the EA’s overall objective from this report and why they are publishing it. The way the report is written is focused more on protecting the industry’s established ways of doing things from changing technology, than it is on the possible benefits to consumers.
It’s clear the old-fashioned electricity industry sees people producing their own power as a threat to their business models and, for lines companies who are distribution monopolies, the billions they have invested in assets and $2.8 billion they earn in revenue. The EA should see their role not as protecting an industry where power is pushed one-way down wires from big centralised generation sources, but to support the transition to a new energy paradigm that sees consumers also as producers, or prosumers, and a smarter two-way power system.
I’ll wager that most people spend a total of five minutes a year thinking of power stations, poles, and wires, but actually dozens a times a day they think of using electricity. No one ever wanted an electricity industry – they wanted reliable and affordable electricity and we should focus on energy as a service and not just energy as an industry.
The EA, like much of the electricity industry, isn’t a fan of solar. Their argument is that solar homes use less or no electricity during the day but still at night and, since they are charged a per unit of electricity rate, they aren’t pulling their weight to pay for the grid at its expensive peak, therefore other consumers are picking up the slack. Now you could say this about anyone who only uses electricity at the peak because their hot water is on a timer, or they turn everything off while they are at work, or that insulation retrofits and energy efficient appliances use less power therefore they are being ‘subsidised.’
The analogy is saying someone who only drives their car on the motorway at peak traffic and bikes the rest of the time is subsidised by other motorists. Calling this a subsidy is an absolute red herring and, frankly, playing politics. It’s not solar customers’ fault the industry picked this pricing model. I’ve called for years for more dynamic, real-time price signals, particularly focused at peak demand times. The industry has ignored this for years but now they suddenly decry solar customers for not following peak price signals.
The EA consultation document goes on to describe solar as an inefficient and wasteful investment because it’s more expensive than large scale hydro, wind, or geothermal. Again, this is comparing oranges and lemons. Sure, solar on a per unit basis is more expensive (not as much as their out-dated calculations say, mind you) than the Manapouri power station but show me a consumer in New Zealand who pays the 8c/kWh average of large scale generation?
Solar has no input costs, and no transmission or distribution costs once installed so to compare apples with apples we should look at the real price consumers pay for grid electricity. That’s around 26c, and significantly higher in some regions, which is plainly more expensive than solar.
Kiwis are going solar in record numbers because of record high power prices and record low solar costs and they want some independence from the electricity industry. They literally are voting with their feet and spending their own money because it is cheaper than the power bill that keeps going up so it’s a red herring to say it’s a wasted investment. It may be uncomfortable for the industry and maybe even inefficient for the big power companies, but for many homes and families it’s a brighter option.
Lastly, the EA argues that solar doesn’t reduce emissions because it doesn’t produce at the peak demand, but this totally ignores the reality on the ground. Currently it’s pretty hard to choose to use 100% renewable electricity in New Zealand, with an average rate around 80% and only one retailer, Ecotricity, offering a fully renewable option. At least with solar you know it’s 100% renewable.
Solar as a clean energy is great for other renewables. It allows hydro water to be stored and saved during the day to be used at the peak, and it wastes less power pushing electricity down the lines, so less needs to be generated.
Research suggests that solar customers change consumption patterns to use less power at peak times. Most solar customers change their usage patterns to do things like heat their hot water or do the washing during the day when the sun is shining so they are actively reducing their peak consumption. Add in the new Tesla Powerwall and battery equivalents and you have solar providing even more grid benefits. This was all ignored in the report. Solar customers should receive bouquets not brickbats from the Authority.
I think it is true that if you connect to the grid and expect reliable electricity, you should pay your fair share. I doubt many people would disagree with this. The peak period in particular needs greater attention because that’s when the highest costs and carbon emissions are created. Currently there are no incentives to reduce demand at the peaks which is where the big national savings are.
Take my family, for example. As a regular consumer it costs the same for me to turn the energy-hungry clothes dryer on when power is cheap as it does at its most expensive during the congested peak time. Encouraging consumers to use more electricity and ignore the peak has helped keep electricity prices high and lines companies gold-plating their assets. Blaming solar for an industry-wide problem isn’t the solution.
Looking at the pricing structure for lines networks in the way this report does, the solution implied is greater fixed costs – a per day, not per unit, electricity rate. This is not the right solution and it sends a terrible message. As electricity consumption declines, be it from insulation, energy efficient appliances, or solar panels, the per-unit charging system brings in less income so the industry would love to move to a dollars-per-day model. If we went down this path there would be little incentive to, say, turn off the lights or reduce consumption, especially at the peak which should be the big focus. Even if someone used less power they’d still be paying the fixed amount and opening similar power bills. Fixed costs keep income rolling in for the industry no matter what actions consumers take but Kiwis want more information, choice and control not less.
A smarter way to think about it would be to give Kiwis the choice of paying the real time price of electricity or per unit rates that vary at different times and could be more expensive during the congested peak, reflecting the economic realities. This way, anyone who reduces consumption from efficiency measures and solar would see the benefits of their personal investment while also contributing fairly to the grid when they use it.
What I care about is cheaper, cleaner, smarter energy for Kiwis not maintaining the asset value of the lines monopolies or super CEO salaries and super profits for the industry.
If the EA wanted to help consumers and reduce prices they should instead ask why we have 29 separate distribution monopolies all duplicating IT, administration, and billing systems or the accounting model that encourages additional infrastructure to boost asset values and therefore costs. If the Authority wants to investigate subsidies they would question the National Government’s law change around providing lines to rural customers. One rural lines company I’ve heard of paid out $800,000 over two years to supply power to a far flung hunting lodge when solar and batteries would have been so much cheaper.
There are some good questions in this report, but very few good answers.