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New Zealand’s EA proposes changes in sharing of transmission costs [free access]

July 23, 2019

New Zealand’s Electricity Authority has proposed changes to the way electricity transmission costs are shared, which could lead to about NZD2.7 billion benefits to consumers during the next 30 years.


The plan aims to charge consumers based on the benefit received from transmission projects, which will increase costs for many large industrial power users on the North Island, but will generally lower costs for South Island generators and lines companies in the lower South Island and lower North Island.


Majority of the estimated national benefit (more than NZD2.3 billion) will come from reducing the cost of electricity utilised during the peak times by removing a peak charge that the New Zealand's power grid operator, Transpower, applies under the current transmission pricing methodology (TPM).


Better price signals are expected to deliver improved decisions on generation investment and see grid-scale batteries being used efficiently. Those benefits could be worth another NZD350 million.


Under the current TPM, customers will invest in batteries to avoid paying the peak charge. This avoidance is likely to increase if the TPM is not changed, as more grid investments are made to support the shift to a low emissions economy, and make batteries and distributed generation more affordable.


But the main issue of charging the entire NZD145 million annual cost of the high voltage (HV) projects across Cook Strait, to South Island generators, and smearing the costs of major transmission projects across all consumers whether they are benefited or not, will remain unresolved.


As per the regulator, the country requires renewable generation, yet potential South Island generation projects are being disadvantaged by an effective tax increasing their costs by about 10 per cent.


The scheme proposed is a little changed from that proposed in 2016, when the authority had also proposed a cap on the annual impact on costs the change could have on households.