Jun 7, 2024
Rewiring Aotearoa
The potential $1.3 billion saving New Zealanders may have missed - and how new rules and readily available technology could help them save even more

Rewiring Aotearoa's CEO Mike Casey explains the thinking behind a recent Commerce Commission decision, the gap it opens up for customer generation, storage and smart demand management technology, and the role the Electricity Authority needs to play to speed up adoption.

Last week, most of the attention was focused on the Government's budget and the savings it delivered to New Zealanders. But what largely went unnoticed a few days before that was a potential $1.3 billion saving that wasn't even part of the budget. And you have the Commerce Commission to thank for it.

On Tuesday, it released a 492 page document (stay with me here) outlining what it was proposing for the electricity sector and how much money the companies that own the poles and wires could spend over the next few years. Because these companies are regulated monopolies and don’t operate like other businesses, they have to abide by certain rules that the ComCom sets for them and have to get approval to spend money. 

These companies - known as EDBs or electricity distribution businesses - were asking for quite a lot. They argued they needed to do a whole heap of maintenance on creaky old infrastructure and make expensive upgrades to ensure they can cater for the country’s growing electricity demand. The ComCom largely agreed and gave them much more than last time but didn’t give them all that they asked for due to uncertainty over growth projections and concerns about them actually being able to deliver it all. In its draft decision, which is open for feedback until July 12, it set ‘maximum allowable revenues’ of $12 billion over the next five years, trimming $1.3 billion off the total requested. 

It will be fascinating to see how the EDBs respond to this decision. At Rewiring Aotearoa, we hope they will see it as an opportunity to embrace innovation, but if they start playing the line that the billion-and-a-bit dollar haircut threatens security of supply, we would argue that it makes the case for more rooftop solar and batteries - and low-interest finance to fund it - even stronger. 

Most of the headlines were focused on the average $15 per month price rise for line charges from next year (some regions will pay more, some regions less). That’s a significant increase and it will definitely be hard for many customers to swallow, especially as the price of almost everything else seems to be increasing (except for solar panels and batteries, of course). It doesn’t feel like a saving when you still have to pay more than before, but the ComCom has softened the blow by saying no to some things (for now) to keep the bills lower than they would have been if all the wishes were granted and spreading the costs out. 

It’s heartening to see the ComCom has listened to a range of arguments, including Rewiring Aotearoa’s, suggesting that while we obviously need to spend, we don’t need to overspend. 

It has handed an olive branch to the industry and said that, over the next five years, EDBs can still get extra funding through what’s called a ‘re-opener'. This means it can relitigate a decision if it thinks it needs more money. 

It has also thrown a lifeline to innovation with the revised innovation allowances and we are very happy to work with the Commission and EDBs on proposing what could be done here and starting some pilots.  

There are already glimmers of innovation in this space. Counties Energy and Transpower announced a pilot project to install energy monitoring all over the local networks, turn resources like batteries, solar and EV chargers up or down based on the needs of the network, and pay customers for providing that flexibility; Orion and Wellington Electricity are working on a similar project called Resi-flex; and Aurora has partnered with SolarZero (and my own orchard near Cromwell) to find ways to reduce peaks. 

The draft decision has created a real opportunity for customer energy resources - things like rooftop solar, batteries and smart systems that can manage demand - to step in and play a bigger role in the system. Financed solar and batteries are already cheaper than grid electricity and basically lock in your electricity price for decades, as our ‘Electric Homes’ report shows, so it already makes economic sense. But some other dominoes need to fall to speed up adoption. 

A recent open letter from the Electricity Authority to the EDBs didn’t go far enough in our eyes because it did not mandate two-way cost-reflective tariffs, where customers are paid fairly for the energy they contribute back into the system, in the same way that many customers are rewarded today for reducing their use at peak times. This change would actually help reduce bills, incentivise solar and battery uptake and help reduce the strain on - and emissions from - the grid. 

Similar two-way tariffs and demand response programmes are already operating successfully in many other markets, including Australia and the UK. The ComCom has encouraged innovation with this decision and obviously wants to save consumers as much money as possible. We believe the Electricity Authority should stop getting in the way of this goal and implement two-way cost-reflective tariffs now. If it doesn’t, they would have failed the ComCom and the New Zealand people and in five years we may be no better off and could still be spending too much on poles and wires.  

A reliable electricity network is essential for modern life, but looking at the feedback to this news in the media, and the response to news of other price increases for grid electricity, many New Zealanders do not feel like they’re winning - or saving. It’s about time the energy sector tried giving something back for a change, rather than just continuing to take. 

As always, the devil is in the detail, so it will take a while to digest everything in this almost 500-page behemoth, but on the face of it, we like what the ComCom has done. This $1.3 billion saving is actually a win for consumers and a step in the right direction for the energy sector. While the bills are still going up by 74% over the next five years, they’re not going up by as much as they could have. And if the rules change, households, farms and businesses with solar and batteries can reduce their energy bills even further.

Read moreDownload the full proposal here

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