Solar tax! distribution pricing? distributed generation tariffs ?!!!?
These terms have all been in the media a lot lately yet aren’t well understood. To help we have prepared a No-Nonsense Guide to Electricity Charging, to try and shed some light on your electricity bill and what we think needs to change to make electricity cheaper and more sustainable.
The price you pay for electricity is made up of several components: the cost of generation, the cost of transporting it along Transpower’s grid, the cost of distribution by your local lines company, and the cost associated with your retailer selling it to you (there is also GST and a government levy, but let’s ignore these for now). Over two thirds of your bill is spent on just getting electricity to you!
Seems like a lot of sets of hands and a lot of cost for something so simple right?
Well, the technical infrastructure which generates and delivers the electricity to you is relatively straight forward, but the structure of the market which attributes costs is far more complex. There is a lot of competition in retail, you can change your power company easily, but lines companies have a monopoly on delivering electricity from Transpower’s grid to your meter, and it is the price we pay for this, distribution pricing, which everyone has been getting so hot under the collar about lately.
Understanding this starts getting heavy, so if you really want to know how your network and the market works in more detail, then check out our No-Nonsense Guide to Electricity Charging - (be warned it is 20 pages long and uses words like “Price-Quality Path Determination”). There is a link to download it at the bottom of the page.
The long and short of it is that we believe that lines companies pricing needs to change.
Current lines companies pricing tariffs don’t encourage people to use less electricity at peak times (in the morning and evening) and therefore they build distribution infrastructure which is bigger than we really need as it is built to cope with peak demand times. It is therefore much much bigger than we will require in the future. We pay more in our power prices to pay for this infrastructure, and will have to keep paying for a long time whether we need it or not if things don’t change.
Lines companies are currently moving to change their pricing tariffs to reflect what they call “cost reflective” or “service based” pricing. This is when prices are higher at peak demand times, which we support, as it further incentivises households to shift their load from peak to during the day, when they pay lower prices and can easily replace grid-supplied electricity with solar-generated. However these changes are happening under a hands-off regulatory regime, with the Electricity Authority letting lines companies write their own rules, which means that lines companies can include other tariffs to recover what they consider 'fair'- hence the “Distributed Generation Tariff” or Solar Tax.
What can we do about it?
One of the solutions on the horizon is the Solar Electricity Market. This is a secondary peer-to-peer electricity market which uses an electronic currency, and enables solar households and businesses to sell their excess electricity to their neighbours and others in their area - sometimes known as the transactive-grid. The lines company would charge a minimal amount for the use of the power lines to get the electricity from your place to where it will be consumed. This guarantees continued income for the lines company without discouraging solar, and allows households and businesses around the country to generate their own electricity and share it with their friends, families, neighbours and beyond.
Sound like a great idea?
Auckland lines company Vector is soon to launch a trial of this new system, which SEANZ has been involved in and we support every step of the way. A teaser about this exciting new initiative is on our website.
If you want more detail then the place to be is at The Power Shift. This two day event hosted by SEANZ brings together forward-thinking leaders from across the electricity sector to provide the vision and SEANZ presents the roadmap for the electricity revolution. If you are in the industry, interested in becoming part of it, or just a super interested bystander then you will want to check it out.
Click here to read the story about the transactive-grid trial by Vector.
And to download our No-Nonsense Guide to Electricity Charging click here.