Oct 16, 2024

Rewiring Aotearoa

Talk is cheap - and electricity should be, too. Here's what needs to happen to make that a reality

After the announcement of the Government's policy statement on electricity, Rewiring Aotearoa CEO Mike Casey explains why we need a level playing field for customers, a more efficient electricity system and the smallest possible investment in gas.

As a voice for the New Zealanders who use the energy system and an organisation focused on electrifying almost everything, we were pleased to see the policy statement from Energy Minister Simeon Brown last week showing the Government’s commitment to ensuring more affordable and reliable electricity.

The statement contains some good points - particularly around rewarding customers fairly for their contributions, whether by reducing their demand or providing electricity through solar and batteries. But, as we said when the Energy Competition Taskforce was announced, the time for thinking is over. Now is the time for doing - and a lot of that doing needs to happen quickly and in a way that doesn’t actually increase customers’ bills.

As we have argued loudly and often, new technology means customers now need to be seen as a critical part of our energy infrastructure. So seeing this paragraph in the statement - and especially the word ‘households’ - warmed our hearts: “Technology advances are making it easier for new players (including households) to provide generation, energy storage or demand response services. It is important that our system promotes innovation across the system for the benefit of consumers.”

We were also pleased to see this included: “If demand-side response is available in the market at a lower price, it should displace generation as the preferred source for meeting additional demand.”

Demand-side flexibility, where customers shift their usage to different times or reduce their usage at times of high demand, is a crucial part of that equation. Large users have been able to benefit financially by reducing usage, but smaller users have largely been asked to do it out of the goodness of their hearts when there is a potential shortage. Some retailers are offering payments to customers who reduce their usage at certain times, but mandatory incentives are required.

There is no magical difference between an electron saved and an electron exported, so if the Minister is wanting to create a fair market and ensure efficient network investment, then Symmetrical Export Tariffs (SETs) are essential.

SETs ensure customers with solar and particularly batteries are paid fairly for exporting at peak times. It’s important to stress that they are not a rebate or a subsidy. They are simply levelling the playing field so that households, farms, and businesses can compete with the big players. It is what a fair market looks like. For too long, large-scale generation and infrastructure has been seen as the only option, but if a customer’s solar and battery can provide electricity at a cheaper price than the network, they should be the preferred source.

While batteries are individually small, they add up. As an example, just 120,000 homes (or five percent of New Zealand households) with a medium-sized battery could potentially reduce the peak load as much as our largest hydro power station, Manapouri. While these batteries would not hold as much energy as Manapouri, they could output the same amount of power for an hour or two when the system really needs it.

Every home with a battery basically removes themselves from peak, and it could potentially remove their neighbours from peak, too. This means we may not need to invest as much in the poles and wires to deal with that peak demand. Better incentives like SETs would grow demand for rooftop solar and batteries, speed up payback, and increase our resilience.

Retailers should also be paying customers for their exports at a rate closer to the wholesale price, rather than continuing to profit from those households’ private investments, something we believe is akin to ‘energy scalping’.

Utilisation Targets for every network would also help improve efficiency. Like highways, electricity lines are not always busy and have short periods of high demand. We will definitely need some grid upgrades to cope with the expected increase in demand as we electrify but, on average, our lines are at 30-40% capacity. So with smart demand management (like charging EVs or heating water during the day) and better pricing signals that encourage savings and export at peak, we could increase that utilisation substantially without over-investing in new poles and wires, which will be paid for by customers over time on their bills.

This Government says it wants to promote action. And if it truly wants to ensure low-cost electricity for New Zealanders, it needs to make sure all of this happens by next April when the industry resets its tariffs.

We fully back the mission to get more large-scale solar and wind farms up and running. But we need to keep reiterating that customers do not pay wholesale prices, just as they don’t pay the price of a barrel of oil when they fill up with petrol. They pay retail rates, and grid electricity is much more expensive to customers than rooftop solar. That gap looks set to grow as solar and batteries keep dropping in price and grid electricity continues to increase.

In many cases, even if a power plant could generate completely free electricity, it would be more expensive to a customer than rooftop solar because the distribution, transmission, and retail markup alone already exceeds the cost of generating from your roof. There are nuances here, but those nuances don’t make enough of a difference to change the equation.

If 80% of New Zealand’s households had a 9Kw rooftop solar system, that would add around 40% more generation to the country’s total. And if all our farms had mid-sized solar systems, that would be another 60%. The Government’s goal is to double the country’s renewable energy by 2030. We could get there with solar on existing rooftops and on farms, and we'd love to see more batteries to store it. It would also be the cheapest electricity for those customers and help bring the price down for everyone else too.

More competition is important, but retail competition is largely a distraction because customers’ bills are already going up by so much anyway, as the table below shows (the red line is what is expected to happen to the price when the cost of all the poles and wires is added to customers’ bills and the black and grey lines show how solar and batteries basically lock in the price of electricity by paying for it upfront).

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Where we need more competition is between customers and large players. Large infrastructure projects have received favourable finance in the past. That’s why we’re asking the Government to help customers finance the upfront costs of electrification. By tying loans to property and paying back the balance when that property sells, it would come at little to no cost to government and would significantly reduce the cost of living and our emissions.

The term fuel agnostic is used in the policy statement, but it will be impossible to offer cheaper electricity for consumers if we use expensive fuels to create it. The sooner we get off gas, the sooner New Zealanders will have lower bills because gas in all its forms - fossil gas, so-called ‘renewable’ gas, hydrogen, LPG, liquid natural gas (LNG) - is now more expensive than electrification. We may need gas in the short term to shore up our electricity system or for certain sectors, but gas in homes is dumb - economically and for health reasons - and should play no role in the future.

Looking at it from the perspective of the Energy Minister, however, the proposed LNG terminal makes some sense - at least temporarily and if done in the right way. Our economy relies on a stable electricity system and the Minister’s primary job is to ensure we have enough supply to meet demand. As we saw this year, we came close to the wrong side of that equation when our hydro storage and gas supplies were low, demand was high and prices spiked.

Suggesting LNG could play a role may be seen as surprising for an organisation like Rewiring Aotearoa, which is focused on making New Zealand one of the world’s most electric economies by 2040. But we’re pragmatic about our transition and it is likely to help get us through the next few years while all these new renewable projects are built and while the system adapts to more decentralised, and therefore more affordable, generation and storage.

We argued successfully to the Commerce Commission in our DPP4 submission that we should consider the role that existing technologies like rooftop solar, batteries and demand response could play before we commit to massive investments in poles and wires. We should be doing the same thing with this piece of proposed infrastructure and looking at the most temporary facility possible with no long-term agreements locking New Zealanders into decades of high electricity prices and unnecessary emissions.

As our Electric Homes Report showed, buying fossil fuel machines now locks households into decades of increasingly expensive fuel and unnecessary emissions. The same economic scenario applies to the country as a whole. We don’t want to commit to a massive infrastructure spend that customers will have to pay for or long-term contracts for expensive LNG when there are already cheaper options available and new advances on the horizon. That would contradict the policy statement about affordable electricity and it also runs the risk of emboldening other industry players who will see it as a signal to invest in more gas infrastructure.

We would love it if our country was able to generate all the electricity it needed without any fossil fuels, but it’s not possible - yet - because the incentives aren’t right and there is so little support for customers. And while it may irritate those who think our country’s approach to infrastructure is too often about a minimal viable product, we really do not want to overcommit to this.

There has long been talk of closing the Huntly coal-fired power station, but closing that and opening an LNG terminal is a false economy because coal is cheaper. It’s also a false environmental economy because “recent research indicates that LNG could actually emit 33% more greenhouse gas emissions than coal over a 20-year period”.

Around the world, many governments are moving away from fossil fuels for electricity - primarily for economic reasons but also to reduce emissions - and the International Energy Agency released a report recently that predicted an almost threefold increase in renewable capacity by 2030.

It’s an exciting time to be in renewable energy. In the UK, the last coal-fired power plant was recently decommissioned, and despite some sceptics suggesting there would be a shortage of electricity, the predictions for supply are the best in years, largely due to “new interconnections, battery storage growth and increased distributed generation capacity”. California is providing an increasing amount of electricity at peak times through batteries that are able to store cheap solar and wind throughout the day. Texas, a state synonymous with fossil fuels has become a clean energy giant and is rolling out solar and batteries at a rapid pace. Australia recently produced more than half of its total electricity supply from rooftop solar. And we are also starting to see successful pilot projects overseas that use electric vehicles - from utes parked in people’s garages to school buses in parking lots - to feed electricity from their massive batteries back into the grid.

Unlike many countries, New Zealand has the benefit of a world-leading hydro scheme. Generating more wind and solar - at scale and on rooftops - and then being able to call on customers to do their bit would help maintain our lake levels for the winter peak and avoid the ridiculously high wholesale prices we’ve seen this year.

While our electricity system is highly renewable, it’s important to remember that fossil fuels still account for around 70% of our total energy use. Climate change is largely an energy problem and solving it in practice is a machine problem. That’s why our solution is to swap fossil fuel machines in New Zealand for more efficient electric equivalents and power them with New Zealand-made renewable electricity.

This isn’t a cost, however. As our Investing in Tomorrow report outlined, an aggressive electrification campaign would save New Zealand households almost $11 billion a year by 2040. With our renewable resources, this is a huge opportunity for New Zealand to lead the world and, as Danyl McLauchlan wrote in The Listener: “Eventually, someone will have to notice tens of billions of dollars lying on the ground, just waiting to be picked up."

We don’t want to keep lurching from one energy crisis to the next, with temporary fixes proposed every few years. We need an energy strategy that creates the cheapest and most renewable energy system in the world. The creation of the Energy Competition Taskforce and the Government’s policy statement on electricity is positive, but talk is cheap. In a country like New Zealand, electricity should be cheap too - and it can be, as long as it’s generated in the right way and as long as the government and the regulators follow through on the promises to level the playing field for customers and ensure they become part of our energy infrastructure.

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