Symmetrical export tariffs (SET) are where a customer is paid the same amount for any electricity that is exported from the premises at peak times as they are charged for any power they consume at peak times.

A number of electricity retailers pay for solar export, usually at the same price over the day, and usually at a different price to what the customer pays for consumption. We are aware of one retailer (Octopus) that pays a higher rate for export during specific times of high demand. However, these export prices reflect only the value of export to the wholesale electricity market. We are not aware of any export tariff that includes a payment by the electricity distribution business (EDB).

No. We are not asking for special treatment or a special regulatory ‘top up’ to favour solar and batteries (often referred to as a ‘feed-in tariff’). We are simply asking that consumers are rewarded accurately (or cost reflectively) for the value their export provides to the electricity system at the same rate as the system participants charge them for their consumption.

As a result of the way EDBs are regulated, introducing SET payments to customers will likely result in EDBs raising their consumption tariffs in the short term for a number of consumer groups. Exactly how EDBs do this is up to them, and is loosely overseen by the Electricity Authority’s distribution pricing principles. However, as more customers export from their solar and battery installations at peak times, the need for EDBs to build new poles and wires will reduce. If EDBs set their export (and consumption) tariffs correctly, in the long run all consumers will save money, as fewer poles and wires need to be built. Today there are only a small number of batteries in the electricity system so the short term impacts of SETs are likely to be small and outweighed by the significant long term savings possible through clear investment signals in batteries to consumers.

Virtual Power Plants (VPPs) are to some degree a bandaid for a market without cost-reflective consumer tariffs, and should not be thought of as a replacement for regulation keeping up with technological progress (battery availability). VPPs are in practice a business-to-business negotiated export tariff which should be business-to-consumer in the first place (already in consumer tariffs).

While VPPs have some benefits through aggregation - like emergency response - this is not the main need or purpose of tariffs in the electricity market. VPPs can be seen as an “insurance policy” against short term volatility: “From this pilot, we have determined that there is value in having additional generation, outside of the market, available for dispatch during a low residual event to act as effectively an insurance policy to prevent a grid emergency.” - Winter Peak Innovation Pilot Report February 2024 - Ara Ake, SolarZero, Electricity Authority, Transpower. (link)

There is a significant difference between preventing a grid emergency and fundamentally reshaping electricity load profiles to achieve more efficient infrastructure outcomes (and bills). VPPs do the former, and SETs do the latter.

It is also important to consider the difference in both consumer outcomes and energy system outcomes from each option. VPPs take existing consumer resources and aggregate them in exchange for yet another profit margin, overheads, and transaction costs. This centralised coordination/aggregation role may be justified for security of supply and other emergency events, but for the majority of the time when a consumer battery is simply doing what it is designed to do (i.e., automatically responding to price signals), the financial benefits of such activity should go to the consumer who owns the battery and its management system, rather than a separate entity. From an energy system perspective, VPPs by definition represent a subset of available peak reduction capacity in the market. SETs create the market environment where every battery, in every home, farm, and business, is incentivised to routinely lower peak demand and reduce bills for all New Zealanders.

To be clear, there are benefits to both, and the argument proposed in this document is that there is significantly more benefit - to consumer bills, and the energy system - in deploying SETs rather than focusing on VPPs.

We think this is very unlikely, as we are specifically arguing that SETs will only apply during periods of high demand on the EDB’s network. During these periods of high demand, the export is likely to be ‘soaked up’ by high demand from customers nearby. EDBs “smooth” (or simplify) their peak pricing over many regions, and while this pricing could be more regionally granular, there is no reason smoothing a peak consumption charge should be thought of differently to smoothing an export reward.

Generally, the export tariff paid to a customer during peak demand times should be equal to the tariff the customer would pay to the EDB if it were consuming, not exporting. However, as a matter of principle, peak-period consumption (and, we argue, export) tariffs should be set around the ‘long run marginal cost’ (LRMC) to the EDB of expanding the network capacity. This is an economically efficient outcome - the export of power is only rewarded at the estimated rate the EDB and its customers will save on new poles and wires. We accept that, due to the complexity of EDBs networks, the LRMC and therefore value of export to an EDB during peak times will vary across their network. However, if this is the case, the rate at which customers are charged for peak consumption should also vary across their network. Symmetrical export tariffs simply require that the payment is symmetrical - it is up to the EDBs to determine what the consumption (and therefore export) tariffs are at any point in their network, at any point in time. Similarly, EDBs may “smooth” their pricing over many parts of the network, but this selective simplification must apply equally in both directions. If EDBs are content with smoothing what they charge to consumers, they should be content with applying that same methodology to a SET payment. Today, while most of the 29 EDBs in Aotearoa New Zealand provide “time of use” (TOU) consumption tariffs across all customer groups, only some calculate the peak component using the LRMC approach. This does not prevent any of them introducing SETs that are symmetrical with their current TOU tariffs, however EDBs should be moving to tariffs that better reflect LRMC. The current challenges and inefficiencies with EDB tariffs are not a barrier to the introduction of SETs. It simply means that SETs themselves may need to evolve as EDBs improve their pricing approaches.

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While the industry transitions away from the low fixed charge regulations, customers currently qualifying for low-user tariffs may be facing peak-based consumption tariffs that exceed the LRMC of network build. This is a transitional issue that will no longer exist after April 2027. In the meantime, we would suggest that the export rate is capped for these customers at the LRMC of network build.

We believe it needs to be as soon as possible. EDBs are imminently embarking on a significant period of investment, which will increase costs to consumers. But some of this investment could be avoided if customers were correctly rewarded for their export. However, even if SETs were introduced today, it may take many years for customers to make the decision to invest in a battery. To avoid unnecessary investment in poles and wires, SETs need to be introduced immediately.

Retailers do not have control over a large portion of your electricity bill, and it is not their responsibility (or economically cost reflective) for them to be footing the bill for benefits to networks. While retailers determine the price a consumer pays for electricity, what they charge is actually made up of many other charges that are passed on to them (wholesale electricity costs, transmission costs, distribution costs etc). A large portion your bill is determined by the distribution costs of electricity passed on to the retailer, these distribution prices are where we think fair Symmetrical Export Tariffs should apply. This would enable retailers to pass on much better export pricing to customers. While some retailers have taken innovative steps in introducing better battery export tariffs, it is ultimately not reasonable to expect this to be a long term solution to a distribution pricing inefficiency (not retail pricing).