Tag: New Zealand
Transpower is the state-owned enterprise responsible for New Zealand’s high voltage electricity transmission network. The transmission network is used by generators to transport energy from generation points to local distribution networks such as Vector.
Local network companies include Transpower’s charges in their own rates which are charged to electricity retailers and ultimately on to end users.
In 2023 Transpower has introduced a new pricing methodology which differs significantly from previous years, and which has flowed through to local network charges effective from 1 April 2023. The specifics of how local network companies choose to pass on the new transmission pricing methodology varies and we are seeing quite some variation between networks.
The changes to the pricing methodology are in theory intended to better allocate the cost of investment in and operation of the transmission system to those who get the benefit. Assets such as the HVDC link are now paid for directly by network companies instead of the South Island generators.
The previous methodology was peak demand based, intended to reduce (or control) demand at peak operating times through price signals. Under the new pricing methodology, Transpower’s revenue will be based on a combination of a fixed charge and a variable charge (based on the amount of electricity used). The changes don’t aim to bring in additional revenue for Transpower but to rebalance who pays for the transmission system now and into the future.
As with most change, there are winners and losers, i.e. some end users will see lower prices while others will face increases. The effects of the changes on end users will vary depending on their location in New Zealand, and in some cases their connection size and usage profile.
Of particular note is the treatment of transmission charges by Auckland’s local network company Vector (and the resulting interpretation of Vectors charges by retailers), as it appears to have focused the cost increases on customers with larger connection sizes, particularly those with large flat loads. In Auckland, for commercial/industrial clients, we have seen network charge increases that range from around 10% to over 50%.
Below is a graph showing the indicative changes to network charges on some example local networks throughout New Zealand based on a large flat load:
Overall, the changes to Transpower’s pricing methodology were intended to encourage more efficient use of electricity and to ensure that the costs of operating and maintaining the transmission grid are shared fairly among customers. Early indications are that the removal of peak signals may have resulted in higher transmission peaks.
While the effect on customers will vary depending on their location and usage patterns, Transpower’s view is that the changes should ultimately lead to a more sustainable and reliable electricity system in New Zealand.
The old saying ‘the more things change, the more they stay the same’ remains very true in the energy industry.
In July 2020, NZSA (i.e. Tiwai Point smelter) announced the closure of the smelter in August 2021. This was a big disruptor because Tiwai uses around 13% of New Zealand’s total electricity. A few weeks after this announcement, the ASX Futures (NZ electricity prices) fell significantly from Q3 2021 onwards, and we hoped that we were seeing an end to the volatile and high electricity prices experienced over the last two years.
However, since our last market update, persistent lobbying, which may or may not be connected to electioneering, led to speculation that the smelter could continue operations beyond August 2021. This market speculation was confirmed on 31 August 2020, which immediately resulted in New Zealand electricity prices on the ASX Futures climbing straight back to where they had been prior to the initial closure announcement. Based on these price movements, we calculate that the market is factoring in the cost of the smelter remaining at $800M per annum.
Weathering the weather factor
As if the smelter situation was not frustrating enough, the prevailing conditions which caused the volatility in pricing through 2020 and into 2021 continue. Generation options continue to be limited due to low rainfall, inconsistent wind patterns, and the continuing high price for natural gas for electricity generation.
If you have ever tried to wade through the subtle differences between retailer offers, or understand the range of offerings and which will benefit you the most, you’ll know it can be next to impossible to pin down savings with any confidence. Factoring in the Tiwai smelter situation, and the impact hydrology has on electricity pricing, only makes the decision even more opaque.
This is where Smart Power’s experience and industry relationships add value. We navigate and manage energy procurement for our clients, and make sure your supply arrangements match your operational requirements. Take the hassle out of energy procurement and leave your staff to focus on their core business. Contact Smart Power to find out about cost-effective energy procurement, and how we can help you add value to your business.