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Batteries exacerbate transmission price puzzle

Advances in large-scale batteries for use in the national electricity system make it more important than ever to reform the way different parts of the country are charged for access to the national electricity grid, the Electricity Authority says.

In its first formal update since April last year on the fate of the long-running and vexed transmission pricing methodology (TPM) review, the EA says the emergence of new battery technologies will skew investments even more towards pushing the cost of the grid onto those who benefit least from its maintenance and upgrades.

“The longer the current transmission pricing methodology stays in place, the greater the risk that investors will make decisions that end up costing consumers more through higher transmission charges over the long term," says the authority's chief executive, Carl Hansen, who leaves his post at the end of this week.

The TPM process has been one of the most challenging and frustrating for the regulator and the electricity sector, especially after cost-benefit modelling undertaken by Australian consultancy Oakley Greenwood and underpinning an earlier reform recommendation was found early last year to be full of computational errors and had to be withdrawn.

The EA said in April last year that it would get new CBA work done with a view to making final decisions this year. However, today it repeated the need for new modelling and said it would next give an update on progress at the end of this year.

"Parties benefiting from transmission upgrades don’t pay for the full cost of those upgrades, and parties that don’t benefit at all are paying for them. This is leading to poor outcomes for consumers overall."

- Carl Hansen, Electricity Authority

The issue is politically vexed because it pits Auckland and Northland electricity users against consumers in the far south of the South Island, represented mainly by the Rio Tinto-controlled aluminium smelter at Tiwai Point, which uses one-seventh of all electricity produced in New Zealand. The smelter has argued for years it is subsidising the national grid for the northern parts of the country that benefit from the wires that carry electricity from hydro lakes in the South Island to the north of the country.

Multi-billion dollar upgrades to the grid earlier this decade, which mainly benefited the north of the North Island, exacerbated the long-simmering argument over who should pay what.

"The current transmission pricing approach will encourage businesses to buy batteries when the purpose is largely to shift their transmission charges to other customers. This will make electricity more expensive for others and not reduce the total cost. This is clearly not sustainable.”

“The current methodology has several very unsatisfactory features, one of which is that parties benefiting from transmission upgrades don’t pay for the full cost of those upgrades, and parties that don’t benefit at all are paying for them. This is leading to poor outcomes for consumers overall," said Hansen.

“Batteries are getting cheaper, which will be great for managing pressure points in the electricity system. However, the current transmission pricing approach will encourage businesses to buy them when the purpose is largely to shift their transmission charges to other customers. This will make electricity more expensive for others and not reduce the total cost. This is clearly not sustainable.”

"Reforming the TPM is needed now more than ever as new electricity technologies and business models are emerging fast in the sector."

The EA remained committed to trying to price grid access based on the benefits derived from access, in ways that would not create price shocks for consumers.

"We expect to adopt pragmatic approaches where possible in order to get to a better and more workable solution," said Hansen.

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