ENERGY – ‘Solar Tax’ debate exposes NZ  energy fault lines

23 August 2016

Increased charges imposed on solar panel users by a NZ lines company have provoked outcry. It raises important questions about managing the pace of change. It also points to some possible winners and losers in New Zealand’s energy transition.

This April Hawkes Bay lines company Unison introduced new pricing for solar panel users. Under the old price category customers received a subsidy of around $300 in their lines charges when installing solar. This subsidy has now been cut to $185.

Unison is wholly owned by the Hawkes Bay Power Consumers’ Trust. The company says it has made the changes to meet its mandate of maintaining the grid for everyone in its area. Solar owners are still using the grid when their systems can’t meet all their power requirements. They also use the lines to sell surplus power back to their power retailers.

The changes mean line fees for solar households of around $715 a year. This is compared to $900 for non-solar customers. 

Speaking to SBN last Thursday Nathan Strong, Unison general manager, business assurance said: “It’s all about making sure we are fair to all our customers. Customers who can’t afford or don’t want to go solar shouldn’t have to carry the cost of the network being available to those who do.”

Campaigners have labelled the changes a ‘solar tax’. More than 45,000 people have signed a Greenpeace petition calling for The New Zealand Electricity Authority to step in.

The Sustainable Electricity Association of New Zealand says that members in the area have experienced a marked drop in sales for solar. SEANZ was among several groups that complained to the Electricity Authority. They were told that no rule breaches had occurred.

Unsurprisingly, solar retailers are also opposed. Solarcity is a member of SEANZ and SBN. Tim Savill, Solarcity strategy and systems director described it as a move to try and slow the inevitable adoption of household solar generation.

“If their argument is true then anybody who reduces their kilowatt hours should be paying more. Swapping out your TV, your fridge, your dishwasher and about 20 light bulbs for high efficiency versions reduces your electricity consumption by as much as somebody who puts a five panel PV system on their roof. But that’s not getting charged for. This is just a tax on a technology that they don’t like.”

CEO Andrew Booth agreed.

“People are angry that a lines company is trying to impact on a very personal decision. It’s about how they want to power their home and contribute to the challenge of global warming. They feel there has been a loss of Kiwi pride in doing the right thing.”

The situation is not unique to New Zealand. Similar battles are being played out right now in Arizona and South Australia. But it could become an issue of national importance.

Alison Andrew is the chief executive of Transpower, the State Owned Enterprise that owns and operates the National Grid. 

In a recent Radio New Zealand interview she said: “People are still going to need a grid, and we will need money to maintain that infrastructure. You’ve got 29 electricity distribution companies. Those who are in areas with smaller and falling populations are going to have challenges in how to sustain that infrastructure for those communities. On the other hand you have larger ones that are growing rapidly and they are going to have challenges in funding the increases in infrastructure to meet their populations. There is a window of opportunity to prepare for the future.”

When challenged, she didn’t rule out the closure of some lines companies. Nor even another complete reform of the energy sector.

She said: “The next five to ten years are going to be very challenging, as there is a lot of uncertainty.”

Nathan from Unison says that part of the issue is that the industry’s pricing structures are outdated. Talk of reforming them is now widespread across the industry. Unison’s current price structures are really an interim measure until smarter tariffs can be introduced.

What many of us don’t realise is that the cost of providing the grid is mostly about meeting peak demand, the maximum draw we collectively have on it. But until recently electricity meters could only measure total electricity use over a month. This has led to a mismatch between the real cost of the service, and how we are paying for it.

New Zealand Law requires all electricity retailers to make a low fixed charge tariff available. How this is calculated is also regulated. Average household power use has been falling for the last ten years. This has been spurred on with better insulation and more efficient appliances.

The argument is that taken with the growth in solar the old pricing structures are failing to match the pace of change.  

The new smart meters make the smarter tariffs possible. They can better signal the costs of the amount of capacity a customer needs to meet their peak-time power requirements. In New Zealand that means in future this is likely to be a more accurate reflection of how much power you require on cold, winter evenings.

Modern programmable appliances also make it possible to incentivise people to shift their demand away from the peak. We can set washers, driers and dishwashers to run overnight. This should work to flatten demand, allowing network companies to avoid having to add more generation to meet the peak.

This is important as the uptake in electric vehicles could mean many of us adding vehicle charging to the home time peak at the end of each day. This too will need to be accounted for by offering lower electricity prices for recharging overnight, when there is spare network capacity.

Last year Unison made a net profit after tax of $24.6 million. One question is, will lines companies be able to maintain enough of a buffer against these uncertainties? Reading the small print of other line companies reveals that they too are reserving the right to alter the charges around distributed generation in the future.

This is partly what Andrew from Solarcity fears.

“There is a risk if Unison is given the green light that other lines companies will create as many obstructions as they can to protect the current world order as they see it,” he said. “It’s the same as the oil companies have done globally.

“The paradigm shift is the development of a transactive grid, grid 2.0 or the Internet of Electricity. This would return New Zealand to its electricity roots. We would have lots of locally generated electricity. We would be trading from house to house, street to street and community to community.”

There are risks inherent in making this transition. But Tim believes the biggest risk would be dragging our feet.

“If there is going to be a catastrophic hiatus it will be caused by the current incumbents resisting this consumer-driven change,” he said. 

He also pointed out how global developments will push the pace of change here.

“The biggest events in electricity in coming years will be the electrification of rural China and rural India,” he said. “Neither of those will be the old ‘centre to the edges’ model. This is going to unleash a huge wave of very cost effective technology.

“Now is the time to really think about how you integrate this and make the transition as smooth as possible. Otherwise you won’t be able to control it and make a soft landing.”

One thing is certain; for the time being at least, we are all in this together.