Part 5: Whole-of-system considerations
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Chapter 11: Setting priorities and improving coordination
Approximately 60 submissions were received on issues discussed in Chapter 11.
Submitters had varied views on priority areas to support the energy transition
Submitters varied widely on what they thought should be priority areas for the government to support the energy transition. Some of key points which were mentioned by multiple submitters include:
- having fit-for-purpose regulatory environments to enable investment to support electrification, including resource management (across generation, transmission and distribution), the Overseas Investment Act 2005 for offshore investors, price-quality path regulation for distribution networks, as well as out-of-date regulations such as the New Zealand Electrical Code of Practice for Hamonic Levels (NZECP36)
- developing a New Zealand Energy Strategy, with some submitters saying this is led by whole-of-system thinking
- supporting the establishment of an offshore wind sector in New Zealand
- supporting businesses to decarbonise, such as support for new electrode boilers or more reasonable connection costs
- sector regulators have work programmes and these should continue
- supporting development of a smarter and more flexible system, beginning with access to consumption and electricity quality data for the low voltage network to improve the visibility and support flexibility services.
Submitters supported coordination across the system to drive outcomes, but suggestions varied
Submissions varied in terms of what gaps in coordination or information people would like to see filled. Some of the key themes included:
- a desire to see closer coordination amongst central government and regulatory agencies in policy and decision-making
- some submitters, who are part of the group, suggested the Energy Sector Framework can help with coordination and collective action
- a few submitters noted the need to ensure linkages with local interests, such as iwi, councils and economic development agencies.
Submitters had mixed views on the value of renewable energy zones
There were generally split views on the renewable energy zone (REZ) concept in New Zealand. Many submitters supported the concept of a REZ being explored further exploration in a New Zealand context. This included from some offshore wind developers supporting exploration of a REZ in the Taranaki region, a few of whom also noted that such a REZ would need to encompass more than transmission considerations and extend to other enablers, such as port infrastructure and quicker consenting pathways. A few submitters who supported further exploration, noted a word of caution to not simply import the Australian model.
A few submitters noted that a REZ model is just one way of solving first-mover disadvantage (FMD) and there are other ways. A few submitters pointed out that Transmission Pricing Methodology has mechanisms to address FMD. Others thought that it was not sufficient.
One developer suggested that REZs should not be priority now while there is existing grid capacity in the near-term. Further out, it suggested that “mini-REZs” could be an effective away to collaborate between developers, consumers and Transpower.
Those that did not support the REZ concept generally argued that it moves towards a centralised model for generation investment which results in an agency picking winners, that open access to the national grid is a key enabler of competition in generation investment, and that this model generally risks distorting investment incentives.
Submitters varied greatly on the balance of outcomes they wanted to see during the transition
Submissions were highly varied with respect to the balance of outcomes as we transition to a more renewable electricity system. Points below provide a sample of the breadth and insight of submissions:
- The focus on each of the aims can be expected to shift over time (it’s contextual), particularly as the market transition to 100% renewables. The focus should be on reliability in the near-term given winter peak capacity pressures. The World Energy Council index shows New Zealand is falling on the security measure.
- Regarding affordability, this is best achieved through focusing on efficiency and offering low-cost options, with wider welfare policy supporting equity.
- All 3 limbs of the energy trilemma are important and balancing them is difficult. However, ensuring that no New Zealanders are pushed into energy poverty must be a priority.
- Energy efficiency remains an important part of the equation.
- Distributed renewable generation should be supported, as this targets all three limbs of the energy trilemma.
- Sustainability should be a bottom-line given the legislated targets but the balance between affordability and reliability are a trade-off that customers must determine.
Chapter 9: is the government’s sustainability objective adequately reflected for market regulators?
Approximately 30 submissions were received on issues discussed in Chapter 9.
Most submitters thought sustainability objectives should be reflected in regulators’ decision-making
The majority of submitters on this question did not think existing regulator objectives were sufficient in relation to the energy transition, or that it was sufficiently clear that they would be sufficiently taken into account.
A few submissions from EDBs acknowledged the Commerce Commission’s position with respect to the permissive consideration in section 5ZN of the Climate Change Response Act 2002 (CCRA). But, they further commented that this consideration was too subjective in terms of how much weighting should be given to climate change and emissions reduction objectives in section 5ZN of the CCRA.
Of those who supported strengthening direction, some of the reasoning included that:
- emissions reduction is consistent with the long-term benefits for consumers
- climate change is a long-term challenge that New Zealand (and the world) will grapple with, making it appropriate to reflect this in regulatory objectives
- the 2050 net zero target is legislated
- if the Electricity Authority and Commerce Commission are expected to support decarbonisation and emissions reduction in line with net zero 2050, then that mandate should be explicit.
Of those who supported strengthening climate change objectives of regulators, there was not a consensus on whether a government policy statement (GPS) or legislative change would the most appropriate vehicle. One submitter suggested that a GPS could be issued, monitored for effectiveness, with consideration of legislative change following that.
There were submitters who thought the status quo was sufficient and appropriate for market regulators. A few submissions pointed towards the 2018-2019 Electricity Price Review which considered this question, but which ultimately concluded that the addition of a climate focused objective could pull the regulator in too many directions.
Chapter 10: Increasing distributed flexibility
Approximately 45 submissions were received on issues discussed in Chapter 10.
Many submitters want more government leadership to support CER and distributed flexibility
Many submitters felt that government should show leadership and support existing collaborative industry workstreams on distributed flexibility that are already underway. Submitters identified a long list of areas where government could take action to help grow and develop flexibility markets. The most frequently identified areas to support collaboration were innovation funding for collaborative trials integrating distributed energy resources or consumer energy resources (CER) such as rooftop solar, batteries, EVs and smart devices and use of distributed flexibility, support for existing industry processes (including co-funding), and addressing regulatory barriers (high level suggestion).
Another theme was that government should prioritise addressing systemic barriers to uptake of non-network solutions (NNS), including addressing availability of data, and visibility of CER and regulation of smart devices – especially smart capability for EV charging (regardless of form). Some submitters also noted support for Government to accelerate regulatory workstreams including maintaining legislative and regulatory alignment with modern electrical standards (such as AS/NZS 4777) and a review of voltage thresholds for low voltage networks set in the Electricity (Safety) Regulations 2010.
The majority of submitters also supported setting out a future structure of a common digital energy infrastructure (to allow trading of distributed flexibility) supporting co-ordinated action, but highlighted capability building through collaborative trials and learning by doing is needed first and there are other priorities (e.g., those in paragraph 88 above).
There were mixed views of whether Government should provide co-funding for EDBs to support procurement of NNS, and varied views about whether lack of uptake was due to lack of smart data and regulation of smart devices, or due to limitations with the regulatory model determining EDB revenues (Part 4 of the Commerce Act 1986).
Most submitters thought that dynamic operating envelopes would be important for flexiblity
Most submitters thought that dynamic operating envelopes (DOEs) or a similar concepts would be important to flexibility services development. Some submitters fell that the concept should be explored but noted that the detail of DOE design and impacts on consumers must be carefully considered in the New Zealand context before determining if this type of mechanism is required.
Submitters broadly supported approach to smart device standards and cyber security, but had mixed views on automated device registration
Submitters were broadly supportive of the approaches to smart device standards and cyber security outlined in the document. Many submissions from EDBs highlighted the importance of mandating smart EV charging capability regardless of form, to help limit peak demand growth on their networks. Mandates could more generally require EV owners to have smart charging capability with the choice of whether this is provided as a feature of their vehicle or by an external charger. This may be difficult to implement but could be linked to the registration of the vehicle.
There were mixed views on whether government should provide funding for automated device registration, with support for doing or exploring this from around half of submitters. Others cautioned against automated device registration right now – for example, on the basis that the Electricity Registry could be repurposed for this, that registration would be ineffective without other measures, or because of a view that commercial incentives can instead be used to encourage collection of this information.
There were mixed views on the need for extra measures to grow use of flexibility rewarding tariffs
There was mixed support for extra measures to grow use of retail tariffs rewarding flexibility. Gentailers and some EDBs cautioned against further measures – in general suggesting that the retail tariffs were available and/or would develop naturally in response to consumer demand as the Low-Fixed Charge (LFC) is phased out.
However, a range of other submitters of different backgrounds either supported further measures or thought they should be explored. Suggestions covered a variety of possible measures – for example, feed in tariffs, measures to reward consumers for lowering consumption, measures to support aggregators bidding CER into the wholesale market, subsidies for CER devices, and requirements for retailers to tell consumers about their “best plan”. Lack of pass through of temporal cost reflective distribution prices by retailers was noted as an issue by a small number of submitters, noting the need for “simple value propositions and set and forget solutions for customers with regulation that protects the customers best interests.”
A majority of submitters supported measures to encourage investment in battery storage
There mixed views on whether there is a need for measures targeted to encourage investment in battery storage. Some submitters supported measures to create more investment certainty for local battery storage, with some supporting doing so in a way that would not have negative distributional effects (i.e., that would allow poorer as well as richer households to benefit). Submitters suggested a range of options to support uptake, including subsidies, low-interest loans and pricing incentives that reward flexibility. Submitters also noted Government could provide support for batteries in specific situations for example resilience support for impacted communities or on Government housing.
Some submitters thought that focus should be on developing flexibility rewarding tariffs and pricing instead of targeted support for batteries. Some disagreed with further government measures on the basis that this could deter lower-cost grid-scale investments, that existing market mechanisms are available that is, banks’ low interest loans), and that this could reward a particular technology rather than letting the market decide the best solution.
Submitters supported equitable access to solar and batteries
Submitters showed strong support for targeted support to allow low-income households to access the benefits of solar and battery. Various factors would need to be considered though (e.g., how to offer access to solar and batteries for renters, and the need to address other barriers to the development of flexibility). Some submitters however expressed concern with the idea of subsidies to address up-front costs, noting the availability of low-interest bank loans and that this could be inefficient and lead to higher overall costs for consumers.
Most submitters supported measures to reduce ‘soft costs’
A majority of submitters supported measures to reduce ‘soft costs’ and agreed government had a role in enabling a ‘smart systems’ and improving network resilience. Considerations for reducing soft costs included the role of cybersecurity, the role of government in supporting industry capacity and training, and regulatory settings for CER.
Most submitters supported looking at a review of critical data availability
Most submitters supported further regulatory steps to look at data availability, suggesting this was necessary given the importance of data access to help support CER and efficient networks in future. However, a smaller number did not support a review, suggesting that previous barriers to access were now being overcome, including through the Electricity Authority’s coming work programme as well as a future consumer data right.