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New Zealand’s local lines companies are being asked to prove that major new connections to the national grid are worth the money, after a review found some investment cases were thin on alternatives and on what consumers are willing to pay. The Energy Competition Task Force, a joint body of the Commerce Commission and the Electricity Authority, has released findings from a review of grid exit point projects and opened consultation on whether further rules are needed.
A grid exit point is a substation where electricity leaves Transpower’s national grid and enters the local network run by an electricity distributor, the lines company that delivers power to homes and businesses in a region. These projects arise when a lines company identifies a future need for capacity, reliability, resilience or growth and works with Transpower on a possible transmission fix.
According to the Task Force, between $600 million and $700 million of such work is currently being investigated, developed or delivered. Its review examined how four distributors identify, assess and progress these investments.
Grid exit point projects do not attract the same regulatory scrutiny as other transmission grid projects, yet their cost lands on household power bills. Dr John Small, a Task Force member and Commerce Commission chair, said a single such investment could add around $200 to $300 a year to an average household’s electricity bill in some regions.
“With electricity already a major cost for consumers, it’s essential these investments genuinely stack up and that alternatives are actively considered,” he said.
The review found examples of good practice across the sector, but also identified several opportunities for improvement. These included sharper demand forecasting by lines companies, more rigorous testing of alternatives such as flexibility solutions, and better evidence that a chosen project delivers the best value for consumers.
One concern was that flexibility solutions were not always comprehensively assessed alongside traditional network upgrades, which the review said could mean missed chances to defer or reduce spending. Demand response, distributed energy resources, and battery storage are the kinds of alternatives the Task Force says should be considered on equal footing with new poles and wires.
“Getting the fundamentals right is critical to properly assessing new technology options,” Dr Small said. “Stronger demand forecasting, better understanding of consumer willingness to pay, and more rigorous testing of investment timing, scale and alternative options can help ensure consumers receive the greatest value from network investment.”
The review also found limited information on customer preferences, pricing signals, and cost-benefit analysis in some cases, which made it difficult to judge whether a proposed investment represented the best value for consumers.
Tim Sparks, a Task Force member and the Electricity Authority’s general manager of networks and system change, said the group wants feedback on whether lines companies could do more to signal the cost of grid exit point investments to their customers.
“These sorts of signals could play a key role in reducing investment costs and saving consumers significant amounts of money on their power bills,” Mr Sparks said.
Submissions on the issues identified, and on whether additional measures are needed, close at 5pm on Thursday 15 December. The review is part of wider work to improve the electricity sector’s performance and support reliable, affordable power for homes and businesses.
For businesses with energy-intensive operations, the review addresses the same costs that flow through to commercial power bills. A project that adds hundreds of dollars a year to a household bill in some regions represents network spending that all connected users must recover, so the quality of the investment case matters to any organisation paying for electricity.
Dr Small’s point that rigorous testing of all credible options can save consumers millions of dollars is the practical takeaway: where lines companies can show a cheaper alternative was properly considered, the case for the spend is stronger, and the pressure on future prices is lower.
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