Ordinary electricity consumers subsidising solar power pioneers

Tuesday 3rd November 2015

Electricity consumers are subsidising the tiny proportion of people who have solar electricity generation on their rooftops because of the outdated way that local electricity network monopolies charge for the use of their wires, says the Electricity Authority, in a discussion paper released today.

"The way electricity distribution is currently being priced is not encouraging consumers to invest in the right technology at the right time. If this situation does not change, it could cause $2.7 billion to $5 billion of wasted investment over the next 10 years" in solar photovoltaic installations, the EA says.

So far, only 0.1 percent of all electricity consumers have solar power generators, but a study for the EA by the New Zealand Institute of Economic Research suggests as many as 40 percent of consumers could have rooftop solar installations within 10 years, displacing cheaper renewable energy produced by traditional electricity generators, if current distortions in electricity network pricing are allowed to persist.

In effect, the EA paper concedes that current network pricing makes solar installation a rational choice at the household level, but only because other consumers cover the costs avoided by people who generate their own electricity.

"Distribution charges for consumers without solar panels (ie, ordinary consumers) could increase by up to 30 percent in 10 years," said EA chief executive Carl Hansen in a briefing for media on the discussion paper, which is open for public submissions for the next three months. "This arises because people with solar panels shift their share of distribution costs to other consumers."

Conversely, the EA paper finds that current network pricing acts as a barrier to installing batteries that would allow consumers to buy electricity at cheap times of the day for use when it's more expensive. That disincentive should also be ironed out, the discussion paper says, by creating network charging regimes that reward customers for storing electricity when it's cheap for use when it's expensive.

The EA suggests the way to fix the problem is to move away from the current practice of pricing electricity lines through a combination of a daily fixed charge and another charge based on total consumption. Instead, electricity networks should consider charging higher prices at times of peak electricity use, such as breakfast and dinner times, and lower charges during off-peak periods.

Hansen said New Zealand's experience with solar power generation was likely to be different from many other parts of the world, where solar rooftop panels displace high-cost electricity generated using either natural gas or coal. With 80 percent of New Zealand's energy needs already met by renewable generation, all of which is less expensive than solar power to produce, there was no clear case in the short run to incentivise solar power installations.

However, Hansen anticipated that as more off-grid generation and battery storage appeared in the New Zealand system, it would force traditional electricity generators to drop their prices or face a loss of market share.

BusinessDesk.co.nz

Comments from our readers

No comments yet