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Tilt, Oji say transmission changes may discourage new generation

Monday 21st October 2019

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Tilt Renewables says proposed changes to transmission pricing may make it harder to fund new generation projects, particularly regional projects or those developed by smaller players.

The Electricity Authority’s plan to allocate some transmission costs on the basis of estimated benefits users receive will be difficult, and those benefits may change over time depending on expansion - or closure - of major users and generators, it says.

Investors will lack “any degree of certainty” on life-time transmission costs when new projects – like the 133-megawatt Waipipi wind farm Tilt is building near Waverley – are proposed.

“Tilt Renewables has serious concerns that the transmission pricing methodology as proposed by the EA would make it significantly more difficult to bring a project like Waipipi to market due to uncertainty related to transmission charges,” Melbourne-based Tilt says in a submission to the authority.

“There is a risk of large step changes in transmission charges at individual connection points, which is likely to be riskier to small players with few connection points - due to a smaller and less diversified asset portfolio - than more well‐resourced market participants.”

The authority is trying to wrap-up a 10-year debate in the electricity sector on how best to allocate transmission charges currently worth about $950 million annually, or about 10 percent of an average household bill.

It wants to remove distortions that have stalled major generation development on the South Island, while also coming up with a regime that will prevent firms using new technologies like batteries and solar to avoid paying a fair share of transmission costs.

With greater electrification of industry expected as part of the country’s climate change response, it also wants to be sure users benefitting from any new transmission lines pay for them.

But it believes that won’t be fair if firms and households in most of the South Island and parts of the North Island are also left paying for – but getting little benefit from - more than $2 billion of investment made in the past decade upgrading the power link across Cook Strait, the lines around the Wairakei geothermal fields, and the lines from Whakamaru into Auckland.

Tilt is among more than 90 firms and organisations that submitted on the EA’s latest proposal. Most believe that South Island generators shouldn’t be left paying the full cost of the high-voltage link across Cook Strait, and most also support – in principle - the idea that those who benefit from transmission assets should pay for them.

But many are still concerned by the complexity of the authority’s more simplified approach, and how accurately those benefits can be calculated. Most are also concerned at any watering down of price signals intended to discourage power use during peak times – a key driver to help delay investment in additional transmission and distribution capacity.

Oji Fibre Solutions operates pulp mills at Kinleith, Kawerau and Penrose. It says the authority overstates the risk of consumers using batteries, small-scale generation and load-shifting to avoid transmission charges.

It says most load is inelastic and wouldn’t be curtailed or shifted to avoid peak periods without a strong price signal to do so. Even if firms and consumers did that, putting transmission costs onto other users, longer-term that investment in batteries or distributed generation would defer transmission investment and thus reduce charges to consumers generally.

Oji is also concerned that the authority’s proposal could discourage new investment in renewable generation.

It notes that it is already one of the country’s largest producers of biofuel renewable energy, generating about 300 gigawatt-hours of electricity from co-generation with its own process heat. But it says the authority’s proposals are a “significant disincentive” for further investment.

“OjiFS’s potential investments would increase the supply of base-load renewable electricity. However, the increased costs arising under the proposal will reduce the commercial viability of such investments.”

Pulp and paper maker Norske Skog Tasman – NST - also operates its own generation plant and has slashed its transmission bills in recent years by avoiding production during peak demand periods.

Electricity is the firm’s single largest cost. It says the authority’s proposal will increase its costs for no benefit and will cause “significant financial stress.”

“Maintaining an affordable electricity supply is essential to NST’s survival in the declining newsprint market. The mills with the lowest costs will survive.”

Norske Skog says the authority should be encouraging – not discouraging – investment by and firms in “behind the meter” generation and storage options like solar panels, small-scale wind, batteries and electric vehicle charging and discharging.

The technology is becoming more available and affordable and over time would see the grid become more of a back-up supply, reducing energy losses and transmission costs overall, it says.

The authority is awaiting cross-submissions until Oct. 31. It is aiming to make a final decision early next year.


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