The way that New Zealanders use electricity is rapidly changing.
This is because of new technologies, along with the ways and times we're using electricity.
Examples of new technologies impacting on electricity networks include electric vehicles and ‘smart homes’.
To ensure growth of these technologies is sustainable, we'll need to balance peaks in demand as use of these technologies increases.
Along with balancing demand, electricity distributors – such as Northpower – are currently looking at the way that we charge for delivering electricity in the future to take account of these rapid changes.
This will help ensure that future pricing structures are fair and align better with customers’ use of electricity.
With all these new technologies around the corner, we'll need to manage peaks in demand to reduce the need for costly infrastructure upgrades.
Long-term this will mean we continue to have an efficient and sustainable electricity network across the country.
We're also wanting to better align pricing with true costs across all customers, which will mean a fairer pricing structure for all.
A number of different pricing models are being considered and we’ll be talking with our customers shortly about their preferences.
This is a great chance to have a conversation about our energy future and ensure everyone has the opportunity to have their say.
Currently (due to regulatory requirements), around half of New Zealand consumers pay a low fixed charge, with only 15 cents per day passed through to distributors towards funding the upkeep of electricity lines.
This only raises less than five percent of the actual cost of providing the network. The remainder of the $1.2 billion needed every year to maintain New Zealand's electricity networks comes through a charge based on electricity consumption.
This consumption-based charge is proportional to the amount of electricity a consumer uses – regardless of the time of day they use it.
This favours some consumers and penalises others, resulting in subsidies for those who use less electricity. It's also leading to inefficient investment in the electricity network to keep it maintained and reliable.
As the population of New Zealand grows and new technologies evolve, the demand for electricity will continue to grow. If we don’t review the way we currently charge, the Electricity Authority – ea.govt.nz estimates that consumer electricity bills could increase by 10% annually over 10 years – around $204 per year.
The cost of delivering electricity across our network is fixed – e.g we need to build and maintain poles and wires, or underground cables and ducts in every street – regardless of how much electricity is supplied or how many consumers access the network.
The current charging structure isn’t fair to all customers, so we must better align charging with the true costs of maintaining the network.
New technology is also having an impact, so we must also reassess how we charge for electricity.
Electric vehicles are a good example of new technologies that will impact demand on the electricity network.
These vehicles need to be charged, but instead of everyone charging at peak times like early evening, there could be lower costs for charging vehicles overnight at off-peak times.
‘Smart home’ technology, like home energy management systems and batteries can be configured to automatically respond to new pricing structures and only utilise electricity at certain times.
This save consumers money, reduce the load on existing electricity infrastructure and help reduce the need for costly network upgrades.
Peak demand is where electricity consumption is at its highest – normally twice a day in the early morning when people are waking up and preparing for the day, and again in evening when people are back at home.
The electricity network is built to cope with the capacity of these twice daily spikes in demand, and it's this – rather than the amount of electricity consumed – that affects the cost of building and maintaining electricity distribution networks.
If growth in peak demand can be managed or limited by better spreading electricity usage across the day, we may be able to avoid costly infrastructure upgrades which would be passed on to customers.
These pricing scenarios are being considered either as stand-alone or combination options:
'Time-of-use pricing' means paying less to use the network when it’s not as busy and paying more during peak times.
This would be an incentive for customers to save money by shifting their usage a little each day. It’s very relevant for the future uptake of new technologies like electric vehicles or home storage batteries.
Think of this being like car parking – you pay less during evenings or on the weekend than during the week.
'Capacity pricing' is where a customer selects an agreed maximum of electricity supply at one time.
If they go over this, delivery will continue either with an excess charge applied, or an automatic upgrade to a higher plan.
Think of this being like nominating an expected upper limit for the electricity you’ll use at one time – for example the equivalent of running four single bar heaters at once (approx 4kW), six bar heaters (6Kw), or seven bar heaters (7kW) at once.
'Customer demand pricing' means charging based on a customer’s highest usage per half hour over say the previous month.
Distribution prices would relate to the maximum rate of energy consumption in a half hour period, rather than the overall level of energy consumption.
Think of this as being like being charged for your lines on the basis of the actual maximum rate of electricity you used at one time over the last month – whether that’s the equivalent of four single bar heaters (4kW) or seven bar heaters (7kW) etc.
We’re wanting to consult in the near future with our customers and stakeholders to see what they think of these proposals, so we can take on board their feedback and preferences when working towards new pricing structures.
Keep an eye on our website for further information.