NZ Herald
  • Home
  • Latest news
  • Herald NOW
  • Video
  • New Zealand
  • Sport
  • World
  • Business
  • Entertainment
  • Podcasts
  • Quizzes
  • Opinion
  • Lifestyle
  • Travel
  • Viva
  • Weather

Subscriptions

  • Herald Premium
  • Viva Premium
  • The Listener
  • BusinessDesk

Sections

  • Latest news
  • New Zealand
    • All New Zealand
    • Crime
    • Politics
    • Education
    • Open Justice
    • Scam Update
  • Herald NOW
  • On The Up
  • World
    • All World
    • Australia
    • Asia
    • UK
    • United States
    • Middle East
    • Europe
    • Pacific
  • Business
    • All Business
    • MarketsSharesCurrencyCommoditiesStock TakesCrypto
    • Markets with Madison
    • Media Insider
    • Business analysis
    • Personal financeKiwiSaverInterest ratesTaxInvestment
    • EconomyInflationGDPOfficial cash rateEmployment
    • Small business
    • Business reportsMood of the BoardroomProject AucklandSustainable business and financeCapital markets reportAgribusiness reportInfrastructure reportDynamic business
    • Deloitte Top 200 Awards
    • CompaniesAged CareAgribusinessAirlinesBanking and financeConstructionEnergyFreight and logisticsHealthcareManufacturingMedia and MarketingRetailTelecommunicationsTourism
  • Opinion
    • All Opinion
    • Analysis
    • Editorials
    • Business analysis
    • Premium opinion
    • Letters to the editor
  • Politics
  • Sport
    • All Sport
    • OlympicsParalympics
    • RugbySuper RugbyNPCAll BlacksBlack FernsRugby sevensSchool rugby
    • CricketBlack CapsWhite Ferns
    • Racing
    • NetballSilver Ferns
    • LeagueWarriorsNRL
    • FootballWellington PhoenixAuckland FCAll WhitesFootball FernsEnglish Premier League
    • GolfNZ Open
    • MotorsportFormula 1
    • Boxing
    • UFC
    • BasketballNBABreakersTall BlacksTall Ferns
    • Tennis
    • Cycling
    • Athletics
    • SailingAmerica's CupSailGP
    • Rowing
  • Lifestyle
    • All Lifestyle
    • Viva - Food, fashion & beauty
    • Society Insider
    • Royals
    • Sex & relationships
    • Food & drinkRecipesRecipe collectionsRestaurant reviewsRestaurant bookings
    • Health & wellbeing
    • Fashion & beauty
    • Pets & animals
    • The Selection - Shop the trendsShop fashionShop beautyShop entertainmentShop giftsShop home & living
    • Milford's Investing Place
  • Entertainment
    • All Entertainment
    • TV
    • MoviesMovie reviews
    • MusicMusic reviews
    • BooksBook reviews
    • Culture
    • ReviewsBook reviewsMovie reviewsMusic reviewsRestaurant reviews
  • Travel
    • All Travel
    • News
    • New ZealandNorthlandAucklandWellingtonCanterburyOtago / QueenstownNelson-TasmanBest NZ beaches
    • International travelAustraliaPacific IslandsEuropeUKUSAAfricaAsia
    • Rail holidays
    • Cruise holidays
    • Ski holidays
    • Luxury travel
    • Adventure travel
  • Kāhu Māori news
  • Environment
    • All Environment
    • Our Green Future
  • Talanoa Pacific news
  • Property
    • All Property
    • Property Insider
    • Interest rates tracker
    • Residential property listings
    • Commercial property listings
  • Health
  • Technology
    • All Technology
    • AI
    • Social media
  • Rural
    • All Rural
    • Dairy farming
    • Sheep & beef farming
    • Horticulture
    • Animal health
    • Rural business
    • Rural life
    • Rural technology
    • Opinion
    • Audio & podcasts
  • Weather forecasts
    • All Weather forecasts
    • Kaitaia
    • Whangārei
    • Dargaville
    • Auckland
    • Thames
    • Tauranga
    • Hamilton
    • Whakatāne
    • Rotorua
    • Tokoroa
    • Te Kuiti
    • Taumaranui
    • Taupō
    • Gisborne
    • New Plymouth
    • Napier
    • Hastings
    • Dannevirke
    • Whanganui
    • Palmerston North
    • Levin
    • Paraparaumu
    • Masterton
    • Wellington
    • Motueka
    • Nelson
    • Blenheim
    • Westport
    • Reefton
    • Kaikōura
    • Greymouth
    • Hokitika
    • Christchurch
    • Ashburton
    • Timaru
    • Wānaka
    • Oamaru
    • Queenstown
    • Dunedin
    • Gore
    • Invercargill
  • Meet the journalists
  • Promotions & competitions
  • OneRoof property listings
  • Driven car news

Puzzles & Quizzes

  • Puzzles
    • All Puzzles
    • Sudoku
    • Code Cracker
    • Crosswords
    • Cryptic crossword
    • Wordsearch
  • Quizzes
    • All Quizzes
    • Morning quiz
    • Afternoon quiz
    • Sports quiz

Regions

  • Northland
    • All Northland
    • Far North
    • Kaitaia
    • Kerikeri
    • Kaikohe
    • Bay of Islands
    • Whangarei
    • Dargaville
    • Kaipara
    • Mangawhai
  • Auckland
  • Waikato
    • All Waikato
    • Hamilton
    • Coromandel & Hauraki
    • Matamata & Piako
    • Cambridge
    • Te Awamutu
    • Tokoroa & South Waikato
    • Taupō & Tūrangi
  • Bay of Plenty
    • All Bay of Plenty
    • Katikati
    • Tauranga
    • Mount Maunganui
    • Pāpāmoa
    • Te Puke
    • Whakatāne
  • Rotorua
  • Hawke's Bay
    • All Hawke's Bay
    • Napier
    • Hastings
    • Havelock North
    • Central Hawke's Bay
    • Wairoa
  • Taranaki
    • All Taranaki
    • Stratford
    • New Plymouth
    • Hāwera
  • Manawatū - Whanganui
    • All Manawatū - Whanganui
    • Whanganui
    • Palmerston North
    • Manawatū
    • Tararua
    • Horowhenua
  • Wellington
    • All Wellington
    • Kapiti
    • Wairarapa
    • Upper Hutt
    • Lower Hutt
  • Nelson & Tasman
    • All Nelson & Tasman
    • Motueka
    • Nelson
    • Tasman
  • Marlborough
  • West Coast
  • Canterbury
    • All Canterbury
    • Kaikōura
    • Christchurch
    • Ashburton
    • Timaru
  • Otago
    • All Otago
    • Oamaru
    • Dunedin
    • Balclutha
    • Alexandra
    • Queenstown
    • Wanaka
  • Southland
    • All Southland
    • Invercargill
    • Gore
    • Stewart Island
  • Gisborne

Media

  • Video
    • All Video
    • NZ news video
    • Herald NOW
    • Business news video
    • Politics news video
    • Sport video
    • World news video
    • Lifestyle video
    • Entertainment video
    • Travel video
    • Markets with Madison
    • Kea Kids news
  • Podcasts
    • All Podcasts
    • The Front Page
    • On the Tiles
    • Ask me Anything
    • The Little Things
  • Cartoons
  • Photo galleries
  • Today's Paper - E-editions
  • Photo sales
  • Classifieds

NZME Network

  • Advertise with NZME
  • OneRoof
  • Driven Car Guide
  • BusinessDesk
  • Newstalk ZB
  • Sunlive
  • ZM
  • The Hits
  • Coast
  • Radio Hauraki
  • The Alternative Commentary Collective
  • Gold
  • Flava
  • iHeart Radio
  • Hokonui
  • Radio Wanaka
  • iHeartCountry New Zealand
  • Restaurant Hub
  • NZME Events

SubscribeSign In
Advertisement
Advertise with NZME.
Home / Business / Companies / Energy

Brian Fallow: Pricing key to electricity's power

Brian Fallow
By Brian Fallow
Columnist·NZ Herald·
5 Nov, 2015 09:30 PM6 mins to read

Subscribe to listen

Access to Herald Premium articles require a Premium subscription. Subscribe now to listen.
Already a subscriber?  Sign in here

Listening to articles is free for open-access content—explore other articles or learn more about text-to-speech.
‌
Save

    Share this article

The way electricity lines companies charge for their services is all wrong and needs to change if we are to take advantage of emerging technologies. Illustration / Anna Crichton

The way electricity lines companies charge for their services is all wrong and needs to change if we are to take advantage of emerging technologies. Illustration / Anna Crichton

Brian Fallow
Opinion by Brian Fallow
Brian Fallow is a former economics editor of The New Zealand Herald
Learn more
Energy bills need to change, to make the most of new technology.

The way electricity lines companies charge for their services is all wrong and needs to change if we are to take advantage of emerging technologies, the Electricity Authority says.

In particular, the status quo could encourage premature investment in solar panels, have perverse effects on when electric vehicles are recharged and undermine incentives to invest in battery storage.

About 26c in the dollar of the average residential consumer's power bill goes to a lines company like Vector, whose network connects those consumers to the national grid.

The service we expect in return is that all the power we need will reach us whenever we want it.

Advertisement
Advertise with NZME.
Advertisement
Advertise with NZME.

The costs networks face in meeting that expectation are driven by peak demand. But current pricing structures for the lines charge component of our power bills do not reflect this.

Typically there is a fixed component, but the lion's share - 78 per cent, on average - of the lines charge is variable and is based on consumption over a year. The more power you pull down the distributor's lines over a year, the more you pay for the connection.

The result is a misalignment of the costs a consumer imposes on the network - which is largely about how much they contribute to demand at peak times - and how much they pay - which is largely driven by how much they consume over a year.

Time-of-use meters have allowed more accurate and varied pricing models to be made available to commercial and industrial consumers.

Until recently, smart meters which (among other things) allow a consumer's maximum demand to be measured, were too expensive for the mass market.

But no longer. About 60 per cent of electricity meters are now smart meters and the proportion is rising.

Discover more

Opinion

Brian Fallow: TPP digital impact yet to surface

08 Oct 10:00 PM
Opinion

Brian Fallow: Got a surplus - how about some growth?

15 Oct 10:30 PM
Opinion

Compelling case for rate cuts

22 Oct 11:15 PM
Opinion

Brian Fallow: New limits loom for landlords

30 Oct 02:10 AM

The authority argues that current consumption-based pricing raises the risk of over-investment in solar panels, potentially to the tune of hundreds of millions of dollars a year.

It is not talking about people who go off-grid altogether, but about those who are content to meet a portion of their demand from photovoltaic panels on the roof, secure in the knowledge that at dinner time on a cold winter's night, the national system will still provide all the power they need.

Advertisement
Advertise with NZME.

Under current consumption-based line charges they will pay significantly less for that service than their neighbours who have not gone solar, even though their share of the network's common costs is similar.

Although its cost has come down a lot, solar power is still relatively expensive. At around $200 a megawatt hour, its long-run marginal cost is 2.5 times that of new generation added to the national system, which these days is almost entirely renewable.

So there is no climate-based case for a cross-subsidy at the expense of what are likely to be less affluent households - as the authority points out in a "just saying" sort of way.

It is not opposed to solar power but seems to regard it as technology whose time has not yet come, citing International Energy Agency projections that the price of photovoltaic panels will fall by around 75 per cent over the next 20 years. The authority's chief executive, Carl Hansen, compared investing in panels now to buying a plasma TV when they were new to the market and cost $10,000.

Another area where consumption-based pricing sends entirely the wrong signal relates to electric vehicles.

If all the cars in New Zealand were electric, it would increase total electricity demand by a less-than-scary 11 per cent, or 4500 gigawatt hours a year, the Electricity Authority estimates.

Advertisement
Advertise with NZME.

If all the cars in New Zealand were electric, it would increase total electricity demand by a less-than-scary 11 per cent.

But what matters for the lines networks is not annual demand but peak demand.

The Ministry of Business, Innovation and Employment forecasts there will be up to 150,000 electric vehicles on New Zealand roads in 10 years time. Although that would be less than 6 per cent of all light vehicles, it is enough to increase peak demand by around 5 per cent if they were all plugged into the mains as soon as people got home from work.

The potential cost of meeting that extra load on the network strengthens the case for pricing which reflects time of use, not annual consumption.

Mighty River Power's retail arm, Mercury Energy, already offers a discount of 30 per cent for people recharging electric car batteries off-peak.

But generator/retailers such as Mighty River only control about half of the residential consumer's power bill.

The lines companies, which at this stage are virtually immune from competitive pressure to price efficiently, also need to come to the party.

Advertisement
Advertise with NZME.

They are incentivised to do so by the desire to avoid costly investment to upgrade the capacity of their networks.

One way of shifting load away from peak times would be to invest in battery storage.

The economics of this are discouraging, however, at least at the consumer level.

Based on proposed pricing for the Tesla Powerwall battery, the authority estimates a battery capable of storing 7kWh would cost about $6500 installed. Currently available price differentials between day and night tariffs would save consumers only $150 to $300 a year - not an attractive return - but the key word there is "currently".

The lines companies are already debating these issues among themselves.

And the Electricity Authority at this early stage in its consultation process is offering no recommendations about what alternative "service-based" pricing structures might look like, beyond the general observation that giving consumers options to choose among is good.

Advertisement
Advertise with NZME.

There will be no one-size-fits-all prescription. What makes sense in a fast-growing area like Auckland is unlikely to be suitable for a thinly populated regional network where electricity demand might even be falling.

It is clearly right to stress the need for lines companies to consult their communities widely on the issue.

The Lines Company, which serves the King Country, moved to a peak demand pricing methodology in 2007, which triggered a petition to Parliament last year, seeking an inquiry into its pricing model.

The commerce select committee found no fault with the legality of the change, nor its economic rationale, but was critical of its being rolled out without the necessary smart technology to take advantage of it, acknowledged that people on low or fixed incomes had fewer options to alter their behaviour as power consumers and was critical of The Lines Company's "deficient communications strategy."

See the latest Electricity Authority consultation paper here:

Save

    Share this article

Latest from Energy

Premium
Energy

Why energy is set to be a hot topic in next year's election

15 Jun 02:00 AM
Premium
Energy

Israel-Iran attack: AA says petrol price panic pointless

13 Jun 04:46 AM
Premium
Stock takes

Stock Takes: Why NZ's largest firms are suddenly ripe for takeover talks

12 Jun 09:00 PM

Jono and Ben brew up a tea-fuelled adventure in Sri Lanka

sponsored
Advertisement
Advertise with NZME.

Latest from Energy

Premium
Why energy is set to be a hot topic in next year's election

Why energy is set to be a hot topic in next year's election

15 Jun 02:00 AM

Meridian’s new CEO shares his thoughts on sector scrutiny amid electricity challenges.

Premium
Israel-Iran attack: AA says petrol price panic pointless

Israel-Iran attack: AA says petrol price panic pointless

13 Jun 04:46 AM
Premium
Stock Takes: Why NZ's largest firms are suddenly ripe for takeover talks

Stock Takes: Why NZ's largest firms are suddenly ripe for takeover talks

12 Jun 09:00 PM
ASB offers $150,000 interest-free loans for farm solar systems

ASB offers $150,000 interest-free loans for farm solar systems

09 Jun 11:51 PM
Help for those helping hardest-hit
sponsored

Help for those helping hardest-hit

NZ Herald
  • About NZ Herald
  • Meet the journalists
  • Newsletters
  • Classifieds
  • Help & support
  • Contact us
  • House rules
  • Privacy Policy
  • Terms of use
  • Competition terms & conditions
  • Our use of AI
Subscriber Services
  • NZ Herald e-editions
  • Daily puzzles & quizzes
  • Manage your digital subscription
  • Manage your print subscription
  • Subscribe to the NZ Herald newspaper
  • Subscribe to Herald Premium
  • Gift a subscription
  • Subscriber FAQs
  • Subscription terms & conditions
  • Promotions and subscriber benefits
NZME Network
  • The New Zealand Herald
  • The Northland Age
  • The Northern Advocate
  • Waikato Herald
  • Bay of Plenty Times
  • Rotorua Daily Post
  • Hawke's Bay Today
  • Whanganui Chronicle
  • Viva
  • NZ Listener
  • Newstalk ZB
  • BusinessDesk
  • OneRoof
  • Driven Car Guide
  • iHeart Radio
  • Restaurant Hub
NZME
  • About NZME
  • NZME careers
  • Advertise with NZME
  • Digital self-service advertising
  • Book your classified ad
  • Photo sales
  • NZME Events
  • © Copyright 2025 NZME Publishing Limited
TOP