Electricity Authority using 2005 costings to measure power‑outage losses

Costings to put a dollar value on electricity lost during a power outage are from late 2004, and may no longer be suitable for the current economic climate. Photo / Mark Mitchell

The Electricity Authority is conceding the figure it uses to estimate the economic cost of power outages may no longer be fit for purpose.

The current default Value of Lost Load (VoLL) was set at $20,000 per megawatt-hour in 2005.

A review of whether that figure is still viable is now taking place.

A Request for Information from the Electricity Authority, states there are concerns the current figure is “out-of-date” and a “single average value for the entire country is unrealistic”.

Electricity Networks Aotearoa chief executive Tracey Kai told Newstalk ZB the figure is used in quite specialist circumstances.

She said VoLL was used to make investment decisions and not used to set power bills.

“It’s a proxy that we use to value how painful a power outage is.”

Kai said it determined the impact of things like not having heating and refrigeration, as well as business and banking disruptions.

In a statement, the Electricity Authority’s general manager of wholesale and supply, Hayden Glass, said the figure was “primarily used for investment and reliability assessments, when deciding how and where to improve the electricity transmission network”.

“It helps with answering the question of whether a network improvement is worth doing, ie, whether it improves security of supply enough to justify its costs,” Glass said.

He said the VoLL was a “blunt tool” of measurement, as value could vary between residential consumers and businesses, time of day, and how long a blackout lasts.

Glass added it was a way to put a dollar value on the electricity that people missed out on during a power outage: “It reflects the theoretical economic cost of losing supply rather than a payment to consumers.”

He acknowledged there were differences from when the amount was set to now: “New Zealand’s economy, technology use and reliance on electricity have changed significantly.”

Glass said the $20,000 figure was a very high-level estimate, and some had been using alternative estimates.

“Transpower has used an estimated VoLL of $25,000/MWh for some of its work,” he said.

The Commerce Commission has the same $25,000 figure, updated in 2019.

The Electricity Authority has previously suggested an up-to-date figure would strengthen regulatory decisions, investment, and market planning, and would also improve “transparency about the trade-offs involved when the electricity system faces scarcity or constrained supply”.

In 2023, the Electricity Authority’s Market Development Advisory Group recommended an update to VoLL - it was reiterated in its review of the 2024 Northland pylon tower collapse.

The work was deferred as the authority had to focus on delivering work related to the Government’s Energy Competition Task Force.

Azaria Howell is a multimedia reporter working from Parliament’s press gallery. She joined NZME in 2022 and became a Newstalk ZB political reporter in late 2024, with a keen interest in public service agency reform and government spending.