Low-user electricity tariff has 'never really worked that well'

Monday, 18 December 2017

The new winter power subsidy for beneficiaries may remove some of the argument for the low-user tariff, says Consumer NZ chief executive Sue Chetwin.

New Zealand's low-user energy tariff scheme is being criticised for giving a power bill subsidy to some of the country's better-off households.

The tariff has come in for scrutiny again over recent weeks as commentators told the new Energy Minister, Megan Woods, that the sector's regulation risked not keeping pace with innovation.

The low-user tariff was intended to encourage conservation.

The low-user tariff was singled out as one area of concern.

The scheme was established by Helen Clark's government. It gives those who use less than the median amount of power a lower daily fixed charge, and a higher variable charge for the power they actually use.

* Poorest households 'worst off' if New Zealand shifts en masse to solar**

But as new technology makes it easier for households to make and store their own energy, it is having more unintended consequences.

Households with the money to invest in solar power systems often switch to the low-user tariff.

But if significant numbers do so, it could mean distributors are not able to recoup as much of the cost of maintaining the network - bumping up prices for other consumers.

Those solar-using households still require a functioning grid connection, because grid power is used to supplement or back-up their solar production.

David Caygill, chair of the BusinessNZ energy council, said industry had identified low-user tariffs as an area of concern. 'They were brought in some years ago ostensibly for equity reasons. But they have never really worked that well.'

A report by Concept Consulting said there was a significant element of 'cost shifting' when people installed solar panels - as much as $250 a year.

'Solar panels yield little or no savings in network costs because they don't operate at peak demand times in cold winter evenings. And yet they provide a large reduction in bills based on the fall in mains-supplied power.'

Former energy minister Judith Collins had started work to look into the issue.

A spokesman for the new minister, Megan Woods, said it would be reviewed as part of a wider review of electricity prices, the terms of reference for which will be released early in the new year.

Andrew Hume, Ministry of Business, Innovation and Employment energy markets policy manager said developments on low-user tariffs would be made public within the coming weeks.

Consumer NZ chief executive Sue Chetwin said the scheme was introduced to help boost power conservation efforts, and also help older people living on their own.

She said the government's new 'winter energy payment' for beneficiaries, including pensioners. might render it redundant.

The low-user tariff had been a political hot potato, she said. 'Everyone is too scared to touch it. But it was certainly not introduced to help families on low incomes - they're high users.'

She said high-earners could often be low users of power and that would mean they got a cheaper rate than those on low incomes.

Carl Hansen, chief executive of the Electricity Authority, said he was aware there was agreement among industry players that there were useful changes that could be made. But he said there was a risk of concerns being over-stated.

Compared to other countries, New Zealand was well-placed to adapt to change in the sector, he said, with an accessible grid network, a competitive retail network and high levels of smart meter uptake. 'That's a springboard for making future improvements that need to be made.'

The authority is considering how it can free up smart meter data to allow more innovation to occur. It is consulting on the significance of barriers to 'multiple trading relationships', in which consumers use electricity or services provided by more than one provider, in the same location.

Other issues likely to disrupt the energy sector included challenges managing the grid if power was being generated in more places and with less of a reliable timetable, and the shift away from carbon. The new government aims to achieve 100 per cent renewable electricity by 2035, in a year of normal rainfall.