The problem with our electricity industry

For decades now the electricity industry has relentlessly gouged monopoly profits and functionless rents out of hapless residential consumers, while government ministers, officials, inquiries and "regulatory" agencies have acted as willing accomplices, cheerleaders and rubber-stamp providers, writes Dr Geoff Bertram.

Suddenly it has dawned on the industry and its cronies that their fat-cat status is threatened by the belated arrival in New Zealand of some serious actual competition, in the form of rooftop coupled with modern battery storage technology.

The new technologies offer consumers the chance to generate their own electricity, end their dependence on overpriced grid-supplied power, and (under the current pricing regime) save money in the process.

Enter the Electricity Authority, via a new report solemnly insisting that must be restructured to make rooftop solar uneconomic again for years to come, staving off market penetration by the the new technologies and keeping New Zealand locked into the old, increasingly obsolete electricity supply model – and preserving, in the process, the inflated asset values and profits of the incumbent generators and lines companies.

As usual with this sort of neoliberal propaganda exercise, the argument is that what's good for Meridian, Contact, Mighty River and the rest must be good for New Zealand, so any consumers thinking of investing in energy independence must be deterred from doing so for the greater good of society.

The industry's problem runs as follows.Residential consumers pay, on average, 28 cents per unit (kilowatt-hour) to purchase retail electricity, and consumer-owned rooftop solar supply can now match or undercut this.Much of the centrally-supplied electricity is generated by the big companies from renewable sources at a cost of less than one cent per unit, while they collect nearly 17 cents per unit (including retail markup) out of the retail price, yielding the fat profits that underpin the very high asset valuations of their hydro and geothermal power stations.

If consumers move to self-generation using solar panels, this means falling demand for the big corporates' supply, forcing their prices and profits down.

(They won't be driven out of production, because the investment costs of their generating stations are sunk and cannot be recovered by closing down the plants, so they will keep operating so long as they can cover their running costs.)

One way for the big generator-retailers to protect their profits would be to cut the cost of transporting their electricity to consumers' homes over the wires of the national grid and local lines networks.

At present the grid and lines companies collect nearly 12 cents per unit from the retail price, a big chunk of which is monopoly profit that props up their inflated asset values with approval from another of New Zealand's zombie "regulators", the Commerce Commission.

Faced with competition from the new technologies, thus, there is ample scope for the industry to respond by cutting its prices and writing-down its asset valuations.

This would be the standard response in competitive markets, but not in the Alice-in Wonderland world of the New Zealand industry, where the Electricity Authority worries more about the risk of "reduced shareholder value" than about giving consumers a break from remorselessly-rising prices, and the Commerce Commission swallows the lines companies' position that their asset values are "sacrosanct".

So if the competition from rooftop solar is not to be met by cutting prices, what other avenue is open for the established players to block innovation?

The Electricity Authority's solution is simple: raise the costs of the rival new technology by requiring residential consumers to pay more for the alleged "common cost" of peak capacity provided by the lines companies.

Never mind that much of this alleged "cost" is just monopoly profit cloaked in accounting jargon.Never mind that the allocation of genuine common costs on infrastructure is inescapably arbitrary.

Never mind that in the long run, pushing up peak line charges to squeeze the value out of rooftop solar simply increases the likelihood that better-off consumers will dump their lines connections altogether, and resort to strategies that combine self-generation with battery storage and local cooperative networks to achieve full energy independence, leaving the existing network assets stranded.

The Electricity Authority's firm view is that stopping consumers from saving themselves money is "for the long-term benefit of consumers".

Which bring us to the final irony.Suddenly the Electricity Authority has woken up to the existence of low-income households that have been driven into fuel poverty by 20 years of price-gouging.

Alas, they now might have to pay even more if (i) rooftop solar is installed by the rich, (ii) lines companies refuse to accept lower revenues and asset write-downs, and (iii) no regulator steps in to prevent exploitation of the poorest and weakest players in the market.How different the story could be if New Zealand had a real regulator, and if the words "long-term benefit of " meant anything.

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Nov 26, 2015
28 cents? seriously? That's about 18 cents US, and it's more than 3 times what we are currently paying in Florida for a combination of nuclear and mostly gas-driven plants. Hawaii has the highest rates in the US, about 34 cents. Maybe due to the fact that New Zealand is an island is running up the prices?

Nov 26, 2015
In what other rational market can a vendor expect to recover all of its costs (+profit) from legacy customers who are choosing to buy less of its products/services? And what about the facts that DER reduces generation/xmssn/distr losses, improves grid reliability, reduces carbon/nuclear waste, improves the prospects for a global green/clean/renewable energy economy?

Nov 27, 2015
GridMan is correct: Utilities are caught trying to respond to rapid changes hobbled by investments in old technology, and in old institutional constructs. The laws and regulations and organizations were instituted for a different kind of system, and now they face a genuine transformation.

My PV panels go up soon, and we are now looking at electric vehicles. I like the idea of powering my car with sunlight. In a year or two, the system will be complete with probably abut 20 or more kWh of battery storage.

Nov 27, 2015
Yep, you just gotta love what goes on with Public Utilities that have become very quiet aficionados of the politicians. Let the Pretend Games continue:

"Public Anything" gives self-serving politicians a sounding board to be on both sides of an issue, whereby they become vocal advocates for freebies to one group for that utililiy's product while accusing the same utility of screwing up the environment, then telling some third party they never said anything they are on record as having stated to two or previous captive audiences. In the meantime the Public Utility officials never protested because they knew all along the politician never meant a word of anything he/she said.

Placing your energy resources beyond the reach of politicians does not make them happy, but why give a rat's rear end about that?

Nov 29, 2015
Actually the article is not credible. No utility distributor buys renewable energy on average at less than 1 cent per kilowatt hour. Nor does the article back up its claims of monopoly profits. This article is unfortunately a flaky left wing rant. It is populist garbage.

Nov 29, 2015
No utility distributor buys renewable energy on average at less than 1 cent per kilowatt hour.

New Zeland has cheap hydroelectricity. They very well might.

But here's the big white elephant of the room: the solar panels and batteries are not made in New Zealand, so the article is proposing to substitute domestic clean energy with imports from China, which means paying the 28 cents out of the country alltogether and producing more pollution due to the solar panels in China being manufactured with coal power and the wastes dumped on the ground.

Even if the power companies are abusive monopolistic shitheads, that would still be the worse option overall.

Nov 29, 2015
I like the idea of powering my car with sunlight.

And will you be driving it at night, so you can charge it by day?

Nov 29, 2015
Nope. My PV system will pump power into the grid in daylight, giving the power company support right in the neighborhood in the peak periods for us, while I will only draw the nine cent/kWh power at night from the utility for the car, being a good citizen.

Obviously, you have no idea how the electrical system works.

Meanwhile, we now have a car with no gas, no oil, no leaks, no winterizing, no tuneups, no filters, almost no maintenance. And it charges at night or on the road with public chargers.

Nov 30, 2015
while I will only draw the nine cent/kWh power at night from the utility for the car,

As suspected. That power comes from fossil sources, so how can you say you're running on solar power?

being a good citizen.

That "virtual battery" principle you're using is not a good thing. What you continuously refuse to aknowledge (except when it suits you) is that the mid-day "peak period" in California already doesn't exist because of surplus of solar energy, because everyone with a solar panel is pushing power into the grid at the same time. It's more than enough.

What help is it in the neighborhood when others have solar panels too?

The more people join, the more trouble it is for the utilities because they can't sell anything by day, and they have to give you free electricity by night due to net metering laws.

Nov 30, 2015
No, once again, you are guessing and guessing wrong. We also run powerplants at peak, not shut them down because we have too much solar. Where did you get that idea? We do not yet have enough. And soon, we will have end-of-the-line storage in individual homes and probably in utility operation.

My power at peak will go to my neighbors who do not have generation, and just relieve the load on that radial. If the neighborhood generates more than it used, it "backs up" into the system and feeds more loads.

What are you complaining about?

BTW we got the electric car, and I do not ever want a gasoline engine again, unless necessary.

Nov 30, 2015
Eikka doesn't know that much about electrical generation and distribution. Don't be too hard on him.

Nov 30, 2015
Thermodynamics thinks that by rewarding a psychopath with 5/5s he can encourage that psychopath to change his behavior,

"The psychopath does not think that they have any psychological or emotional problems, and they see no reason to change their behavior to conform to standards with which they do not agree. They are well-satisfied with themselves and their inner landscape. They see nothing wrong with they way they think or act, and they never look back with regret or forward with concern."

"Most therapy programs only provide them with new excuses for their behavior as well as new insights into the vulnerabilities of others."

"... social factors and parenting practices only shape the expression of the disorder, but have no effect on the individual's inability to feel empathy or to develop a conscience."

""The World has only one problem, Psychopaths... The essential feature of Psychopaths is a Pervasive, Obssesive- Compulsive desire to force their delusions on others."

Nov 30, 2015
even in Ontario I can(and should) get a large UPS system powered primarily by Solar. I could sever from the grid and save a mint.

Its not the cost of the power, it's all the service fees.

Nov 30, 2015
Hi Eikka, gkam. :)

From gkam:
while I will only draw the nine cent/kWh power at night from the utility for the car,

From Eikka:
That power comes from fossil sources, so how can you say you're running on solar power?
Eikka, what exactly is it you want? Fossil power is only expected to be reduced/phased-out as renewables become available in particular areas. Even decades from now when renewables become the dominant energy source/industry/job-providers, fossil power will still be around for minimalist assist to the grid which will develop with renewables in mind/design, and fossil power will be the 'last resort' in regions where renewables aren't as plentiful. It's the better 'mix' we're after, not the total replacement, since if renewables become dominant, CO2 emissions will be so reduced that the Earth can easily handle that regular-cycling component of CO2 from human activity. Anyway, coal/oil/gas should be SAVED for use as valuable feedstocks, not burnt. :)

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