Electricity transmission pricing hike delivers nasty jolt
Changes to national grid operator Transpower’s transmission charges took effect in April – and as with most things in life, there are winners and losers.The updated transmission pricing methodology (known as TPM) significantly differs from previous years, and has delivered a mixed bag of rises and cuts for domestic and industrial users.
State owned enterprise, Transpower, has been allowed to recover $830 million by the Commerce Commission for running the network and the increased costs are now being passed on to end users.
Changes to charging methodology
Transpower Head of Grid Pricing Rebecca Osborne said the Electricity Authority has designed the new methodology to more closely reflect the costs and expected benefits of electricity transported across Transpower’s 12,000 kilometres of transmission lines.
There should be no surprises across the electricity industry about the new transmission charges, she said.
“We’ve consulted with customers along the way and provided information as the elements have developed, including updating our indicative prices… and providing indicative rates information in early November.”
“Total transmission revenue, as set by the Commerce Commission, remains the same, but how it is distributed among Transpower customers has changed.”
Encourage renewable generation
The Authority expects the new approach to transmission charges to encourage investment in renewable generation and electrification of industrial processes.
According to Transpower, the main change in the new transmission pricing is a move to a benefit-based approach where customers pay in proportion to the benefit they are expected to receive from some historic and all future transmission investments.
The previous methodology spread the cost of the HVDC (High Voltage Direct Current) link connecting the two main islands across South Island generators and spread the cost of all other interconnection assets across local lines companies and major industrial users.
Some Northland, East & West Coast customers hit hardest
In general, this means cost increases for local lines companies and some of the largest industrial customers in the north of the country because they are further away from where the bulk of generation is located in the South Island.
It also means North Island generators will begin contributing to the cost of the interconnected transmission assets and South Island generators will contribute less.
Consumers in Northland, the east coast of the North Island, and the West Coast have faced the biggest hikes, while Wellington and some South Island areas have seen prices fall.
The final amount that consumers pay for their transmission charges is ultimately decided by local lines companies, these charges typically make up between 8 and 10 percent of power bills.
Big power users such as the Tiwai Point aluminium smelter have seen an almost $10m price cut, while NZ Steel mill at Glenbrook faces an $11m increase.
Earlier in the year the Electricity Authority calculated movements would generally be small.
Those most affected may take issue with this. Indeed, Buller Electricity filed for a judicial review after being told its transmission charges would rise by 427 percent.