Power to the Environment
[ Last Updated 21 November 2005 ]
Environmental sustainability is a key focus of the Government's Power Package. The Package includes important steps to support the Government's drive for greater energy efficiency and development of new renewable sources. This document outlines how the Power Package will benefit the environment.
Encouraging Energy Efficiency through Lower Fixed Charges
With high fixed charges, low-use domestic consumers have very little incentive to be efficient in their use of energy because this hardly affects the size of their bill.
To get rid of this perverse effect, all retailers will be required to offer at least one tariff to domestic consumers with a fixed charge of no more than 10 percent of the bill of the average domestic consumer (consuming 8,000 kWh a year).
The Power Package includes tight design principles to ensure that this tariff option will be genuinely useful for domestic consumers. For example, increases in variable charges will be constrained and the tariffs must cover both standard tariffs and tariffs for interruptible load.
Demand Side Participation in the Wholesale Market
The Power Package requires the new Electricity Governance Board to ensure that its rules promote demand-side participation in the wholesale market. Improved participation by users of electricity in the wholesale market will reduce the demand for electricity, especially at peak times.
The Governance Board is to move quickly to set up a real time market so that the demand side can see and respond to actual prices immediately they change. Demand-side bidding is also to be facilitated. These innovations will result in better management of electricity use, particularly at peak times.
Future Electricity Prices and Information on Transmission to Promote Wise Investment
Information will be publicly available about wholesale market participants' expectations of the level of electricity prices into the future. This will provide medium to long term signals on expected future demand and supply for electricity, information which can be used by investors in generation (including distributed generation and co-generation) to make decisions about timely investment.
A framework will be established in which the industry can evaluate economically efficient alternatives to transmission grid expansion or replacement, such as distributed generation and demand-side management options. Projections of grid adequacy will be made available regularly to enable grid users to identify and evaluate alternative opportunities to grid investment. Pricing of transmission services will be structured to provide an incentive to minimise network constraints and losses.
Promoting Distributed Generation
The law will be changed to make it easier for line companies to invest in distributed generation. The Government expects that this will lead to increased investment in small scale distributed generation using renewable energy sources (including co-generation).
Specific steps include:
- The Electricity Industry Reform Act 1998 will be amended to allow lines companies to own distributed generation up to 2 per cent of the network's maximum demand or 5MW, whichever is the greater.
- The Act will also be amended to allow lines companies to own distributed generation beyond these restrictions, provided that the source of such generation is a new renewable energy resource and that the generation activity is carried out in a separate company subject to the arms length rules set out in Schedule 1 of the Act.
- A further amendment to the Act will allow trusts that own line companies to establish mirror trusts to generate electricity. Restrictions on expansion of mirror trusts into generation will be lifted.
- Terms and conditions for the connection of distributed generation to distribution networks will be determined under the distribution pricing methodology developed by the Governance Board, and will be subject to dispute resolution under the new market rules to be developed by the Board. Legislation will ensure that the Government has regulation-making powers in case the industry fails to deliver an effective arrangement.
Limiting Water Spill
There is ongoing concern about spill from hydro dams.
Some spill is inevitable because New Zealand is subject to heavy and unpredictable rainfall and some river systems, such as the Clutha, have limited storage capacity. However, spill may also arise from gaming the market, when generators with market power withdraw hydro capacity in order to lift market prices to their advantage.
To discover whether or not there is unforced spill, hydro generators will be required to release quarterly information on the amount, timing and location of spill within four weeks after the end of each quarter.
Electricity Governance Board Constitution and Monitoring
The Electricity Governance Board is to develop rules for the industry consistent with Guiding Principles set by the Government. The Principles include explicit requirements for the Board to follow in relation to energy efficiency and environmental objectives.
The rules set by the Governance Board are to be consistent with Government policies on climate change and energy efficiency, including in relation to the Kyoto Protocol.
The Board must include members who are able to contribute experience and expertise in distributed generation/renewables and energy efficiency/demand side management, as well as network management, transmission and consumer interests.
The Government will watch to see that its expectations in relation to setting up the Board are met. Powers to regulate to create a Board that meets the Government's requirements will be used if necessary.
Beginning in October 2001, monitoring and reporting on whether and to what extent the outcomes the Government has set for the electricity sector are being met effectively will be undertaken by:
- the Electricity Governance Board reporting to the Minister of Energy each year on its activities;
- the Minister of Energy tabling the Board's report in Parliament; and
- the Controller and Auditor General and the Parliamentary Commissioner for the Environment reporting to Parliament annually. The Parliamentary Commissioner will report on environmental sustainability issues.
Other Government Policies on Energy Efficiency and Climate Change
The changes being made in the Power Package are designed to work in tandem with the Government's wider energy efficiency and climate change policies. These policies are detailed in the Energy Policy Framework, which states:
| The Government's policies and programmes relating to energy include: Energy efficiency and renewables - development of an Energy Efficiency and Conservation Strategy under the Energy Efficiency and Conservation Act by October 2001
- establishing the Energy Efficiency and Conservation Authority (EECA) as a stand-alone Crown entity, as at 1 July 2000
- significantly increasing funding for EECA to improve its capacity to deliver high quality programmes to improve energy efficiency and the use of renewable energy across all sectors of the economy
- developing consumer labelling and upgrading energy performance standards for buildings and appliances
Climate change - a commitment to pass legislation to enable New Zealand to ratify the Kyoto Protocol on climate change by mid 2002
- development of a comprehensive range of policy measures to ensure that New Zealand is able to meet its commitments under the Kyoto Protocol.
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