Speech to the Electricity Networks Association Annual Conference

Thank you all for having me here this morning to address you for the first time at your annual conference.

Smart Technology

I wanted to start by talking a little about smart technology and the increasingly important role is will play in your sector.

This is a time of great opportunity for New Zealand’s electricity sector and I commend the ENA for its efforts to promote greater innovation in New Zealand’s electricity market.

What is beyond doubt is that our future electricity system will look very different to the one we have today. Fortunately, we’re a nation of early and enthusiastic adapters and this will help us embrace future technological change in the electricity market.

New technology being introduced into the sector is already giving consumers greater choice about how to meet their energy needs and how to use energy more efficiently – a trend I have no doubt will continue to gain momentum.

I’m encouraged to see the ENA and your members being proactive in the face of technological change.

One key area holding great promise in the potential advancement of our electricity network is the ENA’s renewables highway initiative.

This initiative would see New Zealand become one of the first in the world to have a complete network of charging locations for plug-in electric vehicles along the main highway network. I know positive conversations are already being had between potential service providers, and I look forward to developments on this in the coming months.

As I’m sure you’ll know, I’m very excited about the potential for EVs in this country. The Government supports industry-led initiatives like yours that can help put New Zealand on track to adopting smart technology, allowing us to transition towards a lower-carbon future.

I also commend the ENA for exploring innovative technologies through its role as a partner to the Smart Grid Forum. The Government shares the Forum’s vision of ensuring we understand the impacts and capture the benefits of new technologies.

Last month the Forum released its first report, which provides a snapshot into the future development of smart grid technologies.

Amongst the key findings, the report found that New Zealand’s competitive markets and policy settings leave us well-positioned to manage the risks associated with disruptive technology, such as solar energy and EVs, and allow us to capture the benefits of this disruption.

The report also indicated just how enthusiastically consumers are responding to new smart technologies.

Last year, for instance, residential solar installations more than doubled. There has been a threefold increase in EV use since 2013. And smart meters now make up 62 per cent of the residential market. These technologies can empower consumers, giving them greater choice and control over their energy use.

Having looked at the risks of disruptive technology, I have asked the Forum for its views on how New Zealanders can be at the forefront of capturing the benefits of new technologies. I have also asked them to look at the contribution a smarter grid can make in helping New Zealand meet its greenhouse gas emission targets. 

Disruptive technologies are an exciting area and positive news for New Zealand’s energy future. I will watch with a keen eye to see how the Government can capitalise on any opportunities identified by the Forum, and I again thank the ENA for your leadership.

Competition

Competition is the key driver of innovation that benefits consumers. It is clear that competition is delivering for consumers in those parts of the electricity sector that are competitive.

The Electricity Authority’s review of how the residential electricity market performed in 2014 captures this story.

The review found that more than 385,000 consumers switched retailers, with average savings of more than $160 a year. Households were being supplied by one of 27 retail brands in 2014 – which is a new high – and more and more New Zealanders are choosing to switch to small and medium sized retailers. As a group, these retailers grew by 23 per cent last year.

While price increases have been in the spotlight in recent years, encouragingly, the overall nation-wide picture is positive. MBIE recently released the latest data on average sales-based residential electricity cost for the June quarter 2015 that shows the average residential cost per unit of electricity used was 1.4 per cent lower than in the previous June quarter.  The last time there was a fall was over a decade ago, in 2001.

Furthermore, the data showed that the lines component of electricity prices fell by 0.1 percent for the June 2015 quarter compared to the June 2014 quarter.

The network nature of electricity distribution limits the role competition can play in driving innovation.  However, I am pleased that the price and quality setting regime under the Commerce Act is bedding in and is delivering for consumers.

But we should not be complacent.  Because the regulated part of the sector is not subject to the same competitive forces, it makes it even more important to pursue efficiencies.

There is still work to do in certain areas of the pricing regime, and I’m pleased the sector is looking to identify how to establish a more efficient pricing structure.

Work currently underway or recently implemented includes the Electricity Authority’s review of the distribution pricing methodology, and the ENA’s establishment of a Distribution Pricing Working Group.

I understand that the latter’s objective is to lead, assist and co-ordinate distributor efforts to establish more durable and cost reflective pricing and to better meet the needs of consumers. The Government entirely welcomes these efforts to take stock of and improve the pricing structure in the electricity sector.

I’m also aware that the Electricity Authority’s Retail Advisory Group are finalising a report on low user fixed charge regulation, which will look at the effect of the regulations on competition and efficiency. I am very interested to receive and digest this report.  And I know that everyone in this room probably has a strong view on the regulation.

Challenges and Opportunities

As we look to the future, new disruptive technologies pose very real challenges and opportunities for lines companies. It’s up to the sector to decide how it should respond, but uppermost in your minds must be the ability to deliver greater value for your customers.

Increasingly, lines companies are facing high costs to renew ageing equipment, along with the need to invest in the new technology that will underpin and ultimately transform the electricity sector. 

But when more and more people go “off-grid”, lines companies also face challenges in providing the necessary network infrastructure from a potentially smaller customer base.

Within this context, effective governance of assets becomes even more critical. 

The Office of the Auditor General, which (as you know) audits 21 of the 28 lines companies operating in New Zealand, has in its current work programme a project to assess whether lines companies are prudent stewards of the assets they own.  This work is timely, not least because of the recent public interest in some lines companies’ investment decisions.

I am sure we will all watch with interest the results of this work, which is expected next year.

In the meantime, it is essential that the owners and guardians of line companies understand the role customers expect them to play, by demonstrating that they are focused on their core business and are prudent stewards of the assets they own and operate.

The Future

So what can we anticipate about the future of the electricity market? The Government’s recently released 30-Year Infrastructure Plan provides a useful summary. It predicts that the existing electricity generation and distribution network will remain in place, albeit with increasingly sophisticated control systems for demand management and integration of distributed generation and storage.

But the real difference, I believe, will be in how the sector responds to these opportunities and challenges ahead. Now is the opportune time to make the necessary changes that will allow the electricity sector to adapt to the future environment. I see this happening over time, incrementally rather than monumentally.

As the evolution of smart technology has proven, Kiwi customers have a healthy appetite for innovation that provides sustainable and secure energy, and gives consumers greater choice. The Government will continue to work with the sector to make sure we get the best outcomes for consumers and the electricity market.

Thanks for your time today and I hope you enjoy the rest of the conference.