The autumn storm that took out parts of Auckland’s power grid last week spared Wellington. The weather in the capital remained relatively calm – or at least no worse than any other wintry day. But storms are not the only threat to the grid. Policy decisions in Wellington can be a threat as well, if pricing models do not keep up with technological change.
Geoff Bertram wrote that solar generation poses only a threat to power companies’ bottom lines (A protection-racket line straight out of The Godfather, Dominion Post, April 4). But it seems a little more complicated than that. New Zealand’s overall electricity market works rather well. Generators compete with each other to supply power into the grid. Retailers compete with each other to provide electricity to endusers. And regulation on the lines companies avoids problems in natural monopoly pricing. But there is a bug in the system – and one that will get worse as rooftop solar panel installation rises.
Economists will generally tell you that it is a mistake to try to solve an incomes problem with a pricing solution. If we collectively think that it is a bad thing that poorer people cannot afford something important, it is much better to just give more money to poorer people than it is to try to put a thumb on the pricing scales. Regulating prices might or might not wind up helping the people it’s intended to help but will always wind up causing collateral damage.
New Zealand’s low-user charging system for electricity is an attempt to help low-income consumers afford power. Households that do not use much electricity face a regulated lower daily fixed charge that goes to help maintain the overall grid.
But the measure seems badly targeted. Poor people in cold, uninsulated homes can easily wind up using more electricity than richer people in well insulated houses. And baches owned by wealthier people that sit unused most days use very little electricity. But nobody really knows what proportion of households on the low-user charge are actually on lower incomes.
When rooftop solar becomes more affordable, richer people like me will put the panels up on the roof. But the costs of running an electricity network depend on the loading on the network at peak hours. If home generation is not accompanied by home battery storage, then the grid will still have to roughly match the power demand at current demand peak. But it will be harder to pay for that when a lot of users have flipped over to home solar generation.
Even if, like Bertram, you think the electricity industry is run by a bunch of oligarchs intent on doing evil things, there seems to be a real issue in funding a sustainable power network if regulation does not keep up with technological change.
Part of a solution would be to do away with the low-user regulated tariff and to compensate poorer people by lifting benefit rates and by increasing payments through Working for Families. In that sense, Labour’s winter energy payment seems a less bad solution than mucking about with the price of electricity. But that too remains badly targeted: a lot of rich elderly people will receive the payment and a lot of poorer working families will not.
It is easy to make a mess of things if you try to solve a poverty problem by regulating prices – and especially in areas where technological change matters. Nobody would have anticipated distributed home solar electricity generation when the low-user tariff was established.
Distributed solar generation offers a lot of opportunities. Where Bertram laments that the minister might let regulation adapt to technological change, we should instead celebrate it. Not letting regulation keep up with change can have long run consequences at least as bad as autumn storms.