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EA Chair casts further doubt on renewable energy target

EA Chair casts further doubt on renewable energy target

First published in Energy and Environment on June 27, 2019.

Electricity Authority Chairman Brent Layton says moving to 100% renewable generation will be difficult to achieve while maintaining current levels of reliability and affordability.

Writing in the EA’s statement of performance expectations, Layton said electrification of transport and some process heating is likely to play a significant role in decarbonising the economy. “With over 80% renewable energy sources, NZ is well poised for transitioning to a low emissions economy. However, given current technology for electricity generation and system management, a move to 100% renewable generation while maintaining current levels of reliability and affordability appears challenging.”

Layton said the key will be ensuring NZ benefits from its renewable advantage over time. “The Authority’s role will be increasingly important as NZ’s electricity sector navigates its way through the changes in technology and the large increases in output likely to be required. Enhancing our hedge market will also offer a stronger platform for dealing with the potential volatility associated with higher levels of renewable generation.”

Although the Authority’s statutory objective, powers and functions have remained the same since 2010, the environment in which it operates is changing significantly and at pace.

“It is not alone — other jurisdictions are facing opportunities and challenges as innovation and new technologies emerge and require adaptation of market design and regulatory approaches. However, NZ’s situation of already having a high level of renewable generation, isolation from other countries, high vulnerability to shortages of water to run hydro-generators in some years and long-stringy shape present different challenges and opportunities than other countries.”

Layton said it was a sector in which new entrants vigorously challenging incumbents, changing business models and technological innovation and disruption of established business arrangements mean the regulatory compliance function must be pursued with diligence.

In its performance expectations the EA said it will continue work on reducing barriers to the entry, expansion and exit of parties in electricity markets, especially for new and potential entrants.

“More flexible arrangements will improve the market’s response to changes such as an increase in the number of registered industry participants from the current 130 to potentially thousands. Given the adoption of technologies and innovation in business practices, this is a plausible scenario.”

On pricing the EA said “We believe the prices for distribution and transmission services should be service-based and cost-reflective. This will give better information about the true cost of their decisions and encourage them to invest in technology in ways that have long-term benefits. We can improve price signals by publicising price data and information and considering the introduction of more advanced spot market pricing arrangements. We are actively exploring enhancements to the hedge market and the evolution of current market making.”

First published in Energy and Environment on June 27, 2019.

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