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Speech to Electricity Engineers' Association Conference

Simon Bridges
Minister for Energy and Resources

18 June, 2014

Speech to the 85th Annual Electricity Engineers' Association Conference

I’m very pleased to be here today – thank you for inviting me to open your conference.

The electricity industry plays a vital role in the daily lives of all New Zealanders. It has a proud history, and of course engineers have been an essential part of this.

I would like to acknowledge the contribution the Electricity Engineers Association has made for more than 85 years, including providing valuable feedback on government proposals and reforms.

The Health and Safety Reform Bill is a good example. It is currently being considered by select committee, and the very first oral submission that the committee heard on the Bill was from the EEA.

Today I’d like to take stock of what’s been achieved in the electricity sector in recent years, and the opportunities for further improvement and development.

The 2010 electricity reforms and the changes we’ve made since then have been about building on what’s already been achieved – rather than starting again with something different, and all the risks and uncertainty that would go with that.

And this is how I see the next few years as well – pragmatic evolution, not revolution.

Finally, I’d like to touch on the government’s health and safety reforms, as I know that health and safety is an important focus for the EEA.

First, let’s remember what the electricity sector used to be like, before the 2010 reforms.

Prices had been rising steeply over the past decade. Security of supply was an issue – consumers had been asked to conserve power in four of the past eight winters, and there were also transmission problems into Auckland.

Since then, we have halved the rate of price increases, and prices look set to remain steady in the short term.

Recent increases in electricity prices have been mostly attributable to transmission and distribution investment decisions made several years ago. The electricity market is now more competitive than ever before, both in the wholesale market and in the retail market.

In the wholesale market, there’s a better geographic balance of assets between the energy companies, resulting from the ownership transfer of the Tekapo A and B Power Stations from Meridian Energy to Genesis, and from the long-term hedge contracts the former state-owned generators were required to enter into from 2011.

A forward-looking hedge market sends long-term price signals about the likely price of electricity, and the energy companies compete with each other to build the next best generation plant.

Major new generation plant is being built, and the majority of this is based on renewables – mainly geothermal or wind. For example, Mill Creek in Wellington was recently commissioned, and the new Te Mihi geothermal plant is expected to run this winter.

This is happening based on a competitive market, without the need for government incentives or subsidies.

The new renewable capacity is also facilitating the retirement of existing thermal plant. In the past two years, Genesis has retired half of its coal burning generators at Huntly power station. Gas plant is being increasingly used as ‘firming’ plant, filling in when demand peaks or wind or hydro generation is reduced.

The shift to renewables is happening based on price, a competitive market, and improvements in technology.

It means we’re making good progress towards our target of 90 per cent of electricity from renewables by 2025, as part of our response to climate change.

As mentioned, the past few years have also seen some much needed investment in upgrading our transmission and distribution assets.

And if an energy conservation campaign is needed in future, the energy companies would have to compensate consumers.

As a result of all these changes, we now have a much more reliable system.

We can get through a dry year with no impact on most consumers. A good example was 2012 – one of the driest years on record.

On the retail side, it’s easy for consumers to find out how much they could save by switching retailers, and switching just takes a phone call.

Retailers are competing with each other to offer more incentives and discounts than ever before. It’s a very competitive market for people who are prepared to shop around for the best deal.

More than a million smart meters have been installed, free of charge, for New Zealand homes and businesses. The roll out was partly driven by large electricity retailers seeking to gain a competitive edge in the market. The new meters mean more efficient monitoring and management of supply – which helps keep costs down for consumers.

We’ve also got the Electricity Authority, with a specific mandate to promote competition, reliable supply, and efficient operation of the electricity industry, for the long-term benefit of consumers.

So we’ve achieved a lot in a relatively short time. We have a strongly competitive electricity market, with secure supply, and increasing use of renewables.

What’s next?
Looking ahead, there’s still work to do, to bed in the progress we’ve made and ensure New Zealand is well positioned for future opportunities.

Retail competition will remain a top priority for the Electricity Authority.

The Authority is working to improve the information that’s available for consumers – this promotes competition and innovation.

The retail data project is assessing whether incomplete data about retail prices, retail tariff options and consumption impedes competition in the electricity sector.

The project is also looking at whether there is a negative perception by consumers and observers about the ability of existing retail market arrangements to deliver outcomes that are for the long-term benefit of consumers.

In the wholesale market, the Authority is continuing to evolve the market design, to remove any barriers to new technology or new entrants.

In May, dispatchable demand went live. Other work includes the potential for demand-side to offer frequency keeping services, and the review of instantaneous reserve arrangements.

Although there are lots of positives in the industry, one area requiring further work is the number of disconnections for people not paying their bills.

Some retailers need to do a better job of managing their customers more actively when credit issues first arise. I wrote recently to the retail companies to let them know my views on this issue.

There are also challenges and opportunities ahead for that part of the sector providing distribution and transmission lines services.

Consumers of all kinds have increasingly high expectations about reliability and quality of their supply.

Modern appliances and electronic equipment can be intolerant of poor quality, and economic activity can be severely disrupted by supply interruptions even if momentary.

Consumers are also beginning to connect new devices – like solar PV and electric vehicles – which could have a significant impact on the performance and investment needs of networks, especially if their uptake is rapid and highly clustered in particular neighbourhoods.

On top of these new pressures, lines companies also have the challenge of managing the renewal of aging assets, and ensuring that their renewal expenditure is commercially viable, particularly in light of static or declining energy flows in their networks.

On a positive note, I’m excited by the opportunities offered by new technology.

Information technology is revolutionising the way people live and work, and electricity is no exception.

We’ve seen the start of this with smart meters. But there is scope for much more, and for consumers to gain more control over where they source their electricity, how much it costs them at a granular level, and when they use it.

In the future we’re likely to see greater use of renewables and small-scale, dispersed generation. Sooner or later, solar photo-voltaic will become an economic option for households.

We’ve also got a fantastic opportunity in New Zealand, with our high renewables electricity sector, to switch to electric vehicles and make a big dent in our carbon emissions from transport.

Future improvements in technology will give transmission networks more detailed and timely information about their assets, so they can manage them more closely and provide better services.

A good example of how new technology has the potential to create new benchmarks for performance, for service, safety or environmental outcomes is the so-called “last gasp” functionality present in some smart meters. This function, which need not be provided in every household meter, can give distributors more timely information about the location and extent of supply disruptions on the low voltage network, and therefore creates the opportunity for more timely and precise dispatch of crews to find and repair the fault. Without such functionality, distributors typically rely on phone calls from customers reporting loss of power.

The new technology will also bring new challenges.

For example, the increasing electrification of space heating (heat pumps) and personal transport (electric vehicles) could require significant investment in peak network capacity, unless consumers can be persuaded to charge their cars and heat their homes outside of peak times. Incentives and tools, such as off-peak price rebates and automated control of heating or charging systems, could help with this.

To get the full benefit of these opportunities, all parts of the electricity sector need to work together.

This is why the Government has recently set up a Smart Grid Forum, working with the Electricity Networks Association and drawing on expertise from right across the electricity industry.

The Forum has made a start on four work streams:
• The first is a stocktake of the existing state of smart grid work in New Zealand and overseas, to inform the Forum’s work.
• The second is looking at a future state picture of what a smart grid could look like in New Zealand in 2050, and the actions needed to achieve the vision.
• The third is focussed on smarter networks that will be able to respond to changes in electricity generation and consumption, to give maximum flexibility and choice to consumers.
• Finally, the fourth work stream is about identifying and resolving any potential barriers to achieving the vision.

The Smart Grid Forum’s work is published online, and I’d encourage all of you to have a look and see how you can contribute. Membership of the Forum will evolve over time, and there will also be ongoing opportunities for expert input into the Forum’s projects.

Workplace health and safety reform
Turning now to the health and safety area, you will be aware that New Zealand’s workplace health and safety system is undergoing its first major reform in 20 years.

The Government is responding to the findings of the Royal Commission on the Pike River Coal Mine Tragedy and the Independent Taskforce on Workplace Health and Safety, which both identified major failings in New Zealand’s regulatory framework.

Our goal is to reduce New Zealand’s workplace injury and death toll by 25 per cent by 2020.

The reform package includes an overhaul of the law to provide clear, consistent guidelines and information for business; additional funding to strengthen enforcement and education with a focus on high-risk areas; and better coordination between agencies. One of the first parts of the reform package was the creation of WorkSafe New Zealand in December last year.

WorkSafe New Zealand is a stand-alone agency with a single-minded focus on workplace health and safety issues. It is the lead player in transforming New Zealand’s workplace health and safety performance. The focus in its first six months has primarily been on improving safety performance in the forestry and farming sectors.

As you know, the Energy Safety team is now a part of WorkSafe New Zealand. I know that Energy Safety recognise the strong leadership shown by the EEA in ensuring the safety of the electricity supply system across New Zealand. Your recent work with Standards New Zealand on the new NZS 7901 Safety management systems for public safety for the electricity and gas industries is also appreciated.

As Minister responsible for WorkSafe New Zealand, I encourage WorkSafe to proactively engage with key national associations such as the EEA, and to maintain a co-operative working relationship as it moves to operationalise new work programmes out in the field.

Development of the new legislative framework is also well underway.

As I mentioned earlier, the Health and Safety Reform Bill is currently with the Transport and Industrial Relations Select Committee.

The reports of the Royal Commission and the Taskforce were also very critical of the supporting regulatory framework for workplace health and safety, so I’m pleased to say that we are making good progress in this area too. A discussion document outlining proposals for new health and safety regulations was published in late May.

The Ministry of Business, Innovation and Employment (MBIE) is keen to receive feedback to ensure the new regulations are practical and robust – I know you will take up the opportunity to have your say.

Public meetings will also be held in Auckland, Wellington and Christchurch in late June, as well as meetings with individual key stakeholder groups.

The regulations are being developed in two phases, and the discussion document seeks feedback on phase one.

This phase includes proposals on five key areas of regulation, being general risk and workplace management; worker participation, engagement and representation; work involving asbestos; work involving hazardous substances; and major hazard facilities. Phase two will include a full review of the working practices part of the Electricity (Safety) Regulations. These important provisions, that cover safe working practices for live work, will remain under the Electricity Act until that review.

The EEA and its members are the primary stakeholders for that review, and MBIE will work closely with you to progress the transfer of the safe working practices for live work into the new regime.

We are all working toward a common end. We all agree that everyone should return home from work every day, safe and unharmed. Along with the huge emotional toll on the people affected, workplace injury, disease and death represent a significant cost to the economy. I know I’m preaching to the converted here but it’s worth saying over and over again - good workplace health and safety is an investment in good business.

This Government is committed to meaningful change in New Zealand’s health and safety system, but this change will not happen in isolation. Success requires government, businesses and workers to act together to collaboratively drive solutions on the ground.

I look forward to your continued involvement.

Thank you.

ENDS

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