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Electricity Savings Report Welcomed

Press Release from Sustainable Energy Forum

18 December 2002

"The issue is not whether electricity costs CAN be reduced, but whether the generating-retailing companies will ALLOW this to happen" said Mrs Molly Melhuish, energy analyst for the Sustainable Energy Forum. Mrs Melhuish was welcoming an EECA report released this morning about the ability of demand management to reduce electricity costs for New Zealand businesses.

"Active demand-side participation in electricity markets would reduce the growth in peak demand that drives the 'requirement' to build new power stations. But it also reduces the profits that generator companies need to fund the new power stations.

"The power companies have little incentive to pay customers to use less energy (ie save kWh) or to reduce demand (ie reduce peaks) - other than to keep the Minister of Energy happy."

"Peak load response is just one of four types of demand management; all four together are needed to effectively reduce the cost of electricity to the New Zealand economy.

"Energy efficiency is the first and foremost of these four - and if targeted to locations where supply is constrained, investments in energy efficiency could generate "negawatts" at typically less than half the cost of electricity from new power stations."

"Peak load response is the second type of demand management that targets changes in the time of use. This is particularly favoured by electricity retailers because it is most easily controlled by them.

"Fuel switching is a third response - using solar water heating, gas or firewood to replace electricity, especially in dry years.

"The fourth is distributed generation - that is, installing small generators, such as wind turbines, and also using the stand-by generators in commercial or industrial buildings.

"Together these demand-side technologies could easily reduce the growth of electricity demand by half - at the same time significantly reducing the cost of electricity to all consumers.

"But there are other barriers that need to be addressed, and SEF has called on Government to take a stronger lead to eliminate these. At present the electricity market rules, and the fact that electricity retailers are unregulated, prevent demand management from competing effectively with conventional power supply. The present system of industry self-regulation will perpetuate this costly bias towards supply-side investments.

"Demand-side investments are desirable for many reasons. Energy efficiency makes houses warmer and healthier. Modern energy management techniques improve lighting and air conditioning in commercial buildings; improved electric motors work better as well as using less energy. Peak load response drastically reduces the market power of generators, thus reducing electricity prices for all consumers. All these techniques improve the reliability of electricity supply - and also reduce the environmental impact of electricity generation.

"Profit-seeking generator-retailers will only support a token use of these technologies - only enough to keep the Minister off their backs. Only a real overhaul of electricity market rules would allow these technologies to compete effectively in the market place" concluded Molly Melhuish.

ENDS

For more information please contact:

Molly Melhuish, 42 Waitohu Rd, York Bay, Eastbourne, NZ, tel 04-568-4873, 025-230-5911, fax 04-576-0873

OR Sustainable Energy Forum, PO Box 11-152, Wellington Phone 04 586 2003, Fax 04 586 2004, Email info@sef.org.nz

================
FOR YOUR INFORMATION THE EECA PRESS RELEASE IS BELOW.

Press Release by Energy Efficiency & Conservation Authority 18 December 2002 06:35

EECA encourages major users to turn torch on energy suppliers

A report released by the Energy Efficiency and Conservation Authority (EECA) today makes a very compelling case for demand side participation in the New Zealand electricity market.

EECA Chief Executive Heather Staley says the report, Exploring Our Untapped Electricity Resource, identifies that up to $100 million of electricity cost savings may be available to medium and large energy users through demand side participation.

"The report highlights how the electricity market is immature and how medium and large users are often captured by imperfect supply agreements.

"In a developed market, both buyer and seller are fully aware of the price. But New Zealand's medium and large users exposed to the electricity spot market have their hands tied. They have no idea as to the price they will pay for the electricity they are using until 24 hours after they have used it, at best. For the market to operate as it should, the demand side must be given timely information and the ability to participate.

"If retailers allow it to work, the opportunity for New Zealand is huge. Demand response can deliver a reduction in use of between 250 and 900MW of electricity (roughly equivalent to the generation from a new combined cycle gas turbine plant), which will manage exposure to spot electricity prices at times of peak demand. The value of tapping into this resource could be as high as $100 million and will also reduce the need for generation from inefficient plants which sit idle for all but the peak demand times of the year," Ms Staley said.

EECA commissioned the report from Demand Response Ltd, which looks at aspects of electricity demand to find out what it would take for customers to become involved in the market. The report incorporates experience from Meridian Energy's Internet based electricity trading exchange, The Demand Exchange. Using the platform, and driven by wholesale prices, Meridian's traders place offers to pay customers to reduce their electricity demand. The report also covers other barriers to the creation of more active demand response.

"It is very clear that larger electricity consumers can, and want to be part of the solution to security of supply and stability of prices in the electricity market. It was surprising how small price changes can trigger a response from some customers.

"Medium and large electricity users must turn the heat on their suppliers to allow them to be an active demand-side participant in the market. They should demand timely price signals from their retailer that can enable them to respond by rescheduling their load, or to run standby generation as a back up.

"Many New Zealand businesses have switched on to the fact that energy efficiency saves them money, and now we hope to show businesses how they can have more influence over the price they are charged for the energy they do use," Ms Staley said.

Copies of a synopsis report and the full report are available on www.eeca.govt.nz

ENDS

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