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Price review leads to further review of energy institutions

Article – NZ Energy and Environment Business Week

Following on from the Electricity Price Review (EPR), the Government is beginning work on a further review to explore new institutional arrangements in the energy sector.Price review leads to further review of energy institutions
First published in Energy and Environment on October 10, 2019.

Following on from the Electricity Price Review (EPR), the Government is beginning work on a further review to “explore new institutional arrangements” in the energy sector.

Cabinet papers released in the wake of the release of the EPR and the Government’s response show Energy and Resources Minister Megan Woods is giving a high priority to a further review.

Woods told Ministers she believed the most significant recommendation of the ERP in relation to preparing for a low-emissions future was to “explore new institutional arrangements to ensure coordination of energy policy, regulation, and programmes”.

The ERP suggested this could wait until after the Climate Change Commission was established and had made progress preparing energy sector carbon budgets and emission reduction plans.

“However, I propose to begin this work now, rather than wait until the Climate Change Commission is established. I believe we know enough about the changing future landscape to start this work now.”

Woods said increased demand for electricity, more transmission grid connected renewable generation, widespread use of EVs, and the use of solar panels and battery technology would bring change.

“These changes must be well managed in order to avoid unnecessary price increases and to support the Government’s decarbonisation objectives… This will require a more co-ordinated approach among electricity regulators and other government agencies. One of the Review’s most significant recommendations in this area is to review the institutional arrangements for energy policy and regulation to ensure clear, coordinated planning and implementation of energy related work programmes.”

Woods proposed to report back to Cabinet in the near future with further detail on the scope and timeframe for this review, with consideration given to “maintaining investment confidence, which is critical to our goals to accelerate investment in renewable electricity generation and to maintain security of supply, and. coordinating the changes to electricity regulatory settings with my broader renewable energy strategy work programme.”

Many of the EPR’s recommendations were for the Electricity Authority to progress by amending the Electricity Industry Participation Code.

The Authority is an independent crown entity and must follow statutory processes when considering amending the Code, but Woods said she would make clear expectations it is to give priority to all of the Review’s recommendations the Government accepts.

If not backstop legislation would be prepared if the EA does not address them to the Government’s satisfaction within a specified timeframe.

Woods told colleagues she believed one of the most important recommendation on the functioning of the electricity market was the introduction of mandatory market-making unless the sector develops an effective incentive based scheme

The voluntary wholesale hedge market did not always work effectively and was “illiquid”, when under stress, such as during dry hydrological conditions. “In recent times, some independent retailers have gotten into financial difficulty and left the retail market, thus reducing competition. This situation may also be holding back independent retailers from expanding, also limiting retail competition”

“I propose to make clear the Government expects the Authority to give this matter high priority. I want to be assured the fragility previously observed in the wholesale market at times of stress is not repeated in future, and I will make it clear I do not want to wait for a “better solution” that might never be found.”

Woods also said the proposed a Consumer Advocacy Council would be funded from levies and could potentially be extended to cover gas, telecommunications and other utility services, with additional funding from levies on those industries.

More on the EPR and its implications is elsewhere in the week’s Energy and Environment.

First published in Energy and Environment on October 10, 2019.

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