Brian Fallow: Winter Power Subsidy in Green Party Plan

If you wanted evidence that the Green Party is seeking to reposition itself in the commercially credible mainstream, look no further than the electricity policy it announced last week.

It still contains elements you would expect from the Greens: a goal of 100 per cent generation from renewables by 2030 and a winter energy subsidy to alleviate the appalling public health statistics arising from cold, damp housing.

But the rest of the policy could have been written by a centre-right party.

They have abandoned the policy Labour and the Greens took into the last election, of a single buyer, New Zealand Power, to be inserted between generators and electricity retailers.

Instead, the policy is all about the importance of price signals and competitive markets as the industry transitions to a much more dynamic and decentralised structure. It envisions a future where the grid is smart enough to enable peer-to-peer electricity trading.

The winter energy subsidy is targeted at households earning less than $50,000 a year - they reckon there are just over half a million of them - and would be worth between $125 (in Northland) and $327 (in Canterbury).

The Greens estimate the cost at $112 million a year. They point out that in the three or four years since the State-owned generator/retailers were partially privatised, the Government has received $1.3 billion in dividends from them.

Otago University researchers estimate that a quarter of all households cannot heat their homes for less than 10 per cent of their incomes, compared with about 3 per cent of income for the well-off.

The all-renewables target by 2030 is more of a stretch - but not a huge increase on 90 per cent by 2025, which has been Government policy for 10 years now in a country well endowed with renewable resources.

technical report was released with the policy about how to get there from here.

Wind farms provide about 5 per cent of the country's power, but another 2200MW of wind power projects, capable of generating the equivalent of 18 per cent of current demand, have been consented.

A similar amount of potential geothermal generation has also been consented.

The report describes a scenario in which fossil-fuel generation (apart from standby capacity for dry years) has been phased out by 2030, and further gains in efficiency plus the potential for wind, geothermal - and to a lesser extent, solar photovoltaics - is sufficient to cope with both population growth and the rapid uptake of electric vehicles.

Much of the policy is about moving to a smarter system that enables and encourages a more responsive demand side.

The wholesale electricity market, in place for 20 years now, provides a torrent of price information, spatial and temporal, to guide power companies' decisions about where to build generation plant as well as intra-day calls about exactly when to offer electricity into the system.

Very little of that price information flows through to the consumer, however.

The system is geared to ensuring there is enough investment in turbines and lines to meet peak demand, but not so good at providing incentives to reduce those peaks.

Yet the opportunities for doing that are increasing all the time.

A humble example is that even a bottom-of-the-range dishwasher these days will enable you to set it to run in the middle of the night, when it will cost your power company relatively little to meet that demand. But if you pay the same price for power regardless of when you use it, why would you?

Similarly, people are more likely to shell out for an air-to-water heat pump for domestic hot water if the higher up-front cost is warranted by cheaper (as well as fewer) kilowatt hours to run it.

It is better for the system if rooftop solar PV panels are set at the optimum angle to intercept the winter sun, but without seasonal variability in retail pricing, why bother?

And the last thing the system needs is for people to all start recharging their electric vehicles as soon as they get home from work.

The Greens would require all electricity retailers with a market share of more than 5 per cent to offer all their customers at least one time-of-use tariff.

Ideally, time-of-use pricing would be available for both the energy and lines components of a customer's tariff, they say. "We want everyone to be able to afford to pay for the electricity they need in the ways that they choose - whether that's a flat rate or variable time of use - and that reward decisions that benefit the system as a whole, such as by reducing peak demand." The Greens are evidently concerned that the energy side of the electricity system is dominated by vertically integrated generator/retailers ("gentailers") who are on both sides of the wholesale market and have that natural hedge against fluctuations in spot prices.

The concern is that that provides a barrier to competitive entry and innovation at the retail level by reducing liquidity in hedge markets, whether over-the-counter or the futures market run by the Australian Stock Exchange.

The Electricity Authority would dispute that it does, citing various metrics for the health of competition.

The Green Party wants an independent review to consider whether new entrants and independent retailers have access to products enabling them to hedge risk at a reasonable cost. If it concludes they do not, the Greens would look at requiring trading of some percentage of each gentailer's portfolio in order to increase liquidity.

That is a far cry from the New Zealand Power policy, intended to address this problem, which was put before a bewildered public at the last election. Labour appears to have dropped the idea 18 months ago.

The Greens would also require - quite how is not spelled out - the lines companies to consider all options including demand response, battery storage and distributed generation as alternatives to traditional poles and wires when planning network upgrades.

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