The Productivity Commission came to Parliament yesterday with some practical advice on how to move to a fossil-fuel-free economy.
But it raised some hard questions for MPs about the role that distribution or lines companies might play in the transition.
And one Commissioner, the former Treasury Secretary, the author of much of Rogernomics and former ACT candidate, Graham Scot, would have surprised the committee when he said it might need the Government to legislate and regulate to force the companies to play their role.
The Commission was before Parliament’s Finance and Expenditure Committee, and MPs wanted to talk about the report on a low emissions economy which the Commission produced in August and which said electricity generation would be likely to need to increase by at least 50% by 2050.
“An abundant supply of low-cost, low-emissions electricity will be important as other parts of the economy switch from fossil fuels to electricity, particularly transport.
“Regulatory reform to facilitate the expansion of both grid-scale and distributed renewable energy generation is needed alongside the removal of barriers to innovative technologies that assist consumers to manage their demand during peaks.”
This caught the attention of Parliament’s Finance and Expenditure Committee, who for only the second time in the Commission’s eight-year history asked for a meeting with the Commission.
The chair of the Commision, Murray Sherwin, said they were confident there was enough potential renewable generation capacity to meet the target.
“But if you are going to make this transition effectively then you can’t have power prices cranking up because you want people to use more of it, not less,” he said.
“So you are relying on the declining cost of some of that technology to make it work.
“There are some very tricky regulatory and competition management issues in there.
“You’ve got competitive generators at one end, feeding into a natural monopoly grid with local monopoly networks and now you have got behind the meter, solar in particular, opportunities coming up.”
(Behind the meter generation is simply generation that takes place in a consumer’s home. It may in some cases be fed back into the grid.)
Sherwin said another problem was the currently both the Commerce Commission and the Electricity Authority butted up against each other in regulatory forms “sometimes a bit uncomfortably.”
“So there is some tricky stuff to do there.”
Scott said New Zealand was moving from an electricity system which has been defined by a cluster of big powerful organisations selling off to a highly dis-aggregated customer base.
“What’s happening because of the disruptive technologies and the possibilities of behind the meter generation, conservation, localised generation and localised battery storage and all of that is to make sure that the regulatory framework doesn’t inhibit the development of those things,” he said.
“The distribution companies find this a bit uncomfortable for obvious reasons.
“The regulatory frameworks around those companies must not be used to allow those companies to add to their regulated monopoly functions.”
He said there should be a regulatory environment which allowed people to innovate and try different things.
“The other thing that is going to be controversial and difficult over a long period is what to do about dry years and about daily fluctuations in generation from the renewables.
“What happens when you get a cold day in winter, and the wind doesn’t blow anywhere.”
Scott said the Commission’s climate change advice relied heavily on electrifying all kinds of processes.
“That means you have got to do something about those cold nights in winter and so on.
“So you have got to be pretty careful not to drive the use of gas out of those peaks because you could end up with other options like having to have far more wind energy just sitting around in case that happens which is not a sensible use of resources.”
Sherwin said the demand side also mattered and that it might be possible to use time-based pricing to encourage people to charge their electric vehicles off-peak and possibly even to use surplus power at times to hydrolyse water to make hydrogen.
“If you can fill the troughs in then the economics of the distribution system become a whole lot stronger.”
But Green MP Gareth Hughes made the point that getting the lines companies together or even getting transmission pricing sorted out was taking years.
Scott said it was pretty clear that trying to get the regional distribution companies to think about amalgamations was a massive political issue.
“Quite a lot of the capability that is necessary to get this demand side working and expecting it to happen over and over again in a different way with all those lines companies is just going to take too long.
“So we have been thinking input shared services or other ways of organising that infrastructure so that it all just doesn’t get lost in a political battle between the lines companies but is something that is shared across them, and that would require quite possibly some legislation and some kind of Government leadership.
Given the way parochial politics has introduced into the Electricity Authority’s review of transmission pricing, the likelihood that the Government might want to force change ion the lines companies might seem remote.
But the Prime Minister has set dealing with climate change as one of her key priorities.
Her MPs might have to steel themselves for some bold reforms.