vector response climate change commission draft advice 2021

1VECTOR RESPONSE | CLIMATE CHANGE COMMISSION DRAFT ADVICE 2021

vector response

climate change commission draft advice 2021


1 Executive summary 3

2 Introduction 8

3 Future energy systems need to be designed for – and start with – the customer 9

3.1 WesupporttheCommission’sprincipletoleverageco-benefits–weseethisasbeingalignedwiththe‘decarbonisationdividend’ 103.2 Digitalisation is a key enabler of affordable energy 123.3 Dataisakeyenablerofcustomerandutilitysolutions–includingnewflexibilityservicesanddemandresponsemarkets 143.4 Energyefficiencymeasuresanddistributedgenerationhaveakeyroletoplaytosupportaffordabilityanddecarbonisation 16

4 Levers to expand the market for new renewable generation and broaden competitive pressure 22

4.1 Thereisanopportunitytomeetgrowingelectricitydemandthroughlevellingtheplayingfieldforindependent,distributedgeneration andgreaterEDBparticipationinsolarandmicro-grids,andthroughareviewofcurrentmarketdominanceandbehaviour 234.2 Liftingthearchaiccaponregulatednetworkinvolvementwithconnectedrenewablegenerationisanopportunitytoincrease renewablegeneration,strengthennetworkoptimisationandcontributeanewcompetitivepressuretothewholesalemarket 284.3 Ourfutureenergysystemsshouldaligntheobjectiveofstrengtheningresilienceinthecontextofachangingclimateas wellasmeetingfuturedemand 294.4 Anurgentspotlightneedstobeplacedonthepotentialforsolartodisplacecarbon-intensivegenerationover NewZealandsummermonthsandenhanceexistinghydrostoragecapacity 314.5 Unleashthevalueofdemandresponsetomeetfutureelectricitydemandaffordably 324.6 Unlockingthevalueofdistributedgenerationcanaddanimportant,neededandnewcompetitivepressureintothesupplychain 344.7 RapidlyexpandingthemarketforrenewablegenerationtosupporttheCommission’spathwaywillrequiremarketreforminthe electricitygenerationmarket 34

5 Dynamicoptimisationiskeyforaffordableelectrification 37

5.1 TheCommission’sambitiontoelectrifytransportshouldbesupportedbyboldpolicyaction 385.2 ManagingdemanddrivenbytheEVuptakeintheCommission’spathwayrequiressmartdynamicEVchargingto avoidincreasingnetworkpeaks 40 5.3 Dynamicoptimisationisaboutdeliveringmorewithless,notmorewithmoreandoffersaself-reinforcingpathwaytodecarbonisation 455.3 Symphonygraphic 48 5.4 Let’slearnfromothersregardingtheneedforsmartintegrationofnewdistributedgeneration 505.5 Unlockthevaluethatsitsbetweenhistoricregulatory-imposedsilos 50

6 Rethink regulation 54

6.1 Ourregulatoryframeworkanddecisionmakingneedsanurgentmindsetshifttodeliverdecarbonisation 556.2 Dynamicoptimisationrequirescoordinationandtherighttypeofinvestments 566.3 Drivingcompetitionanddecarbonisationrequiresafundamentalshifttotheregulatoryapproachoftheenergysector 59

7 AchievingthepathwaysetoutbytheCommissionrequiresustotakeawholesystemsapproach 61

7.1 Avoidcostbyurgentlycoordinatingourregulatoryregimearoundthegoalofdecarbonisation 627.2 WeconsideraMinistryforEnergyandDecarbonisationtobeakeyenableroftheCommission’spathway 63

8 Gas transition challenges 65

8.1 AGasTransitionContractisneededtoestablishanagreedandmanagedtransitiontomeettheobjectivesofGovernment,customersandgas infrastructureowners 668.2 Achievingthemostefficientnetreductioninemissionsfromgasrequiresustoassesstheuseofgasacrosstheenergy supplychain–includingbothgenerationanditsenduse 668.3 Transitioninggastoelectricitywouldhaveasignificant,andcurrentlyunaccountedfor,impactontheelectricitynetwork 688.4 Notallgasuserswouldbeabletoelectrifywithinthisbudgetperiod.However,theviabilityofkeepingthegasnetwork availableonlytothem,ifallotheruserstransitionedtoelectricity,isuncertain 698.5 OptionstoefficientlyachievetheCommission’semissionreductionpathwayatleastcustomercost 70

This document is an interactive PDF designed not to be printed. Please use the interactive contents page for navigation. The opposite headings are links.

contents


AffordableelectrificationliesattheheartofAotearoa’sdecarbonisationpathway.

Todeliveraffordableelectrification,changeisouronlyoption.Vectordoesnotbelievewecancontinuetosqueezeanewenergysystem,withdifferentcharacteristicsandnewobjectives,intoour1998electricitymarketdesignwithits“morewithmore”supply-sidedominatedlens.VectorbelievesthattheGovernment’srenewablegenerationandtransportelectrificationambitionscallformorethanjusttinkeringwithexistingmarketandregulatorystructuresfoundedonmarginaleconomicefficiencyasthekeyobjective.Thisobjectivewasdesignedfortheinitialmarketreformsofnearlyaquarter-centuryago.Buttodeliverforthefuture,anewphase,andcertainlynewambitionsforthe electricity sector calls for regulatory and policysettingswithabroaderdecarbonisationobjectiveabletocapturenewvalueanddelivergreatercustomerchoice.Ifwedonottaketheopportunitytodesign,shapeandregulatethesectordifferently,wedoubttherewillbeanaffordable path to decarbonisation through electrification.Thissentimentisreinforcedbyourcurrentengagementwithoverseasregulators looking to fundamentally recalibrate energyregulatoryobjectivestosupportdecarbonisation.

executivesummary

VectorisakeyenablerofAotearoaNewZealand’sdecarbonisationgoals,andweseethat role rapidly accelerating.

Vectorhasledthewayininvestingandinnovatinginnewcustomerchoiceandsolutions to respond to the challenges arising fromclimatechange,decarbonisationandnewtechnologies.WedosothroughourSymphonystrategyandbypartneringwithgloballeadersinarangeoftechnologies.Vector’sstrategysupports decarbonisation by focussing on customers,balancingcommercialoutcomesandquestioningwhetherthecurrentenergysystemwillbeuptothechallengeahead.

Todeliverdecarbonisation,weneedaboldand collective vision of a new energy future thatensurescustomerchoice,affordabilityand reliability.

Thepotentialofdynamicoptimisation,throughharnessingdataandtheaggregatedflexibilityofnewcustomerdemand-sideassets,isjustoneexamplehighlightingtheneedtomovebusinessincentivesawayfrom“more”to“better”ateverystageoftheelectricityvaluechain.Aggregatedflexibility,suchasnewcustomer demand-side assets being proven on Vector’sAucklandnetwork,offersimmediate“avoidedcost”efficiencieswhichinturnunlocknewcompetitivepressurefromdemandtogenuinely rival supply.

Suchdisruptiveserviceofferingsand“wholeofsystem”costreductionbusinessmodelswerenot anticipated in the siloed market structures oftheoriginalBradfordenergyreformsdesignedaroundadifferentobjective.Weinstead need reforms that focus on customer outcomes,balancedwithgovernmentandbusinessneeds,butwithamodernisedobjectiveabletobetterservetheenergysector.Thisisparticularlytrueasrapidadvancesinrenewableenergy,digitaltechnologyandelectric transport look set to only accelerate as economies commit to investing trillions of dollarstosolvedecarbonisationobjectives.

Alignedpoliciesandforward-lookingregulatorysettingsareurgentlyrequired.

VectorhaslongcalledforaMinistryforEnergyandDecarbonisationasthenecessarycatalysttoalignpoliciesandforward-lookingcompetitive and regulatory settings supportive ofindustrytransformation.Thesiloedstructuresoftoday’sregulatoryframeworksrelatetoadifferent time and today deliver an electricity supplychaindominatedbyprocessregulation,fragmentedregulatorybodies,ablind-beliefinmarket theory and a dominant focus on remote supply.Changeisneededwithinthesector,andacross policy and regulation - to align policy and regulatorygoals,effectivelymonitorprogressanddeliverregulatoryaccountability,and,toensurestrongcoordination,particularlywithtransport given the importance of transport electrification.


Amanagedandagreedtransitionforgasisneededtoavoidsignificantcustomercost anddisruptionfor300,000householdsandsmall businesses.

Thereisanurgentneedtofindasensiblybalanced gas transition compact that meets theobjectivesofGovernment(carbonandaffordabilityobjectives),customers(disruptivesupplyandcostofappliancereplacement)andgasnetworkinfrastructureowners(financialreturnandeconomicmaintenance).Ifacleartransitionpathcannotbeagreed,therearelikelytobesignificantcustomercostimplicationsaswellasmajordisruptionsforbusinessesandhouseholds.Thisisbecausegasnetworkswilllikelybeforcedtoceaseinvestment to maintain supply in large parts ofthenetwork-wellbeforeanytargetedcustomertransitiontimeframes.Thisinturnislikelytoinvokesignificantbacklashfromasmanyas300,000householdandcommercialgascustomersacrossNewZealand.

TheCommission’sproposaltoeffectivelycurtailuseofgasnetworkinfrastructureovertimefundamentally breaks the regulatory compact andthebasisonwhichinfrastructureownershavehistorically,andingoodfaith,invested.Afundamentalaspectofsucharegulatorycompact is that capital returns on such assetsarematchedtothe40-50yearlivesofthe assets. With the Commission’s proposal

nowthreateningtobreaktheregulatorycompact,VectoriscallingforanewGasTransitionContracttobeagreedbetweengasinfrastructureownersandtheGovernmentasa means to maintain investor and customer confidenceinourtransitionandensurecustomerchoice,reducedeconomicimpacts,andinvestorconfidenceareallmaintainedthrough the transition.

Finally,customershavesignificantinvestmentsingas-basedappliancesthatremainexpensivetoreplace,butthecostimplicationsofanygastransitionextendtoassociatedstructuralchanges to commercial and residential property to accommodate changing technologies (estimatedasbetween$2,000and$5,000perpremise).Combinedwithriskofearlytransitionfromnetworktermination(butaheadofcustomerappliancereplacement)suchcostscanbeexpectedtoinvokeadditionalcustomerbacklash further underscoring the value in an agreedGasTransitionContract.

Electrificationoftransportcallsforboldpolicies.

ElectrificationoftransportinNewZealandis so fundamental to our carbon reduction pathwaythatboldandalignedpolicyinitiativestosupportEVsandhybridsarecalledfor.Toensure the infrastructure is ready and resilient forelectrification,theremustbeastep-changeinconfidencethatourpolicyandregulatory

settingssupportnetworktransformation,digitalisation for smart and connected EVcharging,andappropriatelyfundtheinvestmentrequired.

Every lever needs to be considered to promote investment in renewable generation.

Furtherleveragingdistributedrenewablegeneration is an opportunity to unlock a widerinvestorbasetomeettheCommission’srequirementforarapidexpansionofrenewablegeneration.Tosupportthecountry’srenewablegenerationtargetsitwillbeimportanttounleashnewinvestmentbythosewiththecapacity and capability to both deliver a diverse baseofrenewablegenerationbutalsotosupport disruptive business models able to meet changing customer behaviours and assets.

Vector’svisionistoCreateaNewEnergyFuture.

Vector’soptimismforthefuturelieswithdecarbonisation not only being a climate imperative,butalsoanopportunitytodrivesignificantmodernisationthroughdigitalisationand,theuseofdata,unlockinggreateroptimisation and thereby delivering full system costefficiencyforthebenefitofcustomers.

click for contents


click for contents

Key recommendations

1.1 Ensure that EV chargers are smart to minimise the impact to electricity network peaks and therefore cost to consumers

SmartEVchargingmustbeenabledandintegratedwiththenetworktomanagenewdemandforelectricity.ByalgorithmicallystaggeringthetimesthatEV chargersdrawpowerfromthenetwork,widespreadsmartEVchargingwillensurethatnewdemandfromEVscanbemanagedonthenetworkwithoutunnecessarycapitalcostsandreliabilityimpacts. Initiatives to curb peaks in response tonewdemand,supportedbyintegrationwithnetworkinfrastructure,isanopportunitytoincreaseutilisation,reducingelectricitycoststoallcustomers.Specifically,werecommendlevers to ensure:

•ThatthesupplyofEVchargersinNewZealandaresmartanddigitallyenabled-including rapid amendments to regulatory settingsandnetworkconnectionstandardstoaccommodateneworupdatedstandards.

•Alignmentofthesestandardswithbuildingcodesandwiderregulations,andongoingcoordinationbetweeninfrastructureprovidersandLocalGovernment(includingfortheCommission’s recommended charging infrastructureplan).

•Theintegrationofsmartchargerswithdigitalplatforms to enable optimisation across networkinfrastructure

•GreaternetworkvisibilityofEVinstallationsand access to smart metering data to support coordinatedmanagementandnetworkplanning .

1.2 Consider the impact on electricity peak demand from any proposed transition away from gas, and, the need for a managed transition if significant customer backlash is to be avoided

AnalysisjointlycommissionedbyVectorhas found that accounting for capital costs (currentlyexcludedfromtheCommission’sassessment of household costs from transitioningfromtheenduseofgas)wouldcostcustomersbetween~$2,000-~$5,000–toaccommodate the replacement of customer waterheatingandcooking,or,waterheating,cookingandspaceheating,respectively.Werecommend that the Commission:

•Reconsidertheiranalysisaroundlikelycustomer cost of the transition from gas proposedintheirpathway,reflectingthetruecapitalcostswhichwouldberequiredofcustomersaswellascustomerimpactsfromchangeininfrastructureinvestment–whichcould be avoided through a balanced transition compact.Ifwedonothaveabalancedtransitionforgasthiswillresultinunnecessaryincreasedcoststogascustomers,highercoststoelectricitycustomers,aswellascompromisethe investment that is needed for the Commission’sownpathway–whichincludesaroleforgasoutto2050.

•Accountfortheinterplaybetweengasandelectricityincludingthesignificantimpactanygastransitionwillhaveonelectricitynetworksand energy affordability.

•Considertiming,theoptionalityofgreengasesforgasuserstotransitionto,andthesignificantdownstreamimpactsandcostsoncustomersand infrastructure providers.

•SupportanimportantdiscussionbetweenGovernmentandinfrastructureownerstoagreeanewGasTransitionContracttoavoidalikelyscenarioofsignificantcustomerbacklash.

1.3 Re-engineer our system to drive new decentralised renewable generation – rather than our current bias towards remote generation

We recommend re-engineering our electricity market to drive greater uptake of distributed energysystems.Enablingandincentivisingawiderrangeofgenerators(includingdistributed,standalonegenerators)anddemand-side participation supports electricity affordabilitywhilealsoliftingcommunityresilienceastheeconomyelectrifies.Localisedenergy systems increase resilience and avoid the cost of unnecessary transmission upgrades and losses from remote build generation. We recommend that:

•TheCommissionrecognisethedominantfocus historically applied to remote supply solutionsandwhichhascrowdedoutabalanced focus on the value of distributed


click for contents

generation and demand side participation that harnesses customer assets and actions.

•ThattheCommissionenableactivedemandside participation in meeting the target to reach 60%renewableenergyby2035–includingbothgranulardemandresponse,aswellasstoragesolutions such as those being investigated by theNZBatteryProjecttohelpovercomethedryyear risk.

•Greateremphasisisplacedontheinvestmentin,andintegrationwith,digitalplatformsforsecurenetworkmanagementandcoordination.

•Thecaponelectricitynetworkcompanyinvolvementwithconnectedrenewablegeneration be removed to increase the uptake and smart integration of distributed generation.

•Thatregulationbealignedwiththeuptakeofcommunityandcustomerowneddistributedsolar–includingtosupportthepathwaytoallowmultipletradersonasingleICPtobetter promote disruptive business models for customers such as peer-to-peer trading.

1.4 Rethink Regulation to ensure that it supports the future, not simply the objectives of the past

Currentregulatoryframeworksweredesigned for a different time in the evolution of the electricity sector. For the purposes of theoriginalBradfordmarketreforms,keyregulatoryframeworkspromotedrefinements

toourexistingelectricitymarketmodel(viatheElectricityAuthority)drivenbytheobjectiveofincreasingmarginalefficiencyandconsumerwelfareincrementallyovertime(viatheCommerceCommission).Neitherofthesenarrowobjectivestrulyenabletherapidor transformational change and investment needednow,noraretheyfitforthesignificantchallenge of decarbonisation and the coordinated integration of customer assets. Therefore,werecommend:

•ThattheregulatoryframeworksgoverningtheElectricityAuthorityandCommerceCommission be reconsidered and redesigned in light of decarbonisation to ensure electricity regulationsupports,ratherthanhinders,thedelivery of decarbonisation.

•ShiftingfromaregulatoryframeworkthatrespondstotheriskoftheBradforderareforms–toonewhichputscustomersanddecarbonisation at the centre.

•Thatregulatoryframeworksremovetheshacklesonthosewithcapitalandcapabilitytodelivertheboldchangewhichisrequiredofourelectricity system.


click for contents


introduction

VectorcommendstheCommission’s draft advice on the need to transform our energy systems.

ItisclearthatVectorandotherenergycompanies must play a decisive role in enabling NewZealand’semissionsreductionpathway.Asamajoritycustomerownedbusiness,Vectorisfocusedondoingsowhilealsounlockingmajorco-benefitsforenergyconsumers.Howevercurrentregulatorysettings–designedaroundan out-dated model of a linear and siloed electricitysector–willpreventusfromrealisingthatfullpotential,ultimatelyputtingNewZealand’stransitiontozeroemissionsatrisk.

InthissubmissionVectoraskstheCommissionto build on its draft advice to include recommendations to remove barriers holding usbackandtoempowerustounlocktherequiredenergytransformation.

OurmessageisthattodeliverontheCommission’spathwayweneedtorethinkourenergysystem.Anenergysystemwiththeconsumer(ratherthanthecentralisedpowerplant)atthecentrewillunlockbenefitsofdecarbonisation,affordability,customerchoice,and resilience.

TheCommission’spathwayrequires which Vector can enable through but we face some barriers.

Thestrategicexpansionoftheelectricity system for the affordable electrificationofenergyuse.

Investment in future ready infrastructure,including:

•Dynamicoptimisationofnetworks

•Usingdata,digitalisationanddecentralisationtosignificantlyimproveefficiency

•EnablingcoordinatedsmartchargingofEVs.

Regulationofnetworksisbackwardfacing,promotingincrementalbenefitto ensure a minimum standard is delivered. It does not promote the typeofforwardinvestmentandfundamentaltransformationrequired.

Thesectorissiloed,hinderingthefullpotential of data and digitalisation requiredtorealisedynamicoptimisation.

Rapidexpansionofrenewablegeneration

• Driving the uptake of solar as a sourceofnewrenewablegenerationand competition in the market.

•Directnetworkinvestmentinrenewablegenerationandmicro-grids

•Powersmartsolarprojects–includingfor large commercial customers.

Ourcurrent,centralisedsystem,locksstandalone generators out of the market.

EDBsarepreventedfrominvestingsignificantlyinrenewablegeneration.

Aspectsofourregulatoryandmarketframeworkaddunduecomplexityandundermine the value proposition for customer-generators.

Distributed generation and demand responsetounlocknewvalueandhelp to reduce the amount of fossil-fuelledgenerationrequired

Theprovisionofarangeofmulti-sitestorage/batterysolutions–includingdistributed solutions

Solaranddistributedgenerationcanoffsetdemandforhydrogeneration,keepingreservoirsfullforpeaks,andcan directly reduce emissions used for gas peaking during summer months

Leveragingdemandresponsetoflattendemandpeakscanhelpustostrategically overcome the dry year risk

Thecurrentcentralisedmindsetfocusesonlyonthesupplyside,attheexpenseofdemandsidesolutionsandlevers.Thisriskslockinginunnecessarycosts for future generations.

Thereisaneedtore-engineerourenergysystemtostartwithdemand,rather than centralised supply in our transitiontogreaterrenewableenergy.

Ourfutureelectricitysystemsareresilientinthecontextofnewrisks

Investmentincybersecurity,decentralisednetworksolutions–includingmicro-gridsandV2H,aswellasfuturereadynetworkstodelivercontinued security of supply in a changing environment

RegulationandtheresultingallowablerevenueforEDBsdoesnotsupportthelevelortypeofinvestmentwhichisrequiredtodaytodeliverforthefuture.

click for contents

future energy systems need to be designed for –andstartwith–the customer


customers are the drivers of our emissions reduction pathway – as well as our new energy future

We support the Climate Change Commission’s (theCommission’s)focusonreducingemissionsfromtheenduseofenergy–suchastransport,industrialprocessesandbuildings–andtherelevance of customer behaviour and impact in reducing emissions. Just as our successful response to climate change relies on changes toconsumerbehaviour,underpinnedbytherightenablers,thetransformationofourenergysystemstoalowemissionsfuturealsoneedstostartwiththecustomerandbesupportedbyenabling platforms.

We agree that innovations that enable consumerstoparticipateinthemarketwillhelpreduce the amount of fossil-fuelled generation. Startingwiththeconsumerintransformingour energy system can deliver other profound benefitstotheaffordability,resilience,choice,andefficiencyinelectricitymarket.Thesebenefitswillalsopromotetheconfidencethat is necessary for consumers to invest and converttoelectrification.

3.1 We support the Commission’s principle to leverage co-benefits – we see this as being aligned with the‘decarbonisation dividend’

We support the Commission’s principle to ‘leverageco-benefits’–orbenefitswhichgo beyond reducing emissions that can be gainedthroughourpathway.Weseethisasbeingstronglyalignedwiththenotionofa‘decarbonisationdividend’–capturedintherecentreportReCostingEnergy.Ledbythe

UKThinkTank,ChallengingIdeas,thislatestreport has been developed in partnership withglobalcross-industryprojectteam–includingVector,Centrica,Elexon,theUKElectricitySystemOperator,andImperialCollegeofLondon’sGranthamInstituteforClimateChange–andproposesashiftinthewayweassignvaluethroughourenergysystembyunlockingvaluebetweenthesilosandenablingparticipationofawiderrangeofactors.Thenotionofadecarbonisationdividend holds that decarbonisation is not justacostthatcustomershavetobear–butrather,bytransformingoursupplychaintostartwiththecustomerratherthanthepowerplant,ourtransformationshouldaddadditional value to their lives. Focusing on co-benefits,orthe‘decarbonisationdividend’isaboutshiftingthemindset,analyticalframeworksandtheviewofthekeyrisksandobjectivesthatsitattheheartofourenergymarketgovernance.AshighlightedbypreviousreportsledbyChallengingIdeas,ReDesigningRegulation,the‘trilemma’hasbeenatthecentreofwiderenergypolicythinkingfortenyears and positions energy market decision makingasabalancingactbetweensecurity,decarbonisation and affordability. In doing so:

“thetrilemmahascreatedtheimpressionthattherearetrade-offs,andthatthesearecompetingproblems,ratherthancomplementary ambitions’.

click for contents


Byframingourenergytransitionasan‘inherentlyzero-sumgame’thisapproachputsaceilingontheambitionofwhatourenergysystemscandeliverforcustomers,andonthetransformationthatisrequiredtocreateadecarbonised,customercentricenergysystem.

“By replacing the problems with ambition,theissuesaroundsecurityofsupply,decarbonisationand affordability can be dealt with byadoptingaforward-movinganddynamic approach”. – ReShaping Regulation,ChallengingIdeas,2017TheCommission’sadviceconsiderspotentialco-benefitsintermsofhealth,environmentand‘broaderwellbeing’.Thereisanopportunityandaneedtofurtherleverageco-benefitsofcustomeraffordability,customerchoice, and resilience.

We recommend that the Commission broaden itsunderstandingof‘co-benefits’tocaptureawiderscopeofbenefitsacrossthesupplychain,andthatitbedeepenedtocapturethebenefitsthat can be delivered by customer centric energy services through the supply chain. AsisdiscussedfurtherinChapter“DynamicOptimisationforAffordableElectrification”insection“Unlockthevaluebetweensilos”,thevalueofnewenergytechnologiesandassetsthroughthewholesystemisdemonstratedby

Vector/EECA V2H trial

ThevalueofdistributedsolutionsforincreasingcustomerresillenceisVector’sVehicletohome(V2H)trial.ThisenablescustomersinPiha,acommunitywhichisattheedgeofourelectricnetwork,topowertheirhomesinanoutageutilizingtheremainingEVbatterycapacity.

click for contents


3.2 Digitalisation is a key enabler of affordable energy

Ensuringthatdistributedsystemsdeliverthe most value for all users of our electricity systemrequirestheirintegrationandmanagement through the right digital platforms–likeVector’sDistributedEnergyResourceManagementSystem(DERMs).Theimportanceofsmartnetworkmanagementofnewdistributedassetsisdiscussedfurtherunderthechapter“Dynamicoptimisationforaffordableelectrification”,andthepotentialtounlocknewvalueinmeetingfuturedemandfrom distributed generation is discussed furtherunderthechapter“Leverstoexpandthemarketfornewrenewablegenerationandbroadencompetitivepressure.”Asismentionedfurther,digitalsolutionslikeDERMscanactasaplatformenablingtheintegrationofnewtechnologies,aswellastheemergenceofnewcompetitivemarketsandproducts.Thisisaboutenablingthecreationofnewmarkets–whicharenotconstrainedbythecurrentlyflawedmarket structure.

Leveragingtheseplatformstosupportthedeliveryofoptimalcustomerservices,drivesour transition from a commodity based to a service-based energy system. We support the Climate Change Commission’s recognition of the value of platforms and business models for affordableelectrification,andwesupporttheCommission’sNecessaryAction16–Support

BehaviourChange,andrecommendthatenabling data and digitalisation of energy usage should be a recommendation under this ‘NecessaryAction’.

Thistransitionisashiftwhichisoccurringacrossindustriesandoureconomy,inresponsetoclimate change and the need to gain value inawaythatismoresustainablethanjustgenerating,distributing,andconsumingmore.

Asakeyenablerofthistransformation,ourenergy systems are not immune to this imperativetochange.Ourenergysupplychainsneedtomoveawayfromacentralplanningmindset,totheenablementofdistributed,customerdriven,systems.Thisrequiresustomanagenewcomplexitydrivenby the integration of more distributed assets andbi-directionalflowsofpower–ratherthantheperpetuationofacentralised,linearsupply chain.

theWholeEnergy-SystemCostmetric(WESC).Asanalternativetothelevelizedcostofenergy(LCOE),theWESCreflectsthenetcostorvalueofenergyassetsonadollarperMWhbasis–accountingforwholesystembenefitssuchasdisplacedgeneration,systembalancingimpact,anddistributionnetworkimpact.Thisillustrativeanalysis has has found that despite their capital cost,aresidentialsmartEVchargerforinstance,actuallyaddsnewvaluetothesystemof~$174NZDperMWh.

Vector’sView:

Trulyunlockingthesebenefitsrequiresustotransformthewaythatweconsiderourenergysystems–tostartwiththecustomer,ratherthancentralisedsupply.Thisisanexciting‘tippingpoint’forelectricitywherethe old-fashioned market design is being truly challengedbyanewmarketdesignedfrom the bottom up and facilitated by the digital revolution.

click for contents

Doingmorefromless–fromconsumptiontooptimisation

“TodeliverNetZerorequiresaphilosophicalchangeinhowwelook

at the energy system from a consumption model to an optimisation

model,drivingvalueratherthancommodity,fullyutilisingcapital

ratherthanwastingitandmostimportantlyrecognising,rewarding

and incentivising consumer and demand side optimisation. With the

potentialofmillionsofassets,generation,storing,hedgingweneedto

unlockthevalueandpotentialofamuchwidergroupofplayers–

aconsumptionmodelwillstandinitsway.”–

ReCostingEnergy,2021


Thistransitionisashiftwhichisoccurringacrossindustriesandoureconomy,inresponsetoclimate change and the need to gain value inawaythatismoresustainablethanjustgenerating,distributing,andconsumingmore.

Asakeyenablerofthistransformation,ourenergysystemsarenotexemptfromthisimperativetochange.Ourenergysupplychainsneedtomoveawayfromacentralplanningsupply-sidedominatedmindset,totheenablementofdistributed,customerdriven,systems.Thisrequiresustomanagenewcomplexitydrivenbytheintegrationofmoredistributedassetsandbi-directionalflowsofpower–ratherthantheperpetuationofacentralised,linearsupplychain.AsisdiscussedfurtherinChapter“Dynamicoptimisationforaffordableelectrification”VectorhasledthewayinthisstrategicdirectionthroughourSymphonyStrategy–whichseekstodeliverfuture ready energy systems that enable decarbonisation and respond to customer needs,byleveragingarangeofsolutionsandvaluestreamstoultimatelydelivermorewithless.However,wecontinuetoexperienceregulatorydecisionmakingwhichimpedes,ratherthansupports,thisapproach.JustastheCommission’spathwayreflectstheinvestmentsthat need to be made today to deliver for thefuture,energysolutionprovidersneedtoincorporatetherightsolutionsnowtoenableour transition and avoid cost in the future.

Digital inclusion Covid-19hasaccelerateddigitalisation.Whilstthisis an opportunity for decarbonisation this is also a challengetoensurethatthebenefitsaredistributedequally.Byavoidingcostatasystemlevel,digitallyenabledoptimisationgainsbenefitsforallenergyconsumers – not just those who have invested in

smart distributed assets – like solar PV and battery systems.

WesupporttheCommission’srecommendedEquitableTransitionsStrategy,howeverwe

recommend that the timeline for this should be brought forward to avoid locking in impacts to low

income households through decisions that are made beforetheendof2023.Aswellasavoidingcost

through smart infrastructure design (including the smart management of new demand from EVs) digital inclusion,shouldbeakeyobjectiveofthisstrategy.

3.3 Data is a key enabler of customer and utility solutions – including new flexibility services and demand response markets

Datacandriveefficient,customercentricenergyservices,whichenableaffordableelectrification.Forexample,ensuringthatnetworkplanningandinvestmentisbuiltondata driven analytics rather than traditional top-downplanningcanensurethatinfrastructureis built to enable customer choice and to meet customerneeds.Otherdisruptedindustrieshave put customer needs and preferences at theheartoftheirdesign–thesameneedsto be true for our entire energy value chain in ordertoachievethepathwayproposedby the Commission.

Providingcustomerswithnearreal-timefeedback can also trigger important behaviouralchange.Inwinter2019,ourpeak-timerebatetrail,inpartnershipwithMercury,demonstratedcustomers’willingnesstoreducetheloadduringpeakhoursuponnotification24hoursprior.Theprogrammewastargetedspecificallytoonlyrewardthosewhocouldcontributeonaspecificdayanddidnotpenalisethosewhohadhigherloadsthanusual. We observed that reduction potential isquitesimilartoadirectcontrolsolutionlikehotwaterloadcontrol.Smartmeterdatawillbe essential to monitor the response over a prolonged period to understand if response fatiguewillsetin.

click for contents


Asseeninmanyotherindustries,dataunlockssignificantvaluethroughtransformation.Datacandriveefficient,customercentricenergyservices,whichenableaffordableelectrification.Forexample,networkplanningandinvestmentthat is driven by data analytics rather than traditionaltop-down,aggregatelevel,planningcan ensure that infrastructure is built to enable customer choice and to meet customer needs. Otherdisruptedindustrieshaveputcustomerneeds and preferences at the heart of their design–thesameneedstobetrueforourentire energy value chain in order to achieve the pathwayproposedbytheCommission.

Thereisanopportunitytounlockfurthercustomervaluebyimprovingtheflowofdatathroughourenergysystem.Forexample,it has taken several years of negotiation for networkstogainaccesstoconsumptiondata from incumbent gentailers refusing to makethisavailable–despitethebenefitsthatthisdatacanaddtonetworkplanningandoperations–includingoutagedetectionandsafetyimprovements.Thishasalmostbeenresolvedbywayofthelatestdefaultdistributoragreement(DDA)facilitatedbytheElectricityAuthority(EA).However,weconsiderthisprocess and the time that it has taken for networkstoaccessthisdatatobeanexampleof coordination failure.

AsNewZealandtransitionstoalowemissionseconomy,theneedfornearreal-timeandmore granular data delivered by smart meters is becoming more apparent offering potentialbenefitswhichextendthroughourenergysupplychain–deliveringnewvaluetocustomers.Smartmeterservicescanenablegranulardemandresponseprogrammes,remoteconnectionsanddisconnections, andnearreal-timedatafornetworkperformance monitoring.

InconjunctionwithdigitalplatformlikeVector’sDERMs,smartmeterdatacanenabletheefficientintegrationofdistributedenergyresources(DER)intolow-voltagenetworkswithoutcompromisingsystemsecurityandreliability,aswellasdynamicloadcontrol.TheneedfornetworkcoordinationfortheefficientintegrationofDERisdiscussedfurtherintheChapter“DynamicoptimisationforAffordableElectrification”,section3.5–“Unlockthevaluebetweensilos”.Unlockingthevalueofdatathroughourenergysystem,inconjunctionwithdigitalplatforms,iskeytodeliveringintegratedenergysystemswhichmeetcustomers’needsanddelivergreatersystemefficiency–effectivelyincorporatingdigitallyenableddemand-response solutions such as smart EVchargers.

Vectoriscurrentlyundertakingatrialof200smartEVchargersinAuckland,usingthe trial to understand customer charging behaviour and its impact on electricity demand peaks.Thistrial,whichisdiscussedfurtherinChapter“Dynamicoptimisationforaffordableelectrification”,willhelptoinformsmartnetworkmanagementandthedesignofenergysystemswhichmeetcustomerneedsandpreferences,efficiently.Forexample,interimfindingshavefoundthatpricingincentives have limited impact in changing the timeofcharging,andthatalgorithmiccharging–whichstaggerscharging–hasakeyroletoplayinflatteningdemandpeaks(asopposedtoscheduledcharging,forinstance).Theseinsightshighlightthevalueofdigitallyenabled,data driven energy systems.

Thereisanopportunitytounlockgreaterefficienciesandinnovationthroughdatageneratedbysmartmeters.MeteringserviceproviderssuchasVectorMeteringarewellplacedtodeliverdataservices,ensuringtherealisationofsignificantnetworkandcustomerbenefitsandavoidingtheunnecessarycostofduplicatinginformationsystems.TheNewEnergyPlatform(NEP)developedbyVectorandAmazonWebServices(AWS)willenableenergycompanies to leverage further value from datathroughenhancedanalyticscapability,delivering smarter energy services.

click for contents


TheNewEnergyPlatform(NEPisadataanalyticsandIoTsolutionsettobedevelopedandco-fundedbyVectorandAmazonWebServices(AWS)throughthestrategicalliance

Aspartofthemulti-yearstrategicalliancebetweenVectorandAWS,theNewEnergyPlatform(NEP)isanInternetofThings(IoT)and analytics solution for the energy industry andwillbeintroducedfirstinAustraliaandNewZealand.Drawingoncloud,IoT,anddataanalyticstechnology,thisplatformwillenablegreaterenergydataprocessing,andsmart,efficientenergyservices.TheinsightscollectedbytheNEPwillsupportthedevelopmentof tailored product and pricing solutions for customers based on their energy consumption habits.Inthefuture,insightsfromtheNEPwillenable energy companies to develop innovative solutionsandnewmarketmodelsthatacceleratetheuptakeofrenewables,electricvehicles,anddigitalapplications.TheNEPcandisplace legacy systems creating a step change inprocessingpower,flexibility.

Driving smart, customer centric future energy systems which can deliver decarbonisation requires the right capability

AshighlightedbytheClimateChangeCommission,ensuringtherightlevelofcapability needs to be underpinned by investment in the right skills development - and our digital economy:

“the education and science and innovation systems in Aotearoa are critical for ensuring low emissions economic growth…Aotearoa

3.4 Energy efficiency measures and distributed generation have a key role to play to support affordability and decarbonisation

Thereisanopportunitytogofurtherindrivingthese future outcomes by targeting passive housing standards and enabling smart home technology in our future housing stock

Energyefficiencycanpreventwastedemissions,supporthealthier,warmerhomes,anddelivergreateraffordability.Weagreewiththe Commission’s comments that:

“household electricity bills will depend on electricity prices, as well as demand. Households that are able to make energy efficiency improvements may be able to reduce demand or improve the level of comfort in their homes. Households should be able to reduce their household electricity bills by, for example, switching to heat pumps, or installing insulation or LED lightbulbs”. – the Climate Change Commission

We support any intervention to support equitableinvestmentinenergyefficiency.Ourdata has found that higher income households havebenefittedfromenergyefficiencyataratewhichisfourtimesfasterthanlowincomehouseholds.InAucklandaccesstoenergyefficiencyisnotalevelplayingfield.Accesstofinanceandhome-ownershipremainsakeydeterminantoftherateofchange.Overthelast

is known as a country of innovators and problem solvers. Being an early mover in researching new technologies and adopting existing technologies will benefit not just the climate, but the economy and wellbeing of New Zealanders”. – the Climate Change Commission

Investinginsmart,energyefficientbuildings(bothnewandretrofitted)anddigitallyenabledenergy systems is also an opportunity to align ourCovid-19economicrecoverywithouremissionsreductionpathway.Energyefficiencyisjob-intensive.Forexample,theAmericanCouncilforEnergyEfficiencyEconomy(ACEEE)hasfoundthata$1millioninvestmentinabuildingefficiencyimprovementwillinitiallysupportapproximately20jobsthroughouttheeconomy”.AshighlightedbytheACEEE“An energy efficiency investment creates more jobs than an equivalent investment in either the economy on average or in the utility sector and fossil-fuels. Most energy efficiency jobs are also local because they often consist of installation or maintenance of equipment locally”.

International partnerships can also strengthen NewZealand’sdataanalyticscapability,digitaleconomyforfuturehighvaluejobcreation,aswellasanefficient,digitalisedenergytransition.Thestrategicalliancedescribedabove,throughwhichVectorandAWSareco-fundingthedevelopmentoftheNewEnergyPlatformtotaketoglobalmarkets,issettocreateatleast30new,highlyskilled,rolesinAuckland.

click for contents


decade,wehaveseenowner-occupiedhomesdecrease energy use at a faster pace than tenantedhomes,whichaddstotheburdenofincreasingAucklandhousepricesforthosenotonthepropertyladder.Onbehalfofitscustomerowners,Vector’smajorityshareholderEntrust,continuestoprioritiseinvestmentinsolutionswhichdelivernewvaluetocustomers.

TheCommissionhasalsonotedthatimprovementsinenergyefficiencymaynotalwaystranslateintolowerdemand,asmanycustomers may choose to heat their homes more as a result of savings made.

“Because homes in Aotearoa are typically underheated in winter, households may choose to heat their home more after improving energy efficiency, rather than reducing their energy use or emissions. We assume that existing homes’ energy intensity improves by 6% by 2035. We assume newly built homes are 35% more energy efficient compared to today’s performance”. – the Climate Change Commission

Wenotethatpassivehousing–houseswhichrequiremuchlessheating–wouldreducetheimpactofenergyefficiencysavingsbeingoffsetbymoreheating(knownasthe“reboundeffect”),strengtheningtheconnectionbetweenefficiencyandreduceddemand.Passivebuildings‘turnoffthetap’whenitcomestowastedenergyandwastedemissions.

Weagreewiththeassumptionsrelatedtothefuture energy intensity of homes mentioned above. Whilst there are a number of uncertain variableswhichwouldimpactthis,thisisbroadlyconsistentwithourowncurrentenergyefficiencymodellingforAuckland.Asalwaysthereisanopportunitytochangeourprojectionofthefuturebasedontheinvestmentsthatwemaketoday–thisiswhatunderpinstheClimateChange Commission’s emissions reduction pathway.TheCommissionisproposingourfuture be more than the sum of today’s inputs and actions multiplied by years. We agree and hold that there is an opportunity to turn the dial furtheronenergyefficiencygainsbymakingthe right investments today. We recommend thattheCommissionpushfurtherinitsviewofwhatispossiblebywayofasmart,digitalisedenergyfuturewhichisbuiltaroundcustomerneeds–includingtorecognisethepotentialofIoTenabledsmarthometechnology andpassivehousing–tostrengthen energyefficiency.

Examplesofinternationalpoliciestodrivemoreefficienthousinginclude:

•InGermany,passivebuildsthatmeetasetefficiencylevelqualifyforsignificantlyreducedinterest rates for the life of the loan that can transferbetweenowners(availableforthefirstmortgageonly).

•ThecaseoftheEU,whichdoesn’tallowincandescentlightbulbs,hasshownthattheadditionalup-frontcostofefficientlightbulbstendstoreduceovertime,asdemandandthemarketexpands.Anadvantageofbeinga‘fastfollower’ofthispolicyisthatthemarketforLEDlightbulbsalreadyexistsatscaleglobally.

•Thebenefitsofincreasingthethermalcapacity of buildings is also being investigated inSwitzerland.Thisapproachfocusesnotjustoninsulationefficiencybutleveragesthe larger thermal capacitance of heavier buildingstoenablethemtoretainwarmth,allowingslow,constantheating–asopposedtohavingpeakswhenpeoplecomehome.Thedesiredneteffectisthatlessheatingisrequired,particularlyduringspringandautumn,astheheatfromthedaylaststhrough the night.

click for contents


Transformingoperationalefficiency

WenotetheCommissionandtheMinistryofBusinessInnovationandEmployment(MBIE)arefocusedinthesamedirectionwhenitcomes to the Commission’s recommendations tostrengthenefficiencymeasuresandtheoperationalperformanceofbuildings,andMBIE’sTransformingoperationalefficiencyframeworkconsultedonlastyear.However,wealsonotethetimeframesproposedbyMBIEdo not match the timelines set out by the Commission.MBIEhasproposedthecreationofanOperationalEmissionsCapandWaterUseCapfornewbuildingsthatwilltighteninaseriesofsteps,reachingafinalcapby2035.Energyefficiencymeasuresrelatedtoexistingbuildingsarehoweveroutsidethescopeoftheprogramme.Givenexistingbuildingsareexpectedtomakeupapproximately65%ofNewZealand’sbuildingstockin2050,aswellas a similar percentage of building-related emissions,thisrepresentsamissedopportunityto achieve emissions reductions in the building management sector.

Wesupportafasterprogressionofworktotransformoperationalefficiencyofnewandexistingbuildings,includingwiththerecommendationsbelow,inlinewiththetimelines proposed under the Commission’s emissionsbudgets.AsnotedbyMBIE:

“The most significant operational carbon emissions are the indirect carbon emissions from the use of electricity and water when we live and work in buildings…approximately 20% of all energy in NZ is consumed in the operation of buildings. Currently many buildings are cold, damp and poorly ventilated which impacts on occupant health and wellbeing. The indoor environmental quality (IEQ) of buildings is primarily related to how much energy is required to maintain suitable indoor conditions throughout the year i.e., the operational efficiency.” - MBIE

Thereisafurtheropportunitytooffsetthisdemand and reduce emissions from buildings’ electricity consumption through the integration of distributed solar and battery solutions. We notethatonsiterenewablegenerationandstorageisnotcoveredbyMBIE’sbuildingforclimatechangeprogramme.Thisrepresentsamissed opportunity. We recommend that the Commission further recognise the potential ofdistributedgeneration,andrecommendfurtherstepstodrivetheefficientuptakeofdistributed energy systems. Further details on theserecommendationsareinChapter“Leverstoexpandthemarketfornewrenewablegenerationandbroadencompetitivepressure”and“DynamicOptimisationforaffordableelectrification”,section“Let’slearnfromothersregardingtheneedforsmartintegrationofnewdistributedgeneration”.

click for contents

case studyTheKaingaTuatahiproject,inpartnershipbetweenVectorandNgātiWhātua,supportedbyEntrust,provides behind the meter solar and battery systems for each of the 30 houses at Kupe street – a residentialdevelopmentforiwifirsthome-ownersdeliveredbyNgātiWhātuaŌrākei.ThisprojectwasdesignedtoalignwiththeobjectivesofNgātiWhātua–todevelopWaroKorePapakāinga–acarbonzero community – with affordable and healthy housing. This includes bringing together innovative energysystems,wastesystems,healthywaterways,kaisovereignty,and ecological enhancement.

The project enables customers to generate and store power for their own consumption and to export anysurplustothegridforacredit.Intheyearending2020,thesolarbatterysystemsprovidedonaverage,36percentofcustomers’totalconsumption.Overall,Kupestreethouseholdsused20%lessgridsourcedkWhpaonaveragethanthecontrolgroup.Inthefirstfourmonths,thisresultedinsavingsofaround12.55tonnesofcarbondioxideequivalent(CO2e).Thesystemshavereducedsomehome-owners’electricitybills–forpowerfromthecentralisedgrid–toaslittleas$13permonth.

Inadditiontodeliveringthesecustomerbenefits,thetrial,whichisstillongoing,seekstoassesstheperformanceofteslapowerwallbatteriesinmaximisingsolarconsumption,increasingresilience(byprovidingbackupelectricityforcustomersinthecaseofanoutage),andreducingpeaks.Analysishassofarshownthatresidentialbatteriescancontributetoa30%peakreductioninconjunctionwithsolar.

KupeStreet–NgātiWhātuaOrakeihousingdevelopmentandsiteofKaingaTuatahiproject,Vector,launched 2016


We strongly support the Commission’s recommendation to enable more independent generation and distributed generation. Therearefurtheropportunitiestoencouragedistributedenergysystemsonthenetworkthroughmarketandregulatorychange–whichcould play a role in changing our market structure

AshighlightedbyReCostingEnergy,transformingoursystemtostartwiththecustomerandtounlockthe‘decarbonisationdividend’requiresusto‘rewardcustomers’actions and assets’.

Thereareanumberofaspectsofourcurrentregulatoryframeworkwhichinhibitthecustomer value proposition of investing in theseassets.Forexample,underourcurrentregulatoryframeworktherecanonlybeoneretailerperICPpreventingcustomersfromsourcing some generation from the grid and othergenerationfromcommunityorPeer-to-Peertradedwithotherconsumers,forexample.Further market and regulatory barriers to the integrationofnewrenewablegenerationisincludedinthenextChapter“Leverstoexpandthemarketfornewrenewablegenerationandbroadencompetitivepressure.”

Wesupport:

•“NecessaryAction9:increaseenergyefficiencyinbuildings”includingtherecommendation to introduce mandatory measures to improve the operational energy performance of commercial and publicbuildings,aswellastocontinueimprovingenergyefficientstandardsforallnewbuildings,newandcontinuingstock,through measures like improving insulation requirements.Werecommendthatthesemeasures incorporate the impact of onsite generation. We recommend that these measures incorporate consideration for onsite generation.

• We support the Commission’s recommendationtoexpandassistancewhichtargetslow-incomehouseholds.

•Wesupporttherecommendation“AssesstheGovernment’scurrentstandardsandfunding programmes for insulation and efficientheatingtodeterminewhethertheyare delivering at an appropriate pace and scale,andhowtheycouldimpacthousingandenergyaffordability.TheGovernmentshouldgiveparticularconsiderationtopotentialflowthroughcoststotenants,andtogovernment-ownedhousingstock.”IncludedunderNecessaryAction1:Anequitable,inclusiveandwell-plannedclimatetransition.

Recommendations

•WerecommendthatLeveragingandenabling digitalisation be added as a principle underpinningtheCommission’sadvice.ThiswillensurethattheCommission’sanalysisandrecommendationswillsupportsmartenergysystems.Thisshouldincludeconsiderationforhowinvestmentchoicesbeingmadetodaysupportdigitalinclusion–ensuringthatallcustomersbenefitfromthevalue of digitalisation.

•Werecommendthatwestartfromthecustomer,ratherthanthepowerplant,inhowweconsiderourenergysystemandmakeinvestmentsforthefuture.Thisrequiresare-engineeringofoursystemtostartwithdemand,notsupply.

• We recommend that the Commission include enabling digitalisation of energy usage and data to drive energy decisions as a recommendation undertheCommission’sNecessaryAction16:SupportBehaviourChange.

• We recommend that the Commission’s recommendedEquitableTransitionsStrategy,includedigitalinclusionasakeyobjective.

click for contents


• We recommend the implementation of open standards for future smart home technology andproducts–thiscanavoidtheriskoftech lock in and support the longevity of investment choices made by customers. We see an opportunity for this to be incorporatedintoMBIE’sBuildingfor ClimateChangeworkstream.

• We recommend that public housing procurementdecisionsalignwithpassive,smart,futurehousingstockincludingefficientjoineryfornewbuilds.Havingenoughoftherightcomponentsreadyforaffordable,future-readyhomesiscritical.Thegreatestgainsforfutureenergyefficiencycanbemadeatthepoint of construction.

•Inadditiontotargetingenergyefficiencyweconsiderincentivesforsmartandpassivehome solutions.

click for contents

Leverstoexpandthe market for newrenewablegeneration and broaden competitive pressure


4.1 There is an opportunity to meet growing electricity demand through levelling the playing field for independent, distributed generation and greater EDB participation in solar and micro-grids, and through a review of current market dominance and behaviour

TheimpactofTiwaiforbothNewZealand’sdomesticpathwayandglobalemissions–including imported emissions

TheCommissionhasfoundthatweneedtoincreaseannualelectricitygenerationby20%by2035tomeetfutureenergydemand.ThisisincludingtheassumptionthatTiwaiexitsfullyby2026.

AsnotedbytheCommission,industryneedscertainty to make the investment in generation tomeetfuturedemand.ThecontinueduncertaintyaroundtheexitofTiwai–whichthe business has continually used as part of apoliticalnegotiationstrategy–hasdeferredthisnecessaryinvestment.WeagreewiththeCommission that:

“electricity generation companies may not commit to this expansion in capacity while there is uncertainty around the future of the New Zealand Aluminium Smelter at Tiwai Point”. – the Climate Change Commission

WithTiwaicurrentlyconsumingaround13percentofNewZealand’stotalelectricity,thetimingofthisexitwillbematerial.Aswellas

makingNewZealand’srenewableelectricitygenerationavailableforwiderNewZealand,supportingaffordableelectrificationandourpathwaytonetzero,thisexitwouldensurethatinfrastructurewhichhasbeenfundedsignificantlybytax-payers,deliversvaluetothem–ratherthananoverseasownedaluminium smelter.

AshasbeenrecognisedbytheCommissioninitsdraftadvice,andinparticularinthe commentary around the Nationally DeterminedContributions(NDCs)itiskeythatNewZealandmakesafaircontributiontoemissionsreductionsglobally.Partofthisisapproachisconsideringemissionswhichareproducedthroughglobalsupplychains,andtheimpactthatourdecisionswouldhaveonthese emissions.

WhilstTiwaidoesnotdiscloseitsemissionsfromshippingcurrently,importingprimarymaterialstoproducealuminiuminNewZealandandexportingtheproducttoglobalmarkets,wouldproducesignificantemissions.Takingawiderviewofglobalemissionsandscopetwoandthreeemissions,ifTiwaiwerelocatedinadifferenteconomywhichwasclosertomarketsandprimarymaterials,theseemissionswouldbelargelyavoided.JustasNewZealandoughtnottoexportemissions,wealsoshouldnotimportthem–particularlywhenwearespendingtax-payerand/orelectricity consumer funded subsidies to do so

(ashasbeenthecasewithTiwai’scontinuedsubsidisation).

AshasbeenhighlightedrecentlybyClimateChangeMinister,JamesShaw,NewZealandneeds to consider measures to police carbon inimports,and,whethersuchmeasuresaretobeincludedinareviewoffreeallocations(‘industrialallocations’)undertheEmissionsTradingScheme(ETS).TheEuropeanParliamenthasrecentlysupportedaproposaltotaximportsfromcountrieswithlowercarboncoststhanintheEU–applyingtoimportsof energy and energy intensive products including steel. We support the Commission’s recommendationfora‘firstprinciples’reviewofthe free allocation of emission credits to energy intensivebusinessesinNewZealand–andholdthatfuturedecisionsaroundTiwaineedtoconsidertheimpactofthebusinessonNewZealand’simportedemissions.

Leveragenew,distributedgenerationtomeetfuture demand

MeetingthefuturedemandincludedintheCommission’spathwaywillrequireustobringarangeofnewsourcesofgenerationtomarket–includingdistributedgeneration.Thevalueofdistributedsolutionstoincreaserenewablesisdemonstratedbythe‘renewablesrevolution’experiencedbytheUK–wherebyin2019over14%ofUKrenewablegenerationwasfromsmallscalegenerationsystems–acrossoveronemillion different systems.

click for contents


Bothnewsolarandwindgenerationwillhavea key role to play to meet future electricity demand,achievingtheCommission’srecommended target to increase our reliance onrenewableenergy.However,withintheCommission’smoreambitious“FurtherBehaviour”scenario,solarisonlysettoprovide3%ofourtotalprimaryenergysupplyby2050.Eveninthemostambitiousscenario–tailwinds–whichcombinesassumptionsoffurtherbehaviourandfurthertechnology,solaronlymakesup5%oftotalprimaryenergysupply(with89%oftotalprimaryenergysupplybeingrenewable).InitsassumptionsontheuptakeofrooftopsolarwithintheENZmodeltheCommissionhasassumedthat10%ofhouseholdswillhave3.5kWsolarpanelsby2040.ThisishalfthepenetrationAustraliahadexperiencedin2018.Wequestiontheassumptionssittingundertheseprojections.Inparticular,weconsiderthecapitalcostsfor utility solar included in the Commission’s technicalassumptionsfortheENZmodeltobetoohighformostinstallations(theCommissionhascurrentlysetthisat$1,800akW).Solarprojectsonsuitablesitescouldbedeliveredwithlesscapitalcostthanthisassumption–withgreatercapitalcostreductionperkWoccurringforlargerscaleprojectsduetogreaterefficienciesofscale.Theassumedfixedoperations and maintenance costs assumed per kW per year also appear too high for large scale solar based on international pricing.

Vector’sView: Takenoverall,wedonotconsidertheCommission’smodellingtobereflectiveofthepaceoffallingsolarcosts.AsreportedbytheMcKinseyGlobalInstitute,thepriceofsolarPVcellperwatthasdeclinedby85percentsince2000.Aswenotefurtherundersection“Unlockingthevalueofdistributedgenerationcanaddanewcompetitivepressuretothesupplychain”ourviewisthatthefuturewholesaleenergypricesprojectedbytheCommissionoverallfailtoreflectthepotentialofdistributedsolargenerationtoaddanewcompetitivepressuretothemarket,andobserved falling cost curves.

WenotethatintheNewZealandcontext,solar has less consenting barriers as compared withotherrenewablegenerationprojects,inparticularwindprojects–whichcantake6-12monthstoconsent.TheRMAreformmayexacerbatethesebarrierstowindgeneration.Thisisduetoanticipatedconflictsbetweenbiophysicallimits,environmentaloutcomesandlandscapeeffects.Ourpathwayforthefuturewillofcoursebeshapedbyinterventionsthatwemaketoday,,andwerecommendthattheRMAreformsmakeiteasiertoadvanceallrenewableenergyprojects–includingwindprojects,asacontributortoourfuturerenewableenergy.NewZealandisoneoffewdevelopedjurisdictionswithoutsubsidiesforsolar,andthereisanopportunitytogainvaluefor our energy systems through larger scale

commercialandindustrialsolar.Thisisalsoanopportunity to help electrify large industrial users.Forexample,the1MWfloatingsolararraydeliveredbyVectorPowersmartforWatercarewilloffsetabout25%ofthewatertreatmentplant’selectricityuse,generatingenoughpowerfor about 200 average households for a year and reducecarbonemissionsby145tonneseachyear.

VectorPowerSmart1MWSolarArray-deliveredfor

WaterCareatRosedaletreatmentplant,2020

ThepotentialvalueofsolarforNewZealandisreal,nowWealsonoteaviewthatmanyNewZealandroofsdonotfacetherightwayforeffectiverooftop solar generation. We disagree and findthestatementbewildering.Mostroofsarefacinginadirectionthatwouldallowthemtocapturethesun,andyoucantiltthemountsofsolarpanelstoimprovethis.ResearchpublishedbytheUniversityofAucklandhasdemonstratedthewidespreadpotentialofresidentialsolarPVacrossAuckland.ThisworkintegratedLiDAR

click for contents


ResearchundertakenbyDrRichardMeadeintothepotentialroleofcustomer-ownednetworkbusinessestofacilitateandacceleratetheuptakeofdistributedrenewableresources(DER)includingtheuptakeofsolarPVandtheuptakeofEVshasfoundthatcommunityownednetworks,beingdrivenbymotivationswiderthanprofitmaximisation,mayhavearole to play both accelerating the uptake of distributedrenewablegenerationandensuringthat it delivers the most value to communities through its integration. “Because of their focus being broader than that of other types offirms,thismeanstheyoftencan justify providing services earlier,athigherquality,oratall,whenprofit-focusedprovidersfinditunprofitabletodoso…These considerations point to customer-ownedEDBshavingakey role to play in accelerating the uptake of distributed renewables and other DERs. They also point tocustomer-ownedEDBshavinga role to play in accelerating the uptakeofCommunityrenewablesschemes – as a means of ensuring thebenefitsofDERsareenjoyedby

allcustomers,notjustthoseabletoaffordthem,whilealsominimisingadverse DER impacts.” – Dr Richard Meade

Thisreport–the“RoleofCustomer-OwnedEDBsinAcceleratingDistributedRenewablesUptake–ImplicationsforPolicyandRegulation”(Annex2)buildsonpreviousworkundertakenbyDrMeadetounderstandtheimpactofcustomerownershipmodelsonutilities’performance,comparingthequalityandefficiencyofelectricityservicesdeliveredbybothcustomerownedandinvestorownedutilities.Thisearlierwork:

*Exploredtheimplicationsofdifferentownershipmodelsofregulatedmonopoliesforoptimalprice-qualityregulation,findingthatcustomerownedmonopolieshavedifferentmotivationstoinvestorownedmonopolies–valuingboththeconsumersurplusaswellasprofits–andthatthisshouldbetakenintoaccount for monopoly regulation; and

*Appliedthesefindingstotheelectricitydistributionbusinesses(EDBs)inNewZealand,findingthatcustomerownershipofmonopoliesisassociatedwithlowerpricesandcosts,aswellasgreaterquality(thesefindingsreflectthoseofsimilarresearchundertakenintheUS)thaninvestororgovernmentownership.

dataonAucklandrooftopstodevelopadigitalsurfacemodelofthecity,includingtopography,buildingsandtreestoreflectthepotentialof solar driven by physical characteristics of customer’shouses.Withinthismodel,asolarradiation tool has been used to calculate the annualsolarradiationoneachsquaremeterofroofarea.Theresultsshowthatifhalfofallresidentialrooftopsinstalleda3kWsolarPVpaneltheycouldsupply1000GWhtothelocalAucklandcommunityperannum(totalannualconsumptionfortheAucklandregionisabout8000GWh).WeareworkingwiththeUniversityofAucklandtodevelopthisresearchfurther.

Thisvaluepropositionisevenstrongerforlargerscaleprojects–likecommercialorindustrialprojects–wherethereislessduplicationofinfrastructure and greater economies of scale. Vectorisundertakingworktofurtherassessthevalue of commercial and industrial solarprojects.

AshasbeenshownbythefloatingsolararraydeliveredforWatercarebyPowersmart,solarprojectsalsodonotalwaysneedavailableroofspace,norland.

Vector’sView:TheCommissionhasrecognisedthevaluethatcustomer and community generators can add in increasingoursupplyoflowemissionsgeneration–thereisanopportunitytoleverageEDBsascommunity-ownedentitiestobothdrivetheuptakeofsolarandtooptimisethenetwork.

click for contents


Customerand/orcommunityownedentitieshaveincreasinglybeguntoleadtheownershipandoperationofrenewableenergysystemsthrough local community and customer cooperativesolarprojectsglobally.Suchentities,havinginterestsinlocalenergysystemswhichgobeyondthefinancialprofitswhichtheycangenerate–suchaslocalcommunityresilience,energyefficiencyandlowemissionsenergy–maybedriventoinvestinrenewableenergysystemsbeforeapurelyprofitmotivatedentityinthemarketwoulddoso.Byaligningthiswiderrangeofincentives,community-leddistributed generation could have an important role to play in accelerating greater investment inrenewables.Similarly,theinterestsofnetworkbusinesses–particularlythosewhicharemajorityownedbylocalcommunities–go

beyondafinancialprofitorthesaleofelectricityasacommodity.Rathertheseinterestsincludelocalresilience,(bothareductioninoutagefrequencyandduration,andareductioninthenumberofcustomersimpactedbyoutages);energyefficiencyandsystemoptimisationandthereliableandefficientaccesstoenergyforremotecommunities.Bytakingaccountof

thesewiderbenefitsthatdistributedrenewablegenerationcanadd,thismakeslocalnetworkswellplacedtoacceleratetheuptakeofdistributedrenewablegenerationbyinvestingdirectlyinthesesolutions.Enablingnetworksto include such solutions in their regulated assetbases–includingsmartEVchargingandLEDlightbulbs–isanopportunitytoleverage

these incentives to deliver for customers and tooptimisethenetwork,andtosupporttheuptake of these enabling technologies.

Gainingthemostvaluefromsolarbatterysystemsrequirestheirsmartintegrationwiththenetwork,therightcapability,andconnectionswithlocalcommunities

In order to get the most value from distributed solar–includingsystemstability,distributiondeferral,andmaximisingtheuseoflowemissionsenergysources–youneedmorethanjustasolarinstallation.Youneedvisibilityandcoordination of the system that they are being integratedinto;anunderstandingofnetworkrequirementsandnetworkmanagementcapability;and,connectionswiththelocalcommunity–toaligncustomerneedswiththeirwiderinfrastructuresystem.Localnetworkshavethecharacteristicstomeet theserequirements.

click for contents


case studyVectorPowersmart,LaminexNZFactory

In2020VectorPowersmartcompletedthe2,700squaremetersolarpanelsystemfortheLaminexNewZealandFactoryinpartnershipwiththefactory’slandlord,UdyInvestments.

ThesolarsystemhasreducedCo2emissionsby35tonnesbetweenNovember2020andlateFebruarythis year and is set to generate enough power for 90 average homes per year. In December and January lastyearthesolarpanelsexported26and29MWhtothegridrespectively.LaminexNewZealand,whichmanufacturessurfacesusedforkitchensandotherinteriordesignprojects,hasinstalledthesolarpanels alongside a number of measures to reduce energy consumption – including the use of LED lights initswarehousesaswellaslightandmovementsenses.Theseenergyefficiencymeasuresalonehavereducedthefactory’spowerbillsby20percent,demonstratingthevalueofintegratinginterventionstoreduceconsumptionaswellasremotegeneration,toreduceindustrialemissions–whileincreasingNewZealand’srelianceonrenewablegeneration.Vector Powersmart Solution –

LaminexNZFactory,Hamilton


4.2 Lifting the archaic cap on regulated network involvement with connected renewable generation is an opportunity to increase renewable generation, strengthen network optimisation and contribute a new competitive pressure to the wholesale market

Thereisanopportunitytounlocklocalnetworkinvolvementwithconnectedrenewablegenerationtoenablenetworkstoinvestinconnectedrenewablesolutionstooffsetcommunities’demand,optimisingthenetwork,withscopeforanysurplusgenerationtobesolddirectlyintothewholesalemarket,addinganewcompetitivepressure.

CurrentlimitationsonnetworkownershipofconnectedgenerationrestrictEDBs’assetmanagementoptions.Thisisnotaproblem-in-principleonly.ThereareEDBsinNewZealandwhichhavealreadyexceededthecaponconnectedgenerationprovidedforunderPart3oftheElectricityIndustryAct-limitingboththeir capacity to leverage connected generation fornetworkmanagementpurposes,aswellasendofnetworksolutions,ormicro-grids,whichcanstandinplaceoftraditionalpolesandwiressolutionswherethereplacementof these traditional assets at their end of life is not economical. Whilst designed to protect emergingmarketsfromcompetitionrisks,currentlimitationsonnetworkownershipof

connected non-residential generation restrict EDBs’assetmanagementoptions.Ifextendedintofutureregulation,thiswouldcreateabiastowardsinvestmentintraditionalpolesandwiressolutionsevenwhenthesemaynotbethemostefficientoralignedwithcustomerneedsortherequirementsofadecarbonisedenergyfuture.Thecostoftheseinvestmentdecisionswouldlastfordecades.Conversely,partnering these distributed generation assets withdigitallyenableddemandsidesolutions,isanopportunitytooptimisethenetworkandincreaserenewablegeneration.

Thereisaneedforholisticanalysistounlockthevalueofthesesolutions–ratherthanaperpetuationoftheexisting,broken,supplysidemodel.Forexample,remotebuildtransmissionincreasescosttocustomers–includingfromtransmissionlosses–andforgoestheresiliencebenefitsthatcouldbegainedthroughdecentralised micro-grids.

Asisexplainedfurtherunderthesection“Unlockingthevalueofdistributedgenerationcanaddanimportant,neededandnewcompetitivepressureintothesupplychain”,increasingtheuptakeofrenewablegeneration–includingbywayofnetworkownedsolar–wouldcontributenewsupplyintothewholesalemarket,strengtheningratherthanhinderingcompetition.TheseparateyetexistingcapontheamountthatnetworkscanretailwouldrestrictEDBsentranceintotheretailmarket.

ThismodelwouldnotpositionEDBsascompetitorswithsolarretailers–butratheritwouldallownetworkstoaddanewcompetitivepressuretothewholesalemarket.

ThereportEconomicsofUtility-ScaleSolarinAotearoaNewZealand,commissionedbyMBIEtoidentifyandassessdriverswhichcontributetotheuptakeof1-200MWsolarinordertoforecastitsuptaketo2060.Ashighlightedbythereport–“Giventhelargenumber of forecasted distribution connected solarsitesintheFarNorthitiscuriouswhythere are no forecast transmission connected solarsystemsintheFarNorth.ThisisbecausetheGXPintheFarNorthhaslimitedimportcapacity.Therefore,themodelattemptsto‘build’atransmissionlinetothesouthwhichbecomesprohibitivelyexpensive.”Asthisfindingshows,thereisaclearvaluepropositionfornetwork-connectedandscaledsolarinoursolarlandscapewhichmaynotexistforothermarketactors.Insuchcases,allowingnetworkstoinvestinandleverageconnectednon-residentialrenewablegenerationisnotdisplacing alternative activity in the market –itisleveraginganetworkbusinesscasetosupportaninvestmentwhichwouldnothaveoccurredotherwise.

AsnotedbytheEPRPanel“stakeholderssaythere is potential for distributors to cross-subsidise any competitive businesses from the monopolynetworkbusinesses.Suchactivity

click for contents


coulddisguiseamonopoly’strueprofitabilityandgiveanunfairadvantage.Theycitesomedistributors’recentinvestmentsinnewtechnology such as electric vehicle chargers andbatteries–butweareunawareofanyprovencrosssubsidisation”.Thisisunsurprisingas cross-subsidisation is prevented by cost allocationrulesunderPart4oftheCommerceAct,supportedbydisclosureobligationsandinformationgatheringpowers–which maketheinvestmentdecisionsofEDSs highly transparent.

AsisdiscussedfurtherunderChapter“Dynamicoptimisationforaffordableelectrification”NewZealandisonthecuspoftheacceleratedelectrificationoftransportandprocessheat,andnetworksneedtobeleveragingsmartsolutionstoenablenetworkoptimisationandaffordableelectrification.

Afurtheradvantageofintegratingmicro-grids,ordecentralisednetworkdesign,isincreasedresilience and a reduction in the number of customers impacted during planned outages. ThiscanbeseeninCalifornia,wherewildfirerisksforcepowercompaniestode-energisepowerlinesinextremeconditionstoreducetheriskofafire.InpartsofNorthernCaliforniawithatraditionalcentralisednetworkdesign,allcustomersdownstreamofadistributionlinehavetheirpowershutoffeventhoughextremeweathermayonlybeforecastedto

4.3 Our future energy systems should align the objective of strengthening resilience in the context of a changing climate as well as meeting future demand

We support the Commission’s inclusion of Principle6:IncreaseresiliencetoClimateImpacts–toguidetheiradviceandtransitiontoathriving,climateresilientandlowemissionsAotearoa.Wealsosupportthefocusonleveragingco-benefitsforcustomersthroughourtransition.Byleveragingdistributedsolutionswecanhelptoensuresecurityofsupply and support community resilience.

Thisisevenmorecriticalinthecontextofourincreasedrelianceonelectricityfortransport,heatingandindustrialprocesses.Reducingthediversityoffuelsourcesthatwerelyonthroughour energy system needs to be carefully consideredinthecontextofourgastransition(thevalueofintegratingarangeofalternativelowemissionsfuelsisincludedinChapter“Gastransitionchallenges”),aswellastheneedtoensurethatweareintegratingarangeofdistributed solutions through our electricity infrastructure(including,forinstancethrough

theNZBatteryProject),andbyaligningregulationandincentivestowardsinvestmentinmoredecentralisednetworkdesign.

“The actions Aotearoa takes to reduce emissions should avoid increasing the country’s overall exposure to climate risks such as drought, flooding, forest fires and storms. Where possible, actions should increase the country’s resilience to the impacts of climate change that are already being experienced and that will increase in the future.” – the Climate Change Commission.

Weagree–andnotethatthereisanopportunity to both strengthen our emissions reductionpathwayandadaptationpathwaythrough distributed energy system design. Resilienceofourenergysystemsisparticularlycritical given the convergence of the electricity andtransportsectorswhichwillincreaseour reliance on electricity. In its analysis and recommendations there is an opportunity for the Commission to further consider the role of distributed energy systems and micro-grids to supportourtransitiontoalowemissionsfuture,andtheroleforEDBstoincreasedistributedrenewablegeneration.Asmentionedabove,greater reliance on decentralised energy systemscangaintransmissionefficienciesaswell–avoidingtransmissionlossesorremotebuildtransmission–whichlatermayresultintheremovaloftransmissionlines.Thereisanopportunity to avoid these unnecessary capital costs through decentralisation.

impactapartoftheregion.Conversely,inSouthernCalifornia,wheremicro-gridshavebeenstrategicallydeployedsince2013,theutilitiesareabletoselectivelyshutoffpowertosmaller portions of the grid based on localised weatherforecastsresultinginfarlesscustomersexperiencingoutages.

click for contents


Network adaptation

VectorcommissionedEYin2017tomodelthe physical effects of climate change on its electricitynetwork.Thereport,“ThePhysicalRisksfromClimateChange”,concludedthattheAucklandelectricitynetworkwill,fromaclimatemodellingperspective,experiencemorefrequentandsustainedhighwindeventsinthefuture.Ouranalysisshowsthatifunmitigatedthiswillhaveasignificantimpacton,amongstothers,windrelatedoutagesonthenetwork.

Inadditiontohighwindevents,theEYstudyfoundagrowingimpactoflonger,driersummersandmorefrequentoccurrences offloodingandinundationmustalso be managed.

VectorhasexperiencedseverestormsinrecentyearsthatresultedinextensivedamagetotheAucklandnetworkandsignificantdisruptiontoourcustomers.Vectoralsomanagesotherclimaterelatedrisksincludingbushfireriskduringsustainedperiodsofdryweatherandtheriskofassetfloodingduetoinundationfollowingstormsurgesandhightides.

click for contents

InresponsetothesechallengesVectorhasadoptedtheInternationalEnergyAgency’s(IEA)climateresilienceframeworkwhichincludesafocusonrobustnessofthenetworktowithstandgradualchangesinclimate,resourcefulnessinhowresourcesaremanagedduringadisruption,aswellasafastrecoveryandrestorationwhenincidentsdooccur.

KawakawaBayCommunityMicro-grid

VectorhasinstalledAuckland’sfirstcommunitymicro-gridinKawakawaBay.Poweredbya1MWbatterythemicro-gridisdesignedtobeswitchedonremotelytoprovidebackuppowertotheareaincaseofanoutage.Powerisdischarged from the battery for the community untilpowerisrestored,minimisingoutageexposure.ThelengthofthefeederlinewhichconnectsKawakawatothemainnetwork,alongwiththerouteandgeographyofthearea,meansthattherehashistoricallybeenanincreased risk of damage from trees or other impactsduringstorms.Togetherwithotherimprovementsincludinganadditionalpowersupplyroute,theprojectisdesignedtoresultinimproved resilience.

Resilienceofourenergysystemsinthecontextof a changing climate need to be front and centre.Thisrequiresgreaterdecentralisation,aswellasthesmartdigitalmanagementofnewDER–toavoidsystemreliabilityissuesandpowerqualityissues.ThisisdiscussedfurtherinChapter“Dynamicoptimisationforaffordableelectrification”,section“Efficientintegrationofnewdistributedgeneration”.

Localisation and Resilience

OurAsiaPacificneighbourshavebeenleadingthewaybydrivingresilienceandenergyaccessfor remote communities through localisation. WenoteworkbeingledbyJapanandAustraliaaspartofAPECtodriveresiliencethroughthelocalisation of energy systems as discussed at a recent public private dialogue on a proposed frameworktoincreaseinvestmentinrenewableenergy in the region.

Resilienceofourenergysystemshastraditionally been considered in terms of securityofsupply.However,thereisanopportunity to drive greater resilience by turning our focus to the demand side of our energy systems through localisation.

ThereisalsoaneedforneedforacollectivesolutionbetweenGovernmentandindustryonhowtomanagenewriskfromclimatechange.Thisisinrecognitionofthefactthatsolarindustryparticipantsaroundtheworldare increasingly driven to self-insure in the contextofclimateadaptationrisk,creatinganadditional barrier to investment in resilience-enhancingrenewablesystems.


EmissionsperkWhoverhalfhourlytradingperiods,bymonth–NorthIsland

4.4 An urgent spotlight needs to be placed on the potential for solar to displace carbon-intensive generation over New Zealand summer months and enhance existing hydro storage capacity

WestronglysupporttheNZBatteryprojectand its consideration of the pumped storage schemeatLakeOnslowtoovercomethedryyearproblem.Aswellashelpovercomethedryyearrisk,storagesolutionsareanopportunitytoincreaseourrelianceonrenewableswhilstmitigatingelectricitycustomers’exposuretowholesalemarketvariationandintermittency.ThereisanopportunityfortheNZBatteryprojecttoconsiderarangeofmulti-sitestorage/batterysolutions–includingdistributedsolutions–toincreaseourabilitytorelyonrenewableswhilepreservingsecurityofsupplyforNZcommunities.

Thepotentialforsolartoreducerelianceon gas or other peaking sources is often underestimatedgiventhatsolarPVgenerateslessoutputduringwinterpeaks.However,takingabroadersystems-view,usingsolarwhenthesunisshiningreducestheneedtousehydrogenerationstorage,keepingreservoirsfullfortimeswhenitisneeded.

Thedryyearproblemisbothachallengeofmeeting demand peaks and of ensuring there issufficientenergypotentialinhydrodams.Addingnewsolargenerationwouldenable


Whilst emissions are more intense during the winterpeaks,theyare,inmanycasesalmostasintenseduringthesummermonths(darkblueandred).IntheNorthIslandthisisbecausehydrogenerationiswinterrainfalldriven(ratherthansnowmelt).Asaresult,thehighestrisktime for the availability of hydro generation is earlysummertoAutumnwhenwemovefromlowdemandtohighwinterdemand.Duringthisdryperiodiftherearelowinflows/storage,theenergydeficiteffectthatcanonlybemitigated by running thermal generation early to make up the energy during the summer to autumnperiod.However,andrathercrucially,thiscoincideswiththepeakinsolargenerationcapacity in the North Island.

4.5 Unleash the value of demand response to meet future electricity demand affordably

hydro generators to better optimise the timing of energy production.

Whilereceivingverylittlefocustodate,gasandcoalpeakingisusedextensivelyinNewZealandduringwarmermonths,withrecentmediareportshighlightingthatNewZealand’suse of coal is currently the highest it has been foradecade.ThegraphbelowshowstheNorthIslandcarbonemissionswhicharegeneratedper kWh hour consumed at each half hourly tradingperiodduringtheday(downtheyaxis)bymonth–thexaxis.

WesupporttheCommission’s‘TimecriticalnecessaryAction3’totarget60%renewableenergyby2035.Inmeetingfuturedemand,supplyofenergyhasbeenthepriorityand,whilethereisaneedforinvestmentinthesupplyside,wemustintroducethecompetitivetension of customer actions and assets into themarketandprovidethemwithalevelplayingfield.Despitethebenefitsofunlockingdemandandflexibility,thereisuncertainty,misunderstandingandlackofconfidenceinthe ability of demand actions and assets to play an important role.However,thereisanopportunitytoleveragedemand response to meet the Commission’s 60%renewablestarget.Thatis,byreducingdemandthroughsmartsolutionswecanreducetheneedtorelyonnon-renewableenergyfromthesupplyside.TheCommissionhasdemonstratedastrategicawarenessof the value of demand side management in its recommended approach to reduce emissionsfromtransport–whichincludesa focus on reducing mileage overall in the recommendationto“Enhancenationaltransportnetworkintegrationtoincreasewalking,cycling,lowemissionspublicandsharedtransport,andencouragelesstravelbyprivatecar”.Justasreducingkilometrestravelled is an opportunity to reduce our emissionsfromtransport,sotoocandemand

side levers be deployed through our energy systemstomeetourrenewableenergytargets.

Fortoolongwehavebeenlookingatthesystem from one end of the supply chain rather than recognising that physics tells us thatdemandisofequalimportancetosupply.Fear of unlocking the value of demand-side actions,andofthereliabilityofdemandactionsismisplaced.Thesystemalreadyhastopredictandmanagetheweather,whichisalotmoreunpredictable than customers.

Aswetransitiontogreaterrelianceonmoreintermittent,renewablesourcesofgeneration,managing demand peaks can reduce the needtousegasandcoalpeaking.Thiswillbeparticularlyvaluableintheshortterm–forexample,withinthefirstthreeemissionsbudgets–aswemanageuncertaintyaroundfutureelectricitydemanddrivenbyEVuptakeandourtransitionawayfromgas.Oursystem’scurrentresponsetovariationinweatherandits approach to managing the dry year risk is to try and change customers’ behaviours through thecrudedeploymentofpriceincreases(which,asnotedbelow,sometimesoccurevenwhenhydrodamsareatnormallevels).Whilethesectorhascomealongway,thecurrentsystemdesignisstillprimarilyshapedaround“Whatcanyoudoforus”ratherthan“Whatdoyouneedfromus”.Ratherthanseekingtochangebehaviourswhicharemorepredictablethanthesun,digitallyenableddemandresponsecan

click for contents


unlocknewvalueandrewardcustomerswhilstovercoming system risks. Demand response can move from large aggregator systems to newplatformsthatenablebothlargeandindividualresponseswithminimalcustomerintervention–thatis,demandresponsecandeliverbenefitswithoutcustomershavingtotakeregularactions.Bylookingacrossthesupplychain–ratherthanjustfocusingonsupply–wecanmanagesystemrisksandachievesystemobjectivesinamorecustomer-centric,sophisticated,andefficientway.

Byreducingtheneedfornon-renewablegeneration,and,byflatteningpeakdemand,helpingtoovercomevariationandintermittency at the supply side of our energy market,demandresponsecanenableustotransitiontogreaterrenewablesandmeetfuture demand. Demand response can add more value in overcoming variation in supply whenitisdeployedatalocallevel–inparticular,whendeployedinpartnershipwithdistributedgenerationwhichisresponsivetolocalgenerationcapacity.Granular,fine-grained,demand response can also support customer centric energy systems as described above in Chapter“Futureenergysystemsneedtobedesignedfor–andstartwith–thecustomer”.

In its analysis the Commission has recognised the role for demand response in minimising negative impacts of its proposed changes in thecontextofelectricitybillsandwesupporttherecommendationto“Monitorandreviewto ensure electricity remains affordable and accessible,andmeasuresareinplacetokeepsystemcostsdown,suchasdemandresponsemanagement”.

However,weconsiderthatdemandresponsecan play a greater role in meeting future demandaffordablythanwhathasbeenincluded in the Commission’s analysis. We note that the Commission has been openly conservative in the technology that it has integratedintoitspathway.Weunderstandwhythisis,butaswehavenotedpreviously,ourfuturewillbedeterminedbythechoicesthatwemaketoday.Thereisanopportunityto further drive demand response through the Commission’spathway,anditiscriticalthatwemoveawayfromconservativerulesand regulationwhichcanstiflenewmarketsandelevate costs.

click for contents


4.7 Rapidly expanding the market for renewable generation to support the Commission’s pathway will require market reform in the electricity generation market

We support the Commission’s recommendation to:

“introduce measures, such as a disclosure regime, to reduce wholesale electricity market uncertainty over Emission’s budgets 1 and 2 and to encourage investment in new renewable generation”. – the Climate Change Commission

TheEAhasstatedthat:

“Confidence in the industry may be undermined if dominant vertically integrated generator retailers subsidise the cost of electricity to their retail arm, thereby limiting competition and increasing their own profitability”. – The Electricity Authority

ThiswasfurthertoconcernsraisedduringtheElectricityPriceReview(EPR)thatgentailersmaybestiflingretailcompetitionbyadvantagingtheirownretailingarmsviapreferential pricing of electricity and/or cross-subsidisation.

Thesectorismovingfromafewplayerstothepotentialof5millionassetsandactionsandthevaluewillliewithmultipleactors,acrossblended products and services creating a patchworkofactions.Smartdemandresponseplatforms can enable this participation our current market and system to change fundamentally.Thisisavaluethatcanbeaddedbyshiftingfromacentralised,commoditybasedmarket,toaservicebasedmodel–anditrequiresustore-engineeroursystemarounddemand,ratherthansupply.Fundamentally,energyinitscentralisedformhasalwaysstartedfromthewrongendofthe“pipe”,startingwithsecurityofsupplyratherthansizingthesystemaround optimising and making demand most efficient.

4.6 Unlocking the value of distributed generation can add an important, needed and new competitive pressure into the supply chain

Initsmodellingpath,theCommissionhasforecastfuturewholesaleenergypricestobeaminimumof$81by2035.ThispathwayincludestheassumptionthatwhenTiwaiexits,therewillbeasurplusofelectricityinthemarketcontributingtolowerpricesandaccelerateelectrificationevenfurther.Asdemandincreasesintothefuture,thispricepicksbackup(withtheupperpointofthisthresholdbeingthemid-pointoftoday’sprices),accordingtothe Commission’s analysis.

However,wenotethatinAustralia,where23%ofhouseholdshavesolarbatterysystems,thepricecanbemuchlower–reachingaminimumof$35MWhinSouthAustraliainlastyear’s finalquarter.

Distributedsolarsystemscanaddanewcompetitivepressuretothemarket,reducingprices.Thisisrecognisedinthereport“EconomicsofUtilityScaleSolarinAotearoaNewZealand”,commissionedbyMBIEfromAllanMillerConsultingLimited,whichassumesthatthelarge-scaleuptakeofsolarwouldreducewholesaleelectricitypricesmarkedly.We believe that solar could be material in reducing electricity prices for customers.

Enablinggreaterinvolvementfromawiderrangeofparticipants–andremovingbarrierstothetradeofthisenergythroughthenetwork(suchasforexample,thecurrentrestrictionofoneretailerperICP)–cancontributetolowerpricesbyaddinganewcompetitivepressuretothesupplychainthroughanewdemand-sidesourceofrenewablegeneration.reatingthepathwaytoallowmultipletradersonasingleICPcanacceleratethedeploymentofdemandresponseandDERinNewZealand.Aswellasopeningupmarketsforawiderrangeofparticipants(asisdescribedinChapter“Futureenergysystemsneedtobedesignedfor–andstartwith–thecustomer”),allowingmultitraderrelationshipswouldprovideEDBswithmoreawarenessandoptionalityattheedges

oftheirnetworkstomeetthegrowingdemandfromelectrificationwiththeuseofdemandsidemanagement,whichwouldbringmorecompetitionbetweendemandandsupplyinthe electricity markets.

click for contents


pathwayrequiresaredesignratherthanarationalisationofourexistingmarketstructure.Ourviewisthatconfidenceinthemarketisunderminedcurrently–andthereisaneedformorecrediblemarketmonitoringaswouldbecharacteristic of a mature market.

Theimportanceofindependentrenewablegeneratorsandinnovative,disruptiveserviceofferings to better support affordable electrificationfurtherunderscoretheneedtoremove many of the barriers arising from the Bradfordreformstoensuregreatermarketcompetition and innovation.

We note recent public comments that a number of key electricity consumers have lost faithinourwholesalemarket:

Thisriskisveryreal,evidencedbythefactthatinthemarket’s21-yearlifewehavenonewretailerofscale,noranymaterialindependentgeneration.Meanwhilejustfivegentailersmaintain90%ofthemarket.TheEPRrecommendedarangeofmeasurestoincreaseconfidence,certaintyandtransparencyinthewholesalemarket,andwesupport their continued implementation. Whilst thesearestepsintherightdirection,meetingthe level of ambition set out by the Commission’s

“MEUG is concerned the current high level of spot prices and expected prices through to the third quarter of this year that are flowing through to hedges could drive some small retailers, SMEs, commercial and industrial consumers, through to larger grid-connected consumers out of business. .. the survival of some consumers is on the line right now – they may not be around in 2023 to 2025 to see lower spot prices.” – John Harbord, MEUG Chair

TherecentUTSrevealedalargegeneratorspillingwaterathydrodamswhilstcoalwasbeingburntatHuntlywiththeobviouseffectofelevatingwholesaleelectricitypricesandcostingcustomersanestimated$80millionoveratwo-weekperiodandindirectlycausing6000tonsofcarbonemissions,accordingtotheEA.Thisisaveryclearsignthatthemarketis not functioning effectively in the interests of decarbonisation or affordability.

WesupporttheEAininvestigatingandresponding to this undesirable trading situationandmarketconduct.However,thissignalsaneedforsignificantchangeinourelectricitymarkettostrengthentransparency,accountability,competitionandgrowthtoreachnetzero.Thisisparticularlyasanti-completivebehaviourinthewholesalemarketisrecurring.Ratherthancallingadryyearrisktoraiseprices(whilstwaterstorageremainsin

normallevels)thereisaneedtolookacrossthemarket for more robust solutions to the dry year problem.

Vector’sView:

Rapidlyexpandingmarketsfornewrenewablegenerationandmaximisingtheuseofexistinggenerationrequiresarapid,andsignificantshiftinourenergymarketdesigntoallownewindependent generators to participate on an evenplayingfield.Ourcurrentmarketis biasedagainstinvestmentindecentralised,renewablegeneration.

Justasthecaponnetworkinvolvementwithconnected generation creates a bias in favour ofinvestmentsintraditionalpolesandwiressolutions,thereareaspectsofourmarket–acrossthevaluechain–whichcreateabiasinfavourofcentralised,supplysideinvestments.Ourwholesalemarketiscurrentlynotaccessibleenoughtostandalonegenerators,and regulatory restrictions on multi trader relationships(thatislimitingoneretailerperICP)effectivelylocksoutpotentialmarketsfordistributedrenewablegeneratorsandinhibitspeer-to-peertrading.Thisbiasinfavourofthecentralisedsupplyside,isattheexpenseofmoreefficientdemandsideinvestments–includingdecentralisedgeneration–whichdelivergreaterefficienciesandadditionalbenefitsofresilience.Thereisaneedforstructuralchangetoourmarkettoenablewiderinvolvementofmoreparticipants,addinganew

click for contents


Recommendations

•We recommend that the Commission further consider the role of distributed energy systems and micro-grids to support our transition to alowemissionsfuture,andthevaluableroleEDBscouldplayinincreasingdistributedrenewablegenerationwhilealsoenhancinglocal resilience.

•WerecommendthatthecaponnetworkinvolvementwithconnectedrenewablegenerationunderPart3oftheElectricityIndustryAct2010beremoved.

•We recommend that the Commission further consider the role of demand response in meetingthetargettoreach60%renewableenergyby2035.Thisincludesgranular,real-time,demandresponse.

•Werecommendregulationbealignedwiththe uptake of community and customer owneddistributedsolar–includingtosupportthepathwaytoallowmultipletradersonasingleICP(alongsidethedevelopmentofarobustregistryofDER,andtheirintegrationwithdigitalplatformsforsecuremanagementandcoordination).

•We recommend that the Commission further consider the potential of solar generation to meet future supply needs in their analysis andadvice,includinganassessmentofpolicyoptions to increase the uptake of rooftop solar

particularly for larger public and commercial and industrial buildings.

•We recommend that the Commission further consider,andreflect,thepotentialfordemandresponsetocounterbalancethenewelectricitysupplywhichisneededandtoovercomevariation in supply as a result of greater relianceonrenewablegeneration.

•We recommend that demand response platforms are proactively driven in the Commission’sadviceratherthanjusttheirprogress‘monitoredandreviewed’.

competitivepressuretothesupplychain,andultimately driving greater affordability and resilience.

Tiltinginvestmentinfavourofcleaner,smarter solutions to enable decarbonisation Staggeringly,lowcarbonprioritiesarenotembeddedinourelectricitymarketregulation,pivotinginvestmenttowardsfossilfueloutcomesandallowingthedirtiestflexibilityresponsestobehandsomelyrewardedwiththeimportantvalueofflexibilityflowingtowardfossil fuels rather than decarbonisation options andinvestment.Takingawiderviewofthemarketandsector–includingthemovementofglobalcapital–thisriskscontinuingtoskewinvestment and maintenance capital in favour offossilfuelgenerationasflexibilityatatimewhentechnologyandotherintegrated.

click for contents

Dynamic optimisation is key for affordable electrification


5.1 The Commission’s ambition to electrify transport should be supported by bold policy action

WesupporttheCommission’sNecessaryAction3(acceleratelightelectricvehicleuptake)anditspathwaytoelectrify50%ofNZ’slightvehicletraveland40%ofthelightvehiclefleetby2035,reducing almost all emissions from transport by 2050.WeconsiderthattherecommendationsmadebytheCommission–includingafocus on integrated urban design to reduce mileageandimportstandardstopreventNewZealandfrombecomingadumpinggroundforinefficient,emittingvehicles,tobepositivesteps but that there is a need for stronger policyrecommendationstodriveEVandhybriduptakewithinthenecessarytimeframes.

WeagreewiththeCommissionthat:

“It is important to address the real or perceived inequality associated with electric vehicles. Policies that support the transition to a low emissions future should operate by reducing social inequities rather than exacerbating them. Additional benefits of improved air quality and ongoing savings from the lower fuel and maintenance costs that electric vehicles provide can benefit low income households most”.

Wenotethatdynamicoptimisation–avoidingunnecessarycostsbywayofthesmartmanagementofnewdemandfromEVs–isnecessarytoachievesavingsontheotherwise

requirednetworkinfrastructurebuildcosts,whicharesharedbyallusersoftheelectricitysystem–notjustthosewhohavepurchasedEVs.Ifdemandoverallincreasesataratethatisfasterthantherateofpeakdemandgrowth,thiswillincreaseutilisation–ineffectreducingperkwhchargesbenefittingallelectricitycustomers.EnsuringourelectrifiedfutureisequitableisaboutsocialisingsavingsfromsmartDERmanagement–withoutspreadingcosts that are incurred through their installation ornetworkcharges,supportingthegoalofaffordableelectrification.

WithinNewZealand’svehiclefleettheaverageageofcarsis14yearsoldwithchurninsalesoccurringlargelywithinthedomesticsecond-handmarket.Ensuringthatcustomers‘buyup’intermsofEVsandhybridsisacriticalelementofelectrifyingthelightvehiclefleet.Thisrequiresboththatcustomersareabletomeetthehigherup-frontcapitalcostofEVsandthatthereisanadequatesupplyofEVsinNewZealand.

Transitioningourfleetisnotjustamatterofreducingtheimportofemitting,inefficientvehicles,butitisalsoaboutensuringthereareenoughEVsinNewZealand.ArobustandvariedsupplyisnecessarytoensurethatEVsarea relatively attractive option for customers.

ThisrequiresEVandhybridexporterstoseeNewZealandasagrowingandattractivemarketforEVexports.

click for contents


case studyEVsubsidiesandtaxincentivesforEVsintheEuropeanUnion

Germany

GermanyincreaseditssubsidyforEVsandhybridsby100%inJuly2020providing€9000forEVs(whichareworthupto€40,000).ThesesubsidiesarelowerformoreexpensiveEVsandforhybrids.HalfofthiscostisprovidedbytheGovernmentandhalfbycarmanufacturers,supportingGermany’sCovid-19economicstimulus.In2020applicationsforthesubsidyincreasedby250%from2019andapplicationsforhybridsubsidiesincreasedby470%.Whilstthiswasoriginallyplannedtorununtil2021,thishasrecently been extended to 2025.

TheNetherlands

IntheNetherlands,where21%ofnewlyregisteredcarswereEVslastyear,EVownerscanclaimback€4,000foranewEV,or€2000whenpurchasingsecondhandEVs.Thisisinadditiontoanexemptionfromtheone-timeregistrationtaxorannualownershiptaxesthatcarsnormallyincur,(withPHEVbuyersreceivingareductiononthese).Toincentivisetheelectrificationofcommercialvehiclefleets,therearetaxreductionsforcompanies’EVpurchasersandemployeesusingcompanybatterycaresprivatelypayreducedincometax(8%ascomparedwith22%).IntheNetherlandstheseincentivesare supported by robust public charging infrastructure where there is the highest number of public charging points for EVs per 100km in Europe. Some Local Governments offer free charging points for individualsandbusinesseswherehomeandworkplacechargingisn’tfeasible.


5.2 Managing demand driven by the EV uptake in the Commission’s pathway requires smart dynamic EV charging to avoid increasing network peaks

ElectricitynetworksareacriticalenablerofEVuptake.TheCommission’spathwayrequireslocaldistributionnetworksinparticulartobetter understand customers and to manage customerdemandtolocalisednetworkcapacityconstraints.BydynamicallystaggeringthetimesthatEVsdrawpowerfromthenetworktochargewhilstpluggedin,smartEVcharginghas an essential role to play managing load to avoidlargecapitalupgradesotherwiserequired.

EVchargingpeakswillbedrivenbycustomerbehaviourandexperiencedatalocallevel.Distributionnetworksarebestabletorespondto local demand and have a strong incentive toincreaseutilisation,ratherthantosellmorepowerasacommodityproduct.Optimisingchargingforaffordableelectrificationrequiresthe coordinated management of charging by a localsystemoperatorwithanincentivetoavoidunnecessaryupgrades.Therearequestionmarks over the regulatory regime’s current alignmentwiththisrequirement.

In the Climate Change Commission’s assessment of challenges and opportunities relatedtotheelectrificationoftransporttheCommissionacknowledgesthat:

“the coordination of EV charging times is a potential challenge for some local lines’ networks. There is the risk that people coming home and plugging in the EVs after work at the same time may lead to greater evening peak demand, putting local lines under pressure and pushing up network costs.”

TheCommissioncontinues:

“conversely pricing encouraging overnight charging could potentially improve network utilisation, reducing overall network costs and improve the economics of wind generation, as well as further reduce costs for EV owners.” – the Climate Change Commission

However,ouranalysishasfoundthatpricinginits traditional form is not likely to be an effective levertomanagedemandfromwidespreadEVadoptionbyitself.Thisisbecausepricinginitscurrentformisstatic–thatis,itimposesahighercostduringasettime–suchas6pmintheevening.Thiscanhavetheimpactofsimplyshiftingthepeaktoalatertime.OursmartEVchargertrial,describedbelow,foundthatwhilstpricingwillhavesomeimpactatlowEVpenetrationlevels(thatis–shiftingsomecustomerswithEVsawayfromthepeak)duetotheinherentlyunresponsivefeedbacksystem,tariffswillnotoptimisesystemwideadoption(thatis,byshiftingeveryoneawayfromthepeak,theycouldcreateanewone).Thisimpactofmoving,ratherthanflatteningthepeak,tendstooccurwithschedule-basedcharging

(thatis,whenacustomermanuallyscheduleschargingtorespondtopeaktimepricing).Whilsttheroleofpricingappearslimited,thecriticalityofsmart,algorithmicchargingmanagement is clear.

In general customers do not respond to complexpricingplansorincentives,ratheralgorithmic charging offers the ability to seamlessly stagger charging times betweencustomers.

Smart,algorithmicchargingrequirescustomerstohavetherightEVchargers–whicharesmart–installed.Concerningly,themajorityofparticipantsrecruitedforVector’ssmartEVchargertrialdescribedbelowwouldnothavebeenabletocarryoutsmartchargingwiththeirexistinghomecharginginfrastructure.ItiscriticalforaffordableelectrificationthatfutureEVchargerswhichareinstalledaresmart–andthat they are connected to a digital platform for smart coordination.

Weappreciatetheperceivedriskoftechlock-in,orpickingwinners,whenitcomestomeasuresto ensure the installation of a particular type oftechnology.However,thiscanbemitigatedthroughopenstandardsprotocolsandweencourage the Commission to consider procurementleverstoensurethatEVchargerimports are smart.

click for contents


ThevalueofsmartEVchargingforNewZealand’sinfrastructureisdemonstratedbythemetricofwholeenergy-systemcost(WESC)undertakenbyFrontierEconomics(mentionedaboveintheChapter“Futureenergysystemsneedtostartwith–andbedesignedfor–thecustomer”.)AccountingforthecapitalcostofresidentialsmartEVchargers,theWESChasfound that they add an illustrative net value of~$174perMWh(seetoworkedexampleopposite).

NotdissimilarfromtheWESC,BostonConsultingGroupbuiltamodelof‘genericutility’,estimatingthattheimpactofEVson utility investments and customer prices. UsingthreedifferentEVadoptionratesand three different charging optimisation schemesthroughto2030,thisanalysisfoundthatmanagedchargingdelivers$4,100USDperEVwith91%ofthesesavingsfromavoideddistributionnetworkinvestments.ThesignificantincrementalinvestmentcostsfromEVs–andthepotentialsavingsthatcanbe gained for customers from their smart managementbyanetwork–supports theirinclusionwithnetworkasset management solutions.

click for contents

WorkedExampleOfTheWesc: ResidentialSmartEVCharging

Consideraresidentialelectricvehiclewhichtravels40kmperweekday,requiring6kWhofelectricityeachtime.WeassumetheEVwouldbechargedbetweenaround17:30and19:30,usinga3.3kWconnection.Theinstallationofasmartchargercouldallowthischargingtotakeplaceovernight,whenelectricityischeapestanddemandonthenetworkislowest.Everyday,thesmartchargingreducespeak-timeenergyconsumptionby6kWh–about1.6MWhper year.

•Weassumethisrequiresasmartcontrollercostingaround$300.Thecontrollerisassumedtolastfor30years:Giventhe5%discountrateweuse,thiscorrespondsto$19.5peryear.Thetechnologyownfixedcostistherefore$19.5/1.6MWh=$12/MWh

• We assume that there are no variable costs associatedwithcarryingoutDSR.Thetechnologyownvariablecostistherefore$0/MWh.

•AstheEVwouldotherwisebechargedduringthepeak,itcanreducepeakpowerconsumptionby3.3kW.Weassumethatthisisavailablewith75%reliability(so,acrossafleetofEVs,about2.5kWofpowercanbereliedupon).Ourmodelusesacostofgenerationcapacityof$82/kW(basedonanOCGT’scostofnewentry).TheEVDSRcanthereforesave$82x2.5kW=$205ofcapacitycostsperyear.ExpressedperMWhofpeak-timeenergyavoided,

thiscapacityadequacybenefitis$271/1.6MWh=$128/MWh.

•Thecostofreinforcingthedistributionnetworkisassumedtobe$236perkW.Deferringthisreinforcementbyayear,basedonadiscountrateof5%,wouldbeworthabout$11.IftheEVwasonaportionofthenetworkthatmayotherwiserequirereinforcementitmightsave$11x2.5kW-$28,givinganetworkbenefitof$28/1.6MWh=$18/MWh.

•Byshiftingenergyfromthepeaktotheoff-peak,theDSRmeansthatmoreexpensivegeneratorscanreducetheiroutput,savingcosts.Thisdisplacedgenerationbenefitis$48perEVperyear,so$48/1.6MWh=$30/MWh.

•Finally,ifthesystemoperatorcancallontheDSRtoaddressshort-termimbalancesinpowersupplyanddemand(forexamplebrieflyinterruptingchargingifthereisinsufficientgenerationonthesystem),thiscanreducethecostsofbalancingthesystem.Theindicativevaluefothisbenefitfromourmodelis$16,so$16/1.6MWh=$10/MWh.

Therefore,inthisillustrativeexample,thebenefitstothesystemofthisdemandresponseasset–thesmartEVcharger–faroutweighsitscosts,addinganetvaluetothesystemof~$174NZDperMWh.

Furtherdetailonthismodelisincludedbelowunderthesection“Unlockthevaluebetweensilos”.

Wor

ked

exa

mp

le


VehicleChargingTechnology,amanagedEVchargingfuturecouldsavecustomers$6.1billionby2050ascomparedwithapassivechargingfuture–withEVlinkedpeakdemandbeingsixtimesgreaterunderapassive, ascomparedwithamanaged,EV charging scenario.

Vector’ssmartEVchargingtrial

Thisongoingtrial–whichincludes200smartEVsconnectedtoVector’sDERMsplatform–istounderstandboththeimpactEVadoptioncanhaveonourenergysystemsaswellascustomerbehaviourandpreferences.Thisisbecause,astheCommissionhasrecognised,customerbehaviourisattheheartofour transition.

OurinterimfindingsfromtheEVchargingtrialare:

•Chargingbehaviourisdifficulttopredict,and,byintroducinganewuncertainty,Covid-19hasmadethis harder.

•Thetimingofcustomers’chargingbehaviourwasnotstronglylinkedwithpricingincentives.

•Participantsweregenerallypooratestimatinghowfartheydrive.

Upshot:Thereisastrongneedtobeagileandresponsive to future changes in demand patterns asthelightvehiclefleetelectrifies.Algorithmiccharging–ratherthanrelyingonscheduledchargingandstaticpriceincentives–isneededtoflattenpeakdemand.

•ThemoreEVownerswhousesmartcharging,thewiderthescopefordynamicoptimisation.

•Thereismorescopeforflexibilitythanwhatweinitiallythought–particularlywhencustomersarepluggedinforalongtime.Themajorityofchargingsessions in the trial so far have been longer.

•ThegreaterthenumberofparticipantswithsmartEVchargersthelowertheafterdiversitymaximumdemand(ADMD).Upshot:Theefficiencygainsthatcouldbemadethroughthewidespreaduptake

ofsmartEVchargingissignificant.IncreasingdemandthroughEVuptake,whilstflatteningpeaksthroughdynamicoptimisation,increasesnetworkutilisationandefficiencyforallelectricitycustomers.

•Thehomemaybethenewpetrolstationwith95%of charging occurring at home.

•Participantschargedtheirvehiclesmoreathomeas the trial progressed.

•Participantsvalueconvenience–mostparticipantstended to proactively charge

theirEVsratherthanreactively(thatis,they chargedforthedayahead,ratherthanduringtheeveningafter).

Upshot:ResidentialsmartEVchargingworksforcustomers and relying more on home charging is consistentwithinternationaltrends–althoughasmentioned under the section

“Reducingemissionsthroughpublictransportandurbandesign”thebalanceofhomevspublic

chargingdependsonanumberofvariables–including the type of parking that is available withhousing.

Customersenjoymanagedcharging–morethan90%ofcustomersratedthespeedofcharging,easeofusage,andoverallsatisfactionwiththeircurrentchargingsituationaspositive,providingascorebetween8-10foreachoftheseaspectsofmanagedcharging(fromanoverallscaleof0-10–zerobeingthelowest).Participantsinthetrialalsodemonstratedanawarenessof,andresponsivenessto,thevalueofavoidingcapitalupgradecostsforallelectricity customers through managed charging.

click for contents

Ensuring the uptake of smart EV charging requires:

•SupplyofEVchargersinNewZealandto be smart

•TherightstandardstoensurethatEVchargerswhichareinstalledaredigitallyenabled.Amendmentstoregulatorysettingsareoftenrequiredtoaccommodateneworupdatedstandards–includingElectricity Code amendments.

•Alignmentofthesestandardswithbuildingcodesandwiderregulations

•Theintegrationofsmartchargerswith adigitalplatform,likeDERMs,to enable optimisation

•NetworkvisibilityofEVinstallationsandconsumption data to support coordinated managementandnetworkplanning(thisisdiscussedfurtherunder“Accesstodataisfundamentaltomanagingnewdemand fromEVs”.

ThecostofwidespreadEVchargingwhichcouldnotbemanageddigitallywouldbedramatic.AsreportedinEECA’sreportElectric


We support the Commission’s thinking in Chapter4b–whichappreciatestheneedforintegratedsystemsandpoliciestobeworkingwelltogethertoreduceemissionsfromtransport.SupportingtheaffordableuptakeofEVsrequiresustoconsidertheirsmartintegrationwithinourwiderelectricitysystems–includingthesystemwideandcustomerco-benefitswhichcanbegainedforexample,throughV2Htechnology,andtheirintegrationwithdistributedgenerationandstorage.

Thecounterfactualtothesmart,digitalmanagementofEVsandDERsistheslowdown,orhalting,ofefficientsystemwide EVadoption.

Vector’sView:

AccesstodataisfundamentaltomanagingnewdemandfromEVs

Just as digitalisation is key to the smart electrificationoftransport,sotooisaccess

todata.Networkaccesstodatawillbekeytoefficientmanagementoftransportelectrification–includingsmartmeterconsumptionandEVcharginginstallationdata–toensurevisibilityofnewdemandpatternsonthenetwork.Understandingthesenewdemandpatternsneedstostartwithcustomerbehaviours–ratherthantakingamacro-centralplanningviewofthesystem.WenoteearlyEVadoptionhasrevealedclusteredpatternsofEVuptakewithoutersuburbsinAucklandtendingtobeearlyadoptersofEVs.ThismaybebecausecustomerswhoneedtoundertakesignificantamountsoftraveltoworkintheCBDaremorelikelytorespondtowhole-of-lifesavingsofEVownership,includinggreatersavingsfromavoidedfuelcosts-ratherthanjuststickerpriceparitywhichtheCommissionhasidentifiedasakeydriverofEVuptake.

Vectorisworkingwithkeyindustrypartnerstomakeinformationrelatedtonetworkcapacitymoreaccessibletonewmarketparticipants.Whilst much of this information is already availableonVector’swebsiteweareworkingtomake it more accessible through our open data portal–includingtheprovisionofinformationsuch as the distance of potential charging locations to high voltage cables.

EnsuringthatinfrastructureisreadyforEVintegrationproactivelyiskeytodrivingthe uptake included in the Commission’s pathway.Buildingaroadmapbasedondata

andforecastsofEVuptakeisanopportunitytotargetnetworkinvestmentandcharginginfrastructure.Thisrequiresbothnetworkaccess to data and the ability to integrate dynamicmanagedsmartEVcharging.Indeveloping the charging infrastructure plan mentionedbelow,andconsideringbuildingstandards,theseshouldbekeyconsiderations–withtheneedtoensurethatfuturecharginginstallationsaresmart,atoppriority.

Reducing emissions through public transport, urban design and planning

WeagreewiththeCommissionthatlocalgovernmentisatthe‘coalface’ofourtransition–andwesupporttheCommission’sfocusonreducing emissions from transport through betterurbandesign,publictransport,andmaking alternative modes of transport moreaccessible.Principlesofurbandesignand transport integration also need to be embeddedintheRMA.

Vectoractivelyworkswithtransportproviders,developers and city planners to support the reduction of emissions from transport through smart urban design and the integration of electric charging.

click for contents


VectorandAucklandCouncilstrategicpartnership

VectorandAucklandCouncil–includingcouncil-controlledorganisations–willcontinuetoworktogethertoenabletheelectrificationof transport and to strengthen community resilienceinAuckland.Thispartnershipiskey to support future ready infrastructure fordecarbonisation.Forexample,VectorhasundertakenworkforAucklandTransport(AT)toassesstheelectricitynetworkreinforcementrequiredateachbusdepotasATprogressesplanstocompletelyelectrifytheirbusfleetby2030.VectorworkedwithATtoalsounderstandthefleet’senergyconsumption,aswellasdemandpeaks.VectorhaspartneredwithAucklandTransporttoinstallpublicEVchargersonWaihekeandislookingtoextendthisworkintothefuture.CollaborationbetweenelectricitynetworksandlocalGovernmentwillbe key to developing and delivering the

charging infrastructure plan recommended bytheCommission.Thereisaneedtorealisethepotentialofthesepartnershipsurgently–particularlytodrivetheelectrificationof public transport.

We support the Commission’s recommendation to develop a charging infrastructureplanforthe‘rapiduptakeofEVstoensuregreatercoverage,multiplepointsofaccessandrapidcharging,andtocontinueto support the practical roll out of charging infrastructure’.ThelocationofEVcharginginthefuture–includingthebalanceofhomevspubliccharging,isstilluncertain–anddesigning this plan needs to be strongly and continually informed by behavioural data and insightsabouthowcustomerswishtochargetheirEVs.Thesepreferencesmayvaryregionally,andevenwithincitiesandcommunities,andthattheyarelikelytointersectwithother urban design elements and available housing.Consequently,anationalcharginginfrastructureplanwillneedtobetoresponsiveto these variations in time and space.

Akeyelementofourfutureinfrastructureplanningwillbethenatureofexistingandfuturehousing.InAucklandarelianceonon-street parking in many urban areas may increase the need for public charging in some spaces.Akeyelementoffuturecharginginfrastructurewillbeensuringthattherearethe right building regulations to ensure smart chargingfacilitiesareincorporatedintonewbuilds. Installation of home chargers may facebarriers,particularlywithinolderhomes.CarryingoutthesmartEVchargertrialhasalsobeenrevealingofthefollowingpotentialcostscurrentlyassociatedwithinstallingchargersin

customers’ homes:

•‘Trenching’requiredtoplaceanEVchargernear the vehicle’s parking spot

•UpgradesrequiredtotheDistribution Boardand,

•OlderhomeshavingwiringwhichnolongermeetscurrentWorkSafestandardsandmustberepairedpriortoanEVchargerinstallationbyaqualifiedelectrician.

Whether charging occurs at home or in public smartdigitalintegration,customerpreferencesandintegrationwithnetworkinfrastructure,needtobekeyconsiderations.AlignmentoftheRMAisimportantforthisprocess–toensurethat building and urban design regulations are supportiveofaffordableelectrification,and,toensure that infrastructure providers are able to respondtonewdemandquickly(includingforinstancetoenablenetworkupgradeswhichmayberequired).

Ourfuturechargingsystemsneedtobeunderpinned by modernised systems of dataflowbetweenlocalgovernmentbodiesandinfrastructureproviders,andacrosstheelectricitysupplychain–includingtransmission,distributionandretail.Achievingthisrequiresa change to the siloed approach through whichdataiscurrentlyattemptedtobesharedwithinourelectricitysystem.Asnotedabove,ittookseveralyearsfornetworkstoaccessdatawhichisneededforoperationalperformanceincluding outage response.

click for contents


Recommendations

•Wesupportthe‘Timecriticalnecessaryaction2:acceleratelightEVuptake’andrecommendthat the draft advice consider the introduction ofanEVfeebate/subsidyuntilEVsreachstickerprice parity.

• We recommend that the Commission stronglysupportmeasurestoensureEVchargerswhichareinstalledinthefuture,aresmart–andthattheyareconnectedtoa digital platform for operation in a dynamic optimisation environment. Just as the Commission has proposed import standards forvehiclesthemselves,werecommendthat the Commission consider procurement standardstoensurethatnewEVchargerscomingintoNewZealandaresmart.Thisshouldbepartneredwithopenstandardsprotocols to avoid the risk of tech lock-in or‘pickingwinners’fortheentranceofthisnewtechnologytomarket.Wenoteexistingmarketactors–includingEVNEX–arealreadyworkingtowardsthedevelopmentofopenstandards protocols.

• We recommend that the Commission’s recommended charging infrastructure plan isexplicitlyanticipatedtobeheavilyandcontinually informed by behavioural customer data,developedwithinputfromLocalGovernmentandinfrastructureproviders,and recognises necessary changes to building regulation and district plans that may be

required.Wealsorecommendthatprinciplesof urban design and transport integration also needtobeembeddedintheRMA.

• We recommend the modernisation of systemswhichenabletheflowofdata–includingdataflowsacrosstheelectricitysupplychain,andbetweenlocalgovernmentand infrastructure providers.

•Asthecommissionhasnoted,thetechnologyneededtoelectrifytransportwithinitspathwaysalreadyexists.ThispositionsthechallengeofEVuptakeasanintegrationchallenge. We recommend that the Commissioncontinuetoworktounderstandintegration barriers and opportunities to support the integration of smart demand management technologies and services to manage future demand effectively.

5.3 Dynamic optimisation is about delivering more with less, not more with more and offers a self-reinforcing pathway to decarbonisation

Investinginfuturereadyenergysystemswhichcanmeetfuturedemandisnotjustamatterofoverversusunder-investment.Ratheritisaboutthe right type of investments and ensuring regulation supports the level and type of investmentinnewtechnology

WeagreewiththeapproachoftheCommission

–toidentifytheenablinginvestmentsthatneedtobemadenowinourenergysystemstocreate a platform for emissions reductions over thenext15and50years–toensurethatwecanelectrify transport and process heat affordably. Buttheseenablinginvestmentsarenotjusthardorcentralised–theyarealsodistributedanddigitalised.Thisisaboutshiftingfromacentralisedsupplysidemindsettowardsatechnology system that enables the integration of demand side value and distributed generation.

TheCommissionhassaid–

“The challenge is delivering a timely, reliable and affordable build out of the electricity system, while managing the opposing risks of under or over-investing in the system. Continuing to build new electricity generation and transmission infrastructure throughout the 2020s would avoid construction bottlenecks and potential delays to wider decarbonisation in the 2030s. Over-investment could result in sunk assets or increase the delivered cost of electricity and disincentivise electrification. Underinvestment could delay progress on wider decarbonisation efforts in transport, industry and buildings.” – the Climate Change Commission

Avoidingoverinvestmentisnotjustaboutoptimisation to support transmission and distribution deferral. It is also about demand response to avoid unnecessary generation

click for contents


investment.Achievingthisrequirestherighttype of investments. Focusing on the kind of enablinginvestmentsourfutureneeds,ratherthantheperceivedtrade-offbetween‘overvsunderinvestment’isthebestwaytodeliverthecustomer-centrictransitionforAotearoaNewZealandenvisionedbytheCommission–andtoachievetheCommission’sprincipleto‘avoidcost’.

WestronglysupporttheCommission’sinclusionofAvoidUnnecessaryCostasakeyprinciple.However,theCommissionneedstoensurethatavoidedcostsandcobenefitsareappropriately integrated into and valued within our market and regulatory framework to incentivise investments that deliver to this principle. Vectorhasmodelledtheimpactofdifferentdemandinputsandnetworkmanagementapproaches to inform our asset management approach.In2018Vectordevelopedthreescenarios–Pop,Rock,andSymphony–torepresentpotentialfuturepathwaysinnavigating uncertainties around the future uptake of customer technologies and the networkresponsetothesetechnologies,to

inform our asset management approach.

Thetableonthenextpagedescribeseachofthesescenariosaswellastheloadimpactonthenetworkwhichweprojectedin2018.

click for contents

Thevalueofproactivenetworkmanagementofnewcustomerassetswasdemonstratedclearlybythis2018analysis–leadingtotheadoptionofSymphonyasourelectricitynetworkassetmanagementapproach–and,wehavecontinuedtoupdateourfuturedemandpathwayintegratingdifferentvariablesandourcontinuedSymphonyapproach.Asanassetmanagementapproach,Symphonywasgroundedinagility–andaneedtoadaptquicklytochangingnetworkdynamics–‘thisisakeypartofefficientlyrespondingtouncertainand rapidly changing demand patterns’.

In2018wefoundthatwhilsttheinvestmentrequiredintheshorttermforbothRockandSymphonywassimilar,underSymphony,thecreationofanactive,ratherthanpassive,networkwhichcanrespondtodemandthroughdigitalassetsandIoTtechnologyresultedinnearly$200mlessinsystemgrowthcomparedtoRockand$140mlessascomparedwithPop.JustastheCommissionisconcernedwiththeinvestmentsthatneedtobemadeinthenextfiveyearstoenableustoreduceemissionsinthenext15–andeventuallythenext30,weknowthatmanagingnewdemandaffordably into the future is about making the

right investments at the right time. We discuss the importance of the right investment settings fornetworkstodeliveraffordableelectrificationfurtherundertheChapter“RethinkRegulation”.


0

1000

2000

3000

4000

5000

6000

7000

2017 2022 2027 2032 2037 2042 2047

POP SYMPHONY ROCK CaaS Revenue Risk

Networkloadallscenarios

click for contents

Scenario Assumptions Projectedloadimpactby2027

Pop •Steadycustomeruptakeofnewenergytechnology

•Networkrespondsbybecominggranularlymoreintelligent

28%totalnetworkdemandgrowth

Rock •Thisisthecounterfactual

•Customersaggressivelyadoptnewtechnology

•Thenetworkreliesprimarilyonphysicalassetstomeetgrowingdemand

56%totalnetworkdemandgrowth

Symphony •Thenetworkproactivelyfacilitatescustomerengagementandtechnologyuptakeleadingtolowvoltagenetworkandcustomer integration

•Resultsinthealignmentbetweentechnology,incentivesandcustomerbehaviour.

21%totalnetworkdemandreduction

ScenariomodelsusedinVector’s2018AMP

SymphonyhasnowevolvedtobecomeourGroupStrategy–reflectingthefactthatdelivering customer centric energy systems whichenableourtransitiontoalowemissionsfuture is about leveraging and integrating a range of value streams to respond to change andcustomerneeds.Symphonyreflectsourbelief as articulated in our published 2020 AssetManagementPlan–that“inordertoenableatransitiontolowemissionsenergyatanaffordableprice,technologyandinnovationmustplayaleadingrole”.

It has been clear to us for some time that deliveringfutureenergysystems,includingtheintegrationofmoredistributedassets,can be done more affordably and effectively throughdynamicoptimisation.Thisrequiresustoinvestforthefuture–ratherthanbasedonapproaches of the past.


click for contents

Weareatacross-roads–

Theenergysystemhasreachedacrucialcrossroads.The

deploymentandutilisationofvariedrenewableassetshasshown

thatrenewablescanperform,thatthesystemcanmanagethe

changeinthecharacteristicsandbehaviourofthesenewassetsand

thatthereareinvestorsanddeveloperswithconfidenceinthefuture

ofthedecarbonisationjourney.Whatweneednowisamarketand

regulatoryframeworkwhichfavoursdynamicoptimisation–

to avoid cost.


5.4 Let’s learn from others regarding the need for smart integration of new distributed generation

Ashighlightedabovethereisastrongcasetobemadefornetworkinvolvementwithdistributed solutions to increase our reliance onrenewablegenerationinmeetingfuturedemand.Thisgreaternetworkinvolvementisalsogroundedinaneedtomanagenewcomplexityonthenetworkinsupportofdynamicoptimisation–enabledbydigitalplatformssuchasVector’sDERMssolution.

InthecaseofAustralia–wherethereishighDERpenetration–thereisalsoareductioninpowerqualityandreliabilityexperienced.ThisisbecausehighexportlevelsduringthesametimeofdayincreasevoltageontheLVnetworkresultinginqualityissues,aswellascausingpowertoflowbackupstreamwhichcanriskexceedingthethermallimitsonDERassets:

“if(voltages)risesufficiently,thenPVsystems(i.e.,their‘inverters’)canautomaticallyshutdownthePVgeneration,causingsuddenlossesofsupplyalongdistributionnetworks”–DrMeade,TheRoleofCustomer-OwnedEDBsinAcceleratingDistributedRenewablesUptake–ImplicationsforPolicyandRegulation

Thisreflectsthatnetworksweretraditionallydesignedtofacilitateunidirectionalflowsofpower.Enablingnetworkstomanagebi-directionalpowerflowsandgreatercomplexity,

requirescounter-frequencyprovidedthroughtheintegrationofnewdigitalplatforms.

Enablingthesmartmanagementofnewcomplexityisabouthavingtherightsettingsinplaceproactively–includingtherightstandardstoensurethatsmart,export-enabledinvertersareintegratedtoenabletwowayflowsofpower,aswellastoensurethatEVchargerswhichareinstalled are smart and able to be connected to aDERMsplatform.

InAustraliaLVnetworkcapacityconstraintsarebecominganincreasingbarriertoDERintegrationwithpartsofsomenetworkshaving already reached their hosting capacity. Limitsonexportcapacityarealsobecomingincreasinglycommon.AshighlightedbyDrMeadeintheabovereport,inAustraliathisisleadingto“networkoperators–absentothersolutions–tolimitnewDERconnectionsorexistingDERexportsasreverseflowcapacitiesarereached”.

InAustralia,consensusisemergingontheneed to move to dynamic load management toflattenexportpeaks,enablingDistributionNetworkServiceProviders(DNSPs–theAustralianequivalentofEDBs)tomanagenewexportpeaksresultingfromincreasedbi-directionalflowsofpower.

WeknowfromtheAustralianexperiencethatastheuptakeofdistributedsolarincreases,loadpatternschange–andthereisaneed

fornetworkstodynamicallymanagethesechangesandcomplexity.Thetransitionfroma conventional energy system to one based on more diverse sources of intermittent renewablesentailsmorethanjustswappingone set of energy sources for another; it demands rethinking and restructuring the entire energy system.

NewZealand’spositionasafastfollowerofnewtechnologyintegrationprovidesuswithanopportunitytolearnfromoverseasjurisdictionssuchasAustraliaandGermanyandtooptimiseourownapproach–whichwouldincludeproactivedigitalnetworkcoordinationofdistributedassets.Thisiskeytoaffordableelectrificationandcontinuedsystemreliability.

5.5 Unlock the value that sits between historic regulatory-imposed silos

WorkdonewiththeAustralianRenewableEnergyAgency(ARENA)toassessthematurityofDERtechnologyintegrationinAustraliahasfoundthatwhilsttherearealotofcurrentprojectsinAustraliatoacceleratetheuptakeandintegrationofDER‘themainproblemisalackofcoordinationandvisibility’.ThereportDERTechnologyIntegration:FunctionalFramework(developedbyGridWiseEnergySolutionsandfarrierswier,commissionedbyARENA)presentsafunctionalframeworktoundertakeamaturityassessmentofDERintegration,choosingtouseacapabilitiesfocus,

click for contents


ratherthanasegmentedsupply-chainfocus,inunderstandingDERmaturity:

“So much of Australia’s energy policy and regulation is framed by reference to the component parts of the traditional supply chain, e.g., the wholesale market for and transmission system for, bulk power supply, distribution, retail, metering, and behind the meter. However, perpetuating this framing can be unhelpful when the supply chain participants, their scope, and with whom, how and when they need to interact has to change to enable effective DER integration.

Realising the full range of benefits in the DER value stack could encompass services with benefits that may accrue to a particular participant in the traditional linear supply chain. However, the functional capabilities to realise these mostly involve a one-to-many integration that breaks the linear chain (e.g., data communication, DER visibility and predictability, and access to control or dispatch DER devices). This means that the linear supply chain view, while appealing where it works for benefits (and some problems), is not as useful for considering integration and coordination in a future of high DER penetration and improved integration. Indeed, not forcing stakeholders to recognise this feature of transformation could perpetuate the frustration of dealing with the traditional supply chain paradigm and a legacy regulatory regime inherently

founded on that paradigm and the physics of its operation.” – ARENA, DER Technology Integration: Functional Framework

Thepotentialvalueofdistributedassets–includingsolar,batteries,andsmartEVchargers–throughourwholesupplychain,issignificant.WenotethattheCommissiondoesnotascribeavaluetothese‘co-benefits’intheirpathway.However,justaswerecommendedthattheconceptofco-benefits’bebroadenedtoincludeawiderrangeofcustomers–includingresilienceandaffordability,werecommendthatitbe‘deepened’toreflectthevalue of these assets through the supply chain. Wehavedevelopedourownmetricofwhole-systemcost,or‘netvalue’ofassetsforthewholesystem.AshighlightedbyFrontierEconomicsinthereport“Wholeelectricitysystemcosts”commissionedbyVectortoprovideevidence responding to the Climate Change Commission’sdraftadvice(Annex3):

“As New Zealand transitions to a low-carbon economy, the electricity sector will play an important role by allowing other sectors (notably heat and transport) to electrify and reduce carbon emissions. The Climate Change Commission’s draft advice to the Government has carried out high-level modelling to show which investments in generation may be required. In the future, more detailed modelling of the sector will be required (for example, to feed into the national energy strategy that the

Commission recommends is developed). It is important that this work:

• Accounts for actions on the demand side (such as demand-side response, energy efficiency, and storage) which may reduce the need for investments in generation; and

• Adopts a whole-system approach which accounts for the way different forms of generation of demand-side action can affect the costs of building and running the entire power system.

Frontier Economics previously carried out work for the UK Government to produce a “Whole Electricity System Cost” (WESC) metric. This extends the commonly used Levelized Cost of Electricity (LCOE) measure to incorporate wider impacts on the system, and can allow demand-side technologies to be compared alongside generation. Vector has engaged Frontier Economics to produce an illustrative WESC for different technologies in New Zealand to show the additional costs (or, if negative, reduced costs) that the technology imposes on different parts of the power system… these elements are expressed, like a levelized cost, on a $/MWh basis.

The light blue line, which is the sum of these components, is the overall system impact. It represents the change in the total costs of the electricity system when a technology is added that has a lifetime output of 1 MWh (and the

click for contents


rest of the system adjusts accordingly). When the blue line is below $0/MWh, adding a technology such that it produces 1 MWh over its lifetime reduces total system costs. When the blue line is above $0/MWh, it indicates that adding the technology with a lifetime output of 1 MWh increases total system costs. Technologies with lower figures will add greater benefits to the system for each MWh of energy they produce”

While illustrative, this analysis demonstrates that:

• Accounting for the wider impacts of technologies on the power system affects their value-for-money. It is therefore important that comparisons between technologies are not made on the narrow basis of LCOE.

• There are many demand-side measures which do have the potential to be more cost effective (on a MWh for MWh basis) than generation technologies). Energy efficiency technologies in particular may offer a particularly compelling alternative to baseload generation.

Going forward, policymakers should ensure that demand-side technologies are considered alongside generation. This may require gathering additional data on the costs and capacities of these technologies, and ensuring that all actors in the market have incentives that accord with their overall impact on the system (as shown by metrics such as the WESC). Two technologies can have the same LCOE (i.e. the same “direct” costs) but dissimilar impacts on the power system. Consider, for example, two generators with the same LCOE, but one can be dispatched flexibly, and the other produces electricity intermittently. All else equal, the flexible generator adds more value to the system – or, in other words, leads to a greater reduction in the costs of operating the system – since:

click for contentsIm

pac

t on

wh

ole

syst

em

cost

s (N

ZD/M

Wh

)

Technology own variable costs Technology own fixed costs Capacity adequacy costs

Network costsDisplaced generation costsBalancing cost

Total WESC

DR

S; S

mar

t E

V c

har

gin

g(r

esid

enti

al)

-300

-200

-100

0

100

200

300

400

500

600

EFF

: Lig

hti

ng

(res

iden

tial

)

DR

S: S

mar

t E

V c

har

gin

g

(com

mer

cial

)

EFF

: VSD

mot

ors

EFF

: Lig

hti

ng

(com

mer

cial

)

EFF

: Clo

thes

dry

ing

EFF

: Sp

ace

hea

tin

g

GE

N: R

eser

voir

hyd

ro

GE

N: G

eoth

erm

al

GE

N: S

olar

PV

(uti

lity-

scal

e)

GE

N: O

nsh

ore

win

d

GE

N: C

CG

T

GE

N: C

CG

T w

ith

CSS

GE

N: O

CG

T

GE

N: H

ot w

ater

load

con

trol

EFF

: Wat

er h

eati

ng

(sol

ar t

her

mal

)

STO

: Lit

hiu

m-io

n b

atte

ry


Whilst grounded in competition concerns fornewemergingmarkets,provisionsandregulatorymindsetswhichlimitnetworkaccessto emerging technologies could compromise theexpansionoftheverymarketstheyweredesignedtoprotect–bothintermsofdistributed generation and demand response.

Wenotethatmuchofthebenefitforourenergysupplychainwhichcanbegainedbyemergingvaluestreams–isanavoidedcost.Itisnotafiniteadditionalvaluethatcanonlybecapturedbyonepartyattheexpenseofanother.

Wealsonotethattheintegrationofnewplatforms,businessmodelsandtechnologiesiskeytoallowingthecreationofnewmarketstoemerge.Forexample,thedigitalisationofcell-phones has created a platform to enable thedevelopmentofnewproducts,servicesandmarkets–whichhaveinturndisruptedfurtherindustriesandservices,creatingopportunityfornewindustryplayersandstart-upstosucceed.Themobilephonemarketmovedfromcommoditiestoproductsandservicecontracts,unlockingexcitingproductswhilealsoreducingoverall consumption of the data and telephony commodity(withcustomersincreasinglypurchasingunlimitedplansasaservice,ratherthanmega-bytes,texts,orminutes).Similarlydigitalising our energy systems and shifting from commodities to services can both optimisenetworkservicesaswellascreatea

platformfortheemergenceofnewdistributedand digital energy service providers.

Recommendations

• We recommend investment settings are aligned to the provision of future ready infrastructure–supportingnetworkstomaketherightlevelofinvestment,intherighttypeofsolutions,attherighttime

•Werecommendthatourwiderelectricitymarket’s investment approach is refocused fromthecentralisedsupplysideofourmarket,to value demand side actions and assets as equaltosupply

•Werecommendtheintegrationofawholeenergy-systemcostmetric(WESC)infutureenergy planning to account for the net cost orvalueofassetsthroughthewholesystem–creatingabasistocomparedemandassetswithgeneration

•WerecommendthatregulationalignswithnetworkintegrationofdigitalplatformsanddataforefficientintegrationofDER,andthestablemanagementofnewcomplexity.

click for contents

• If it can be relied upon to produce electricity during the system peak or during periods of low hydro inflows, it can reduce the amount of capacity needed to be kept on standby;

• If its output can be reliably and rapidly increased or decreased it may reduce the costs of balancing the system (i.e. keeping electrical demand and supply equal to one another); and

• If it can be dispatched when electricity prices are highest, it will displace forms of generation with higher variable costs.

The Whole Electricity System Cost (WESC) metric takes these wider impacts on the power system into account... This framework was originally developed for the UK’s Department of Energy and Climate Change with further work carried out for the Energy Technologies Institute. The UK’s Department for Business, Energy and Industrial Strategy has adopted this type of framework to calculate what it calls “enhanced levelized costs”.

Specifically,theabovegraphdemonstratesforinstancethatsmartEVchargersaddanegativecosttothesystem–thatis,takingintoaccounttheircost,theyaddoverallvalueofaround~$174NZDperMWhasanillustrativeexample.

Thecurrentvaluesitsbetweenthesilosandthevalueisrestrictedfromflowingfromonesilotoanother.Thiswillneedtochangetotrulyoptimise the system and support affordable electrification.

6.Rethinkregulation


6.1 Our regulatory framework and decision making needs an urgent mindset shift to deliver decarbonisation

TheCommission’sreportchallengestheelectricitysectortoacceleratetheinvestment,technology and operational changes needed toenabledecarbonisation.Thisentailsadramaticchangetothestatusquooverthecomingyears.Butthatchangewillnothappenwithoutafuture-focused,enablingapproachfromtheframeworksgoverningkeysectorregulators such as the Commerce Commission andElectricityAuthority.Wearenotconfidentthatcurrentregulatorysettingswillenablethetransitionandtransformationthatisrequired.

TheregulatoryframeworksadministeredbytheElectricityAuthorityandCommerceCommission are principally focused on driving constantmarginalefficiencygainsviamarketmechanisms and incentives-based regulation. In a mature operating and technology environment,thatmodeofregulationincreasesconsumerwelfareincrementallyovertime.However,itdoesnotenablerapidor transformational change in the industry. Forexample,theregulatoryframeworkforsettingexpenditureallowancesassumesthatthebestevidenceoffutureexpenditureispastexpenditureandsetsaveryhighbartojustifyinnovation-focusedinvestment.TheEA’sregulatoryframeworkleadstoafocusonrefinementstoexistingelectricitymarket

mechanisms,ratherthanenablingwholesalechangeintheindustry.Frameworksthatfocusonincrementalefficiencyrisksonlydeliveringreactiveandbackward-lookingapproaches,rather than a proactive and future-focused stance.

TheCommissionhasrecognisedtheneedforregulation to change:

“The regulatory regime must continue to adapt and respond to innovations, to ensure it can deliver access to abundant, affordable, and reliable low emissions electricity. It must be able to deliver the services needed to underpin electrifying the vehicle fleet and industry. The capacity and capability of electricity distribution businesses will be an important consideration. The Electricity Price Review and others have called for more innovation to be led by these businesses” - the Climate Change Commission

Weagreethatregulatoryframeworksmustbeable to deliver the services needed to underpin electrifyingvehiclefleetandindustry.However,wedonotbelievethatthiscanbeachievedthrough adaptation or minor amendments withinexistingregulatoryframeworks.Infacingthechallengeofclimatechangeaheadwecannot afford to be reactive in ensuring that ourregulationisfitforpurpose.Achangetoexistingregulatoryframeworksisrequired.

Vector’sView

Achangeisrequiredtoensurethe regulatory settings enable decarbonisation.Werecommendthat the regulatory frameworks governingtheElectricityAuthorityandCommerceCommissionbe reconsidered in light of decarbonisation to ensure regulationsupports,ratherthanhinders,thedecarbonisationpathway.thechangerequiredis shifting from a framework which was responding to risk of the Bradford era reforms – to one which puts customers and decarbonisation at the centre.

click for contents


WeagreewiththeCommissionthatthereisaneedto‘mainstream’decarbonisationconsiderations across government policiesandprocedures.Andwesupport the recommendation:

“in the first budget period, the Government make progress on…Providing consistent signalling across investments, policy statements, direction to officials, internal policies and directives to ensure that all regulatory and policy frameworks are aligned with low emissions and climate resilience objectives.” – the Climate Change Commission

JustastheCommissionhasidentifiedaneedtoalign funding mechanisms for the public sector aroundthegoalofdecarbonisation,throughtherecommendedVoteClimateChangemulti-agencyappropriation,thereisaneedtoalignfunding and investment mechanisms for key industryenablers–includingregulatedutilities.

6.2 Dynamic optimisation requires coordination and the right type of investments

It is critical for the Climate Change Commission’spathwaythatregulatorychangealignswiththeobjectiveofenablingnetworkinvolvementwithemergingtechnologiestomanagenewdemandandtheintegrationofnewdistributedassets–aswellasprovidingnetworkswithcertaintytomakeinvestmentswhichareneededforaffordableelectrification.

TheElectricityPriceReview(EPR)recognisedthat current regulatory settings are out of step withemergingtechnologies.Perpetuatingtheregulatory approach of market segmentation by its design risks promoting a siloed understanding of the market rather than seeing thesystemasawhole.Thecostofthisapproachiscoordinationfailure–wherebytheintegrationoftechnologywhichisnecessaryforaffordableelectrificationiscompromised.Thisisbecauseinnovationtendstocutacrossartificialmarketsegments–beingdesignedaroundcustomerneeds and values rather than regulation.

We strongly support the Commissions’ recommendation that:

“the government assess whether electricity distributors are equipped, resourced and incentivised to innovate and support the adoption on their networks of new technologies, platforms and business models, including the successful integration of EVs to implement their necessary action – maximise the use of electricity as a low emissions fuel”. – the Climate Change Commission

click for contents

Networkshaveanaturalincentivetoinnovateandsupporttheadoptionontheirnetworksofnewtechnologies,platforms and business models as this avoids the risk of strandedassets–wherebycustomerswouldcontinuetopayforinvestmentsevenwhilsttheynolongerdelivervalue.Networkswhicharemajorityownedbytheircustomershavean even stronger incentive to avoid cost and deliver value for customers.However,wesuggestthatquestioningtheextenttowhichEDBsare“equippedandresourced’istoonarrowafocus.WhatisnecessaryisafullreviewoftheregulationthatgovernsthewayutilitiesandEDBsinparticulararefundedandareabletoinvestwithconfidenceinnewtechnology.

case studyLack of regulatory funding for cyber security and innovation

InthelastCommerceCommissionDefaultPricePathway-aregulatorydetermination setting out the allowable revenue for regulated networks throughto2025,networksreceivednonewfundingforcybersecurityinthefiveyearperiodto2025.Wequestionwhetherthisdecisionwouldhavebeenmadeafterthecyber-attackontheNZX–demonstratingthelackofalignment between our rapidly changing technological environment and theunchangingapplicationofahistoric-basedregulatoryapproach.

Whenitcomestotheprovisionofelectricityasanessentialserviceandlifelineutility,wecannotaffordtowaitforanincidenttochangethedirectionofourregulators’approachtoinvestmentsofregulatedutilities.TheCommission’sdecarbonisationpathwayhasmadetheneedforinvestments for the future even clearer.

Despitethefailuretoliftcybersecurityallowances,Vectorhaspartneredwithworld-classexpertstodevelopitsownSecurityOperationsCentre(SOC)andcybersecuritycapabilitytosuititsneedforadequate,fit-for-purposecyberprotection.ThisrequiredastrengtheningofitsITandOTassetstobuildarobustsolutionthatdetectsandrespondstocyber-attacks,whilescalingandadaptingtoitsenvironment.Asmoreusersleverage

theSOC,moredatawillbegeneratedinformingthesystemmakingit more intelligent.

GiventheinterconnectivityoftheNewZealandenergynetworks,theelectricity sector is only as strong as its weakest link. The relative number of EBDstoNewZealand’spopulationsizeincreasestheinefficiencyof ‘re-inventingthewheel’intermsofthedevelopmentanduseofaSOCcybersecuritysolution.However,thiswillnotoccurifnetworksarenotprovided with the regulatory allowances to support the need for greater investment in cyber security platforms. Funding for cyber security is critical forelectricitysystemresilience,andcurrentlackoffundingforcybersecurity is strongly misaligned with the greater reliance on electricity for transportandindustrialprocessesincludedintheCommission’spathway,as well as the accelerated digitalisation of our economy and infrastructure drivenbyCovid-19.

Afurtherexampleofanout-of-stepregulatorydecisionmakingwastheregulatorydeterminationtoprovideaninnovationallowanceof0.1%offorecast allowable revenue for networks. For the majority of EDBs this provides an avenue to apply for special funding up to a maximum sum of$150,000perannumtopursueinnovation.Whiletheconceptofanallowanceisright,thequantumiswoefullyinadequatetodeliveranymeaningful innovation.


6.3 Driving competition and decarbonisation requires a fundamental shift to the regulatory approach of the energy sector

Asdemonstratedabovethroughourscenariomodelling,managingnewfuturedemandaffordably through dynamic optimisation requirestherighttypeandlevelofinvestmenttobemadeattherighttime.In2019Vector’sforecastcapexwas$1.216bforRY21-25.However,theallowanceinthelastdefaultpricepathway(DPP3)cutthisby$175mforthesameperiod.Furthermore,ouranalysishasfoundthatapersistentinflationforecastingerrorwillresultinanadditional$250minlostvalueforallEDBssubjecttotheDPPduringtheregulatoryyears2021-2025,ascomparedtowhatrecoverywouldhavebeenwiththecurrentTreasuryCPIforecast.Thispersistenterrordemonstratesanissuewithregulatoryperformancewithin ourframework.

TheClimateChangeCommissionhasastronginterestinensuringelectricitynetworksare appropriately funded to enable an electrificationpathway.Westronglyencouragethe Commission to raise this important issue withGovernmentandcatalysegrowingsupportfor a fundamental rethink of regulation to ensure that it supports the acceleration of electrificationratherthanconstrainandslownetworktransformation.

Rethinkingregulationsothatitsupports,andimportantlyfunds,networkinvolvementand

investment in emerging technologies and innovationwillbetterenable,andultimatelydrive,affordableelectrification.Thiswillrequireafreshstartingpointforourregulatoryframeworkanddecisionmaking–basedonafuturefocused,ratherthanbackwardlooking,conservative mindset.

Thisquestion–ofwhatinvestmentsneedtobe made today to deliver for a transformed future–isreflectedintheClimateChangeCommission’sownemissionsreductionpathway–whichconsiderswhatinvestmentsneedtobemadeinthenextfiveyearstoenableemissionsreductionsthroughthenext15andourlonger-termtransformationoutto2050.

Conversely,ourregulatoryframeworkhasonly focussed on the administration of a revenuereductionobjective,reflectinganunderstanding competition as reducing revenueasmuchaspossible,whilstensuringa minimum standard of essential services isdelivered,withinthenextfiveyears.ThisapproachhaslongbeenoutofstepwiththeinvestmentrequiredforAucklandgrowth.However,itsmisalignmentwiththefutureofdecarbonisation urgently needs to be resolved.

TheUKenergyregulator–theOfficeofGasandElectricityMarkets(Ofgem)hasrecognisedthat:

“within that (regulatory) framework, Ofgem, the energy regulator has a crucial role to play in helping the UK decarbonise its economy…

decarbonising the energy system at lowest cost to consumers is one of [its] three priorities in coming years, alongside protecting consumers and enabling competition and innovation.” – Ofgem

LastyearOfgemreleasedadecarbonisationprogramme and action plan. We advocate forproactiveeffortstoalignregulationwithdecarbonisationinNewZealand.

click for contents


Recommendations

• We recommend the Commission raise withGovernmenttheurgentneedtorethink regulation to ensure that regulation supportsandappropriatelyfundsnetworktransformation,innovationandinvestmentinemerging technologies.

• We recommend that our electricity regulation appropriately values avoided cost,andincentiviseinvestmentswhich can deliver it.

• We recommend bold reform of our current electricity regulation to ensure that our regulatoryregime-andthewaythatitisimplemented-isstronglyalignedwiththeneeds of decarbonisation.

•WerecommendthatanychangewhichisbeingprogressednoworwhichisproposedforthefuturewhichwillimpactfuturenetworkinvolvementwithnewtechnologiesbeurgentlyassessedinthecontextoftheCommission’sproposedpathwaytoensurethatitalignswiththeneedfornetworkstoaffordablymanagenewdemand–particularlywhichisdrivenbyEVs.Amendedstatutorypowersareneededtoensurethatregulatorydecisions of the Commerce Commission and theEAencourageratherthaninhibitnetworktransformationandinvolvementwithnewemerging technologies.

click for contents

InvestmentsettingsforNetZero

• Fully costed system – from silos to whole system

Afullycostedsystemmethodologymustbeusedbyallregulatedassets,regulationandpolicy to uncover the knock-on costs and revealthevaluesittingbetweencustomersilos….there is a need to fully value all assets onthesystemprovidingalevelplayingfieldbetweendemandandsupply.

• Deep digitalisation – from Brawn to Brain

Developasmartresponsive,networkofenergyandinformationtodeliveramoreproductive,stable and optimised system releasing value acrossthevaried,diverseactors’assetsandactions.

•TheCitizens’dividend:Fromthefewto the Many

Designthesystemforcitizens,offeringopportunityandrewards,asequalactorsinbuilding a decarbonised system.

•Starttheheavylifting:Frommaturetoimmature technologies

FocusGovernmentsupportonimmaturetechnologies and customer assets to accelerate decarbonisation.

Achievingthepathwaysetout by the Commission requiresustotakeawholesystemsapproach


7.1 Avoid cost by urgently coordinating our regulatory regime around the goal of decarbonisation

Theelectricitysectorwillfailtomakealeast-costtransitiontoalowemissionsfuturewithoutan integrated plan of action. We support the recommendation of the Commission to develop“along-termnationalenergystrategythatprovidesclearobjectivesandapredictablepathwayawayfromfossilfuelsandtowardslowemissionsfuels,andtheinfrastructuretosupportdelivery”.Suchastrategyrequiresurgency,andclearinclusionofourregulatoryregime–tosendaclearandalignedsignaltocreateabasisforacoordinatedapproach.AsrecentlyhighlightedbyaCortexoarticle“Theclockistickingonelectricitysectorflexibility:howlonghavewegot?”:

“People, the economy and the environment will be worse off unless a clear plan is quickly developed to guide the upgrade to the regulatory settings needed to have an electricity system and market able to cope with the heavy lifting…the absence of a clear plan to coordinate the transition puts Aotearoa at risk of making the same mistakes as Australia and other jurisdictions and needing to play regulatory catchup to evolve policy and market settings to reflect fundamental changes to the technology and consumer landscape”. - Craig Evans of CTQ Advisors

Asthisworkgoesontoacknowledge,theCommission’s recommended strategy toachieve60%renewablesby2035,isrecommended to be in place by June 2023. However,thereareanumberofkeyregulatorychoices to be made before then.

•TheCommerceCommissionwillcommenceaninputmethodology(IM)review.TheIMreviewwillbecriticalinputtoensureelectricitynetworkscanmeettheelectrificationchallenge.Acutandpasteexercisewillnotbesufficientgiventhecurrentsettingsforelectricityandgasnetworksareincreasinglyinadequatefordealingwiththechangingenvironment.

•The2025-2030pricequalitypathdecisionby the Commerce Commission due around late2024willalsoplayafundamentalroleinwhetherelectricitynetworkscanmeettheelectrificationchallenge.The2025-2030price-qualitypathwilldeterminethenatureandlevel of investment by distributors through to2030.TheClimateChangeCommissionsees this as a critical period for investment innetworkstodeliveraffordableacceleratedelectrificationfrom2030.

•Finally,aflexibilitymarketneedstobeupandrunningbyApril2025tocoincidewiththestartofthe2025-2030price-qualitypath.EmployingflexibleDERtosupportnetworkandwhole-of-system stability and resilience is the least regretsapproachforaffordableelectrification,

decarbonisation and a stable and robust electricitysystem.TheUKflexibilitymarkethastakenover4yearstogettowhereitis.It’shardtoseehowamarketwithsufficientliquidityandlowemissionscharacteristicstogivenetworksoperatorsconfidenceinusingflexibilitytomaintainreliabilitycanemergefullyformedby1April2025.

Aswehavehighlightedabove,themarketregimeoverseenbytheEAissimilarlynotdesignedforasystemwithlotsofdistributedresources,andaffordableelectrification.

“We have until 2023 to identify the regulatory settings needed to put the electricity sector on the path to least regrets and least cost electrification. The clock is ticking and we don’t have much time left…at the top of the list must be upgrading network regulation to provide the right incentives for networks to be ready to meet the surge in electrification …with a particular focus on developing functioning flexibility markets that can help to maximise the value of DER”. - Craig Evans

Avoidingcostisnotjustaboutavoidingthewronginvestments–itisaboutdrivingtherightones.Thisrequiresmorethanadjustmentstoourexistingregulatoryregime

We support the Commission’s inclusion of ‘avoidunnecessarycost’,asaprincipleoftheiranalysis.Indescribingthisprinciple,theCommission has included a focus on ensuring

click for contents


that assets are replaced on as natural a cycle aspossible.However,avoidingcostthroughourtransitionisnotjustaboutavoidingthewronginvestments,itisaboutdrivingtherightones.Thiswillnotbeachievedthroughminoradjustmentstoourregime–orjusttheremovalofbarriers.Itrequiresaproactivesignal to support necessary investments and a significantchangetoregulation.

7.2 We consider a Ministry for Energy and Decarbonisation to be a key enabler of the Commission’s pathway

We support the Commission’s thinking around a need to strengthen coordination acrossGovernmentworkstreamstodrivedecarbonisation.OurdecarbonisationjourneyischaracterisedbycomplexinterdependenciesacrossindustryandGovernment,andrequiresacoordinated,wholesystemsapproach.ItisclearthatwecannotachievetheCommission’spathwayinsilos.WeagreewiththeCommission’s recognition that:

“Coherent policy is important to ensure that government sends clear and consistent signals to households, business and communities about the transition to low emissions, and the nature and speed of change required….The current siloed nature of Aotearoa government machinery presents a challenge…Another challenge is the lack of ‘mainstreaming’ of climate change considerations across

government policies and procedures.” – the Climate Change Commission

Asnotedabove,wesupporttheCommission’srecommendation to develop a National EnergyStrategyandwealsosupporttherecommendationto‘mainstream’climatechangeconsiderationsacrossGovernmentpolicies and procedures.

However,weconsiderthebridgebetweentherecommendedNationalEnergyStrategy,thealignedfundingofworkstreams,andtheintegration of climate change considerations acrossGovernmenttobeaMinistryforEnergyandDecarbonisation.Weseethisasakeyopportunitytohelpovercome“ThecurrentsiloednatureofAotearoagovernmentmachinery”.

TheEPRrecommendedthatnewinstitutionalarrangements for energy policy and regulation beexplored,holdingthat:

“the Government should consider alternative ways for government agencies to co-ordinate energy policies, regulations and programmes. Its purpose should be to better organise resources to face challenges spanning multiple areas of agency responsibility. This could be achieved in various ways, including the following…Establishing a Ministry for Energy, bringing together parts of the Ministry for the Environment, Ministry of Civil Defence and Emergency Management, Ministry of Transport

and Ministry of Business Innovation and Employment” – EPR Final Report, May 2019

BoththeEPRandtheClimateChangeCommission’s draft advice are sending a clear signal on the need for stronger coordination throughGovernment–andinstitutionalchangewhichisneededtoachievethis.AshighlightedbytheUniversityofExeter’sEnergyPolicyGroup:

“we do need to reset our energy governance for coordination; to expand and reveal value…from new energy and system resources created or enabled by digitalisation and new technologies, and , to speed up the GHG reduction”. – University of Exeter Energy Policy Group

Thisreviewarguesforonenewenergygovernanceinstitution.AswenotedinoursubmissionrespondingtotheAcceleratedRenewablesandEnergyEfficiencyworkstream,there are a very large number of policy and regulatoryinstitutionswithasharedroletodeliver decarbonisation.

Recommendations:

• We support the recommendation for a national energy strategy to help align the ‘siloedmachineryofAotearoa’sgovernment’the Commission has described.

• We recommend the establishment of a newMinistryforEnergyandDecarbonisation

click for contents


toleadthenationalenergystrategy,toimplementtheCommission’spathwayandtoensure policy and regulatory alignment.

• We support the Commission’s recommendationtocreateaVoteClimateChangewithinthebudgetallocationprocess.Justasweneedtoensurefundingwithinthepublic sector is aligned to decarbonisation so toodoweneedtoensurethatfundingofkeyindustryenablersisalsoaligned.Asdescribedinthechapter“RegulatoryRethink”above,ourelectricitymarketframeworkisincreasinglyoutofstepwithwhatisrequiredtodeliverdecarbonisation affordably to customers.

click for contents

Gastransitionchallenges


8.1 A Gas Transition Contract is needed to establish an agreed and managed transition to meet the objectives of Government, customers and gas infrastructure owners

Thecurrent“RegulatoryCompact”forgasnetworkinfrastructureownersisfoundedonthebasisofagasnetworkbeingdeliveredinperpetuity.However,theCommission’sproposaltoeffectivelycurtailuseofgasnetworkinfrastructure over time fundamentally breaks the regulatory compact and the basis uponinfrastructureownershavehistorically,andingoodfaith,invested.Afundamentalaspect of such a regulatory compact is that capital returns on such assets are matched tothe40-50yearlivesoftheassets.WiththeCommission’sproposalnowthreateningtobreaktheregulatorycompact,VectoriscallingforanewGasTransitionContracttobeagreedbetweengasinfrastructureownersandtheGovernmentasameanstomaintaininvestorandcustomerconfidenceinourtransitionandensurecustomerchoice,reducedeconomicimpacts,andinvestorconfidenceareallmaintained through the transition.

Whilst industry is responding to the strong policysignalsaboutthefutureofgas,thereis an opportunity for constructive dialogue to defineasensiblemanagedtransitionpaththatmeetstheobjectivesofeachofGovernment,customersandgasnetworkinfrastructureowners.

We encourage the Commission to support such a dialogue in its recommendations toGovernmentsothatthegovernment,regulatorsandgasinfrastructureownerscancollectivelyexploreasensiblemanagedtransitionwheretheobjectivesofeachpartyalign,andwhichconstructivelysupportsthebroaderdecarbonisationobjective.

8.2 Achieving the most efficient net reduction in emissions from gas requires us to assess the use of gas across the energy supply chain – including both generation and its end use

Industrial process heat accounts for a significantshareofNZ’stotalemissions–andofthis,naturalgasaccountsforthegreatestshare

ofemissions-37%.TheCommission’sfocusontheuseofgasisconsequentlyunderstandable.TheCommission’sbudgetsincludeasteepreduction in emissions from buildings driven by the transition of the end use from gas.

However,wenotethatintheCommission’spathwaynaturalgasuseisretainedasapeaking solution:

“Althoughtheshareofgasgenerationdecreasesinallfourmodelledscenarios,gas generation remains a critical part of the electricity system for meeting peak requirementsanddryyearneeds.Mostimportantly,inthesescenarios,gasprovidescoverfordryyearconditionswhichreducetheenergyresourceforhydrogeneration”.–theClimate Change Commission

Burninggasforelectricitygenerationandthenheatingwiththeelectricitygeneratedisbetweentwo-threetimesascarbonintensiveas using gas at home directly. From a net emissionsreductionperspective,itiscriticalthat reducing the use of gas from buildings does not result in an increase in its use for electricity generation during peak electricity demand.Theinterplaybetweengasusagein buildings and electricity generation is dependentonarangeoffactorswhicharestill uncertain including our future supply of lowemissionselectricitygeneration,aswellas the impact of demand management. Whilststorageschemeswhicharedeployedto

Gas Network Owners Government

Customers

Gas Transition Contract

click for contents


overcome the dry year problem could reduce theneedforgaspeaking,astheCommission’sanalysis of the impact of the proposed pumped hydroschemeatLakeOnslowhasfound,meetingfutureelectricitydemandmaywellstillrequiretheuseofnaturalgasevenwithsuchasolution.Fromanetemissionsperspective,wequestiontheremovalofnaturalgasfromendusersifitwouldincreaseitsuseinpeakingbycontributingtowardspeakdemand.

In achieving the emissions reductions in the Commission’spathway,coststocustomersshouldbeacentralconsideration–andtherearehiddencoststocustomersassociatedwithatransitionawayfromgasconnectionswhichhave not been factored into the Commission’s analysis.

Vector’sView:

Whenitcomestomakingtrade-offswithinour emissions budgets it should not be customerswhocarrytheriskorpotentialcost.Consequently,werecommendthattheimpactonaffordabilitytocustomers–andinparticularresidentialandsmallcommercialcustomers–becarefullyassessedinthecontextoftheneedto reduce emissions from the use of gas.

AshighlightedbyMinisterWoodsinFebruary,residential and commercial gas customers only account for nine percent of our total use of gas. MinistryfortheEnvironmentemissionsdataalsoshowsthatsubstitutingcustomers’useof

gasforelectricitywouldresultinanetemissionssavingof400kgofCo2eperkwhperannum–thisisonakwhforkwhsubstitutionbasisandassumesthatthereisenoughlowemissionselectricitytomeetthisdemandwithoutgasorcoalpeaking.Ifthissubstitutionweretooccurtodaygivenourgenerationmixitislikelytoresultinanincreaseinemissions,contingenton a number of factors mentioned in the discussion on emissions intensity of gas for peaking above. Whilst the emissions reduction gainsfromthistransitionareatbestuncertain,ifitweretooccurwithinashorttimeframe,inanumberoftheCommission’sscenarios,customerswouldbearasignificantcost.

HiddencustomercostsfromtheCommission’srecommendationtoendnewgasconnectionsfrom2025

TheCommissionhasrecommended:“settingadatebywhennonewnaturalgasconnectionsarepermitted,andwherefeasible,allneworreplacement heating systems installed are electricorbioenergy.Thisshouldbenolaterthan2025andearlierifpossible”.

We appreciate that the intent of the recommendation is to avoid future capital costs by avoiding investments made in the short termwhicheitherlockinemissionsforthefuture–orwhichwouldneedtobereversed.Wesupportthisintentionbut,asexplainedfurtherunderthebelowsection“OptionstoefficientlyachievetheCommission’semission

reductionpathwayatleastcustomercost”,thereareotheroptionswhicharenotincludedintheCommission’sdraftadvicewhichcouldbetterachievethis–includingtheintegrationofnewlowemissionfuels.

Customers currently use gas as an essential serviceforhotwaterheating,cookingandarangeofappliances.TheCommissionhasnotedthatthechangesincludedintheirpathwayare likely to result in an increase in costs for householdsthatusenaturalgasofaround$150perannum.However,theCommissionhasnotfactoredincapitalcostsassociatedwithstructuralchangesthatwouldundoubtedlyneed to be made to accommodate a customers’switchfromgas(householdswhichusereticulatedandbottledLPGconnectedtobuildings,aswellasnaturalgas)toelectricity.Gashotwaterheaterstypicallyarelocatedontheoutsideofahome.Replacingthiswithaninternalhotwaterheaterwouldrequireataminimumcapitalcostswhichareadditionaltothenewapplianceitself,potentialstructuralchangestohousing,andlossofinternalliveableareas potentially impacting housing value.

AnalysisjointlycommissionedbyVectorhasfound that accounting for these capital costs –includingappliance,labourandrenovationcosts,thetruecostoftransitioningagascustomertoelectricitywouldbe~$2,000(assumingthatthecustomerusesgasforwaterheatingandcooking)to~$5,000(ifthe

click for contents


customerusesgasforwaterheating,cookingandspaceheating).ThesecostsarecurrentlyexcludedfromtheCommission’sestimated$150perhouseholdperannum.

Furthermore,theCommissionhasassumedthatanaturalsubstitutionwouldoccurbetweenexistinggasunitswithnewelectricityorbioenergyunitswithinthetimeframesproposed.Thatis,ifnonewgasconnectionsweremadefrom2025thentherewouldbeanopportunity for these assets to come to their end of natural life before they needed to be replacedundertheCommission’spathway.However,thisdependsonwhenourcompletephase out from gas to electricity or bio energy wouldoccur.TheCommission’spathwayincludes a phase out from gas to occur from 2030forexistingbuildings–whetherornotthere is time for a natural substitution to occur depends on the pace of this transition includingbeyondthefirstthreebudgets.TheCommission’smoreambitious‘tailwinds’and‘furtherbehaviour’scenariosincludeacompletereductionintheenduseofgasby2030.Thiswouldnotallowanaturalsubstitutiontooccur.

Becausetherecommendationspecificallyincludesthereplacementofexistingheatingsystems(notjustreferringtonewinstallations)thissignificantcapitalcostcouldimpactsomehouseholds–i.e.,thosewhohaveaheatingsystemwhichneedsreplacingsoon–wellbeforethe2030phaseoutforexistingbuildings.

AshighlightedbyanalysisundertakenbyOakleyGreenwoodontheCommission’sprocess for modelling residential energy/gas use –ResponsetoClimateChangeCommission’sDraftAdvice(Annex4):

“…the CCC’s phase out profile (2030-2050 in the central pathway) transitions the remaining gas use in a smooth manner, rather than modelling this fuel switching dynamic in detail. Given the relatively minor contribution switching from gas to electricity by residential and commercial customers makes to NZ’s overall emissions reduction profile, it is understandable why the CCC may have made this simplifying assumption. That said, this switching profile is important in the context of New Zealand’s gas industry, its economics, and its broader ability to continue to service the needs of gas consumers over the forecast horizon modelled by the CCC”. – Oakley Greenwood “Response to the Climate Change Commission’s Draft Advice”

Evenifanaturalsubstitutiondoesoccurbetweenexistinggasunitswithnewelectricityorbioenergyunits,theCommission’smodelledcosts for households do not account for the additional capital costs mentioned.

In the case of transitioning gas customers toelectricity(which,withinthetimeframesproposedwouldbethemostlikelyalternativeforhouseholds),additionalcostscouldbehigher considering higher electricity prices

whichcouldoccurasaresultofincreasedloadonthenetwork.

8.3 Transitioning gas to electricity would have a significant, and currently unaccounted for, impact on the electricity network

We note that the Commission has not included initsanalysis,theimpacttotheelectricitynetworkofbetweenmovinggasdemandtoelectricitydemandwithinthetimeframesproposed.Asnotedabove,thepotentialforour gas transition to increase electricity peak demand needs to be carefully considered from anetemissionsperspective,ensuringthatthe transition does not increase the need to usegasforpeaking.Thepotentialimpactonpeak demand also needs to be considered in termsofelectricityaffordability–accountingforpotentialelectricitynetworkcosts.

Ourcurrentestimateoftheequivalentpeakelectricityloadofallgascustomerwhocouldtransitiontogastoday(excludinghightemperatureprocessheatusers)isabout15-20%ofourcurrentelectricitypeak.Ourmodelling has found that the impact of gas substitutiononpeakdemandwouldbeaboutthesameastheimpactcausedbyEVuptakewithintheCommission’spathwayby2030,ifthissubstitutionhappenedquickly.Theimpactofthisnewdemandonthenetworkwouldlikely be concentrated as our residential and commercial gas customers tend to be clustered onthenetwork.

click for contents


We share the Commission’s desire to avoid investingininfrastructurewhichlocksincostforfuturegenerations–butwhichmaynolongerdelivervalue.Fornetworkmanagementreducing the risk of stranded assets is about avoidinglargenetworkupgradesinthecontextoffuturedemanduncertainty.Thisboth increases the importance of dynamic optimisation–howeverthisalsoincreasesthe importance of avoiding a sudden transition of gas customers to electricity. AffordableelectrificationwillbecriticaltotheCommission’swider‘necessaryaction’tomaximisetheuseofelectricity.

8.4 Not all gas users would be able to electrify within this budget period. However, the viability of keeping the gas network available only to them, if all other users transitioned to electricity, is uncertain

AsnotedbytheCommission,somegasusers–particularlyhightemperatureprocessheatusers–wouldneedtocontinueusinggasunderitspathwayastherearecurrentlynoalternatives for some industry applications. We have spoken to a number of high-volume gasusersonournetwork–manyofwhomdonotseetechnologyalternativeswhichareeconomicallyviable.Ofthosewhodo,thevalueof optionality around alternative fuel substitutes to suit different applications of the gas users and the value of an incremental transition haveemergedascommonthemes.Manyhave

reportedthatanysignificantchangesinthecostofenergywouldimpacttheviabilityoftheirbusinesses leading to reductions or shutting downoperations.Weareconcernedaboutthewidereconomicimpactthatthiswouldhave.

TheCommission–andasarticulatedbytheMinister–appearstoacceptthattherewillneedtobesome‘exceptions’aroundthecontinueduse of reticulated gas.

“The CCC recommends that the specified date (to prevent new gas connections and the replacement and installation of heating systems which are not electric or bioenergy fuelled) should be no later than 2025, and earlier if possible. This results in the CCC forecasting gas consumption to decline under the various scenarios that the CCC has modelled, with the CCC modelling a relatively gradual transition away from gas for residential and commercial customers. Notwithstanding this, the CCC is still forecasting that gas will be consumed beyond 2050 under all modelled scenarios, primarily by customers who are in what are generally termed ‘hard-to-abate’ sectors (such as peaking electricity generation and high-temperature process heat).” - Oakley Greenwood, Response to NZ Climate Change Commission’s Draft Advice

However,thereareanumberoffactorstoconsiderwhenassessingthetechnicalandeconomicfeasibilityofallowingtheuseofgasforsomeusers,butnotothers.Ourpreliminaryanalysisisthatthereare~250customersthatmayhavedifficultlysubstitutingfromgasduetohighheatorlargeenergyrequirements.IfasassumedbytheCommission,otherconsumersdecline,asignificantreconfigurationofthenetworkwouldberequiredtoensureallthesecustomersareconnectedeithertoanadjacenthigher-pressuresteel“backbone”networkornearestmediumpressurenetwork.Insomecases,theremovalofa‘meshed’network

LocationofAuckland’shightemperatureprocessheatusersonthegasnetwork

(hightemperatureprocessheatusersarerepresentedasgreendots,andthehigh-pressuresteelbackbonenetworkistheredline).

click for contents


configuration,willresultinadditionalcoststoensuresufficientpipelinecapacity–increasingtheriskofstrandedassets,asalternativefuelsmay become viable for high temperature process in the future.

LocationofAuckland’shightemperatureprocessheatusersonthegasnetwork

(hightemperatureprocessheatusersarerepresentedasgreendots,andthehigh-pressuresteelbackbonenetworkistheredline).

Ourinitialanalysishasfoundthatconcentratingcost allocation across this smaller group of customerswouldtranslateintoa~600%priceincreaseforthosecustomerswhoremainonthenetwork.ItiscriticalthattheClimateChange Commission’s recommendations areinternallyconsistent,withaparticularemphasisonwhethertheadverseimpactsonthe economic viability of gas supply for some hard-to-abate industry participants has been adequatelyconsidered–particularlywhentheCommission’spathwayitselfincludesacontinuedsupplyoutto2050.

WeappreciatethecomplexitythatboththeCommission,theMinisterandMBIEarenavigatingtotransitionawayfromtheuseofgas.WeacknowledgetheworkoftheGICtoanalysethereadinessofmarket,commercialand regulatory settings to support this transition.

TheCCCconsidersthatitsrecommendations

have“createdoptions”andtohave“keptthemopenforaslongaspossible”.However,thisisnotstrictlytrue.Theprimeexampleofwhichis the CCC’s recommendations that relate to gasusage,whichexplicitlyhavetheeffectofbanningnewgasconnections,andimplicitly,are likely to have the effect of foreclosing on longer term options that might be able to leverageofftheexistinggasinfrastructure,giventhesignificantuncertaintiesthatitspoliciescreatefortheon-goingfinancialviability of these businesses.

8.5 Options to efficiently achieve the Commission’s emission reduction pathway at least customer cost

Manyofthecostsdescribedabovestemfromtransitioning gas customers to electricity withinthetimeframesproposed.Thekeyconsiderations to achieving a managed transitionandthemostefficientnetreductioninemissionsfromgasaretiming–andfocusingon the replacement fuel that is used in place of gas.

Manyofthecostsmentionedabovewouldbeavoided by integrating a bio-gas fuel or green hydrogen.

Forexample,fromacustomercostperspective,analysisjointlycommissionedbyVector(inthereportResponsetoNZClimateChangeCommission’sDraftAdvice,OakleyGreenwood)has found that transitioning natural gas to

biomethaneorhydrogenwouldbefarmoreefficient,accountingforhiddencustomercostsandthecostofthefuel,thantransitioningnatural gas to electricity.

Theiranalysisshowsthathouseholdsthatneedtospendmorethat~$1,447onnewelectricappliances(asaresultofourtransitionfromgas)andassociatedinstallationcosts(plumbing,wiring,reinstatementsetc)wouldbebetteroffusingrenewablemethane(at$17.60/GJ).Ifhydrogencostsfallto$2/kgthentheywouldonlyhave$344tospendbeforethealternative–hydrogen–wasmoreeconomicalthan electricity.

Theviabilityofthesefuelsforexistinginfrastructuredependsontheircomposition–but this can be ensured by the right standards andthealignmentofdifferentfueltypeswithdifferentreticulatedinfrastructure.Forexample,bioLPGisthebestsubstitutionforreticulatedLPG.

Greenhydrogencancurrentlybeintegratedwithnaturalgasat20%blendwithoutcausingembrittlement to pipes or health and safety risks. We recommend that the Commission consider the integration of these fuels over timetooffsetemissionsfromgas,ratherthanpreventingnewgasconnectionsfrom2025.

Settinganobligationforaproportionofgasusedinbuildingstocomefromrenewable(non-fossilfuel)sourcesisanopportunityto:

click for contents


•ReduceemissionsundertheCommission’spathway

•Strengthenpubliccommitmenttodecarbonisation by enabling consumer choice

•Retainaviablegasindustrytoservicetheneedsof‘hardtoabate’emissions(electricity,processheat);and,

•Preservevalueinexistingnetworksandhouseholdplumbingsystems,reducingunnecessary customer cost and stranded assets

•Enabletheemergenceofnewmarketsforbiofuels to create employment opportunities for transferable roles currently in the gas industry

ThiscouldachievetheCommission’ssoughtreductions in emissions caused by the end use ofgas,particularlyifnewconnectionswereabletobeprogressedthroughanoffsetcertificationscheme.Thiswouldbeimplementedbyaretailer to achieve carbon emissions reductions bywayoflowemissionsfuelintegration.Furtheranalysisofpotentialbio-fueloptions,andthecostsandbenefitsofthesealternativepolicyoptions,isincludedinthereportResponsetoNZClimateChangeCommission’sDraftAdvice,OakleyGreenwood.

IntheUK,whereheatingandhotwaterforbuildingsmakeuparound40%oftheUK’stotalenergydemand,and20%ofitstotalGHGemissions,theNetZeroInfrastructureIndustry

Coalition has called for a heat decarbonisation roadmap–whichconsidersthewholeinfrastructure value chain from energy transmission,distributionanduseanddrawsourkeyinfrastructurecomponents,timescales,challengesandrequirements.InNewZealand,enablingamanagedtransitionrequiresustomakesimilarconsiderationsacrossthewholegasvaluestream–includingbothupstreamconsiderations(ensuringthatlevelsofupstreamsupplysupportthepathoflowestemissionsforindustrialprocessheatusers),anddownstream(consideringdistributioninfrastructureandcustomerimpacts).

Thepathwayofintegratingnewlowemissionsfuelswouldallowalowercostsubstitutiontooccur for customers by providing customers withunreasonablyhighcapitalcostassociatedwithstructuralupgrades,theoptionoftransitioningfromgastoelectricity,ortheoptionoftransitioningtoaloweremissionfuel.Thiswouldalsoallowforthecreationofnewmarketsforbio-fuels,protectingjobsintheenergy sector and avoiding stranded gas assets. We note that the Commission envisions a role for bio-fuels referring to a potential transition fromgastobiomass.However,withintherecommendationtoendnewgasconnectionsby2025itisunlikelythatsuchnewfuelsormarketswouldhavethetimeorinvestmentto emerge. We note that in the Commission’s policyreferencecase,bio-gasismodelledtomakeup6%oftotaldemandin2030and74%

oftotaldemandin2050.WorkcommissionedbyBECAhassuggestedthatbio-fuelsarelikelytoplayanevengreaterrolethanthis,underthe‘allbeingequal’scenario.However,shouldthe Commission’s recommendation to end all newgasconnectionsby2025beprogressed,ourviewisthatthisdemandforbio-fuelswouldbemuchlower–particularlygiventhathighgrowthisprojectedtooccurafter2030.Itisunlikelythatthesemarketswouldhaveanopportunitytoemergetothisextentfurthertothis recommendation.

EnsuringtherightincentivesareinplacetoallowinvestmentinlowemissionfuelsshouldbeakeyconsiderationfortheCommission,notleastbecauseitisconsistentwithPrinciple3 of creating options and does not result in completerelianceonelectrification

Recommendations

• We recommend that the Commission callsforaconstructivedialoguebetweengovernment,regulators(asproxyforthecustomer)andgasnetworkownerstoidentifyapathwaythatmeetseachparties’objectivesand delivers a sensible managed transition pathwayforgas.

•Inreducingemissionsfromgaswesupportanefficientnetreductioninemissionsandquestionthetransitionfromtheenduseofgasifthiswouldincreasetheuseofgasforpeaking–whereitis2-3timesmoreemissions

click for contents


intensive–orthecostofelectricity.Werecommend that the Commission consider theimpactofcooptimisationbetweenthegasandelectricitynetworksandthepotentialimpact on electricity demand of a sudden transition from gas to electricity.

• We recommend that the Commission reconsider their analysis around likely customer cost of the transition from gas proposedintheirpathway,reflectingthetruecapitalcostswhichwouldberequiredofcustomers.

• We recommend that rather than pursue therecommendationtoendallnewgas connections or replacement gas heatingsystemsby2025,theCommissionrecommends an emissions offset scheme whichwouldsupporttheemissionsreductionthattheyaretargetingwhilstallowingscopefornewbiofuelmarketstoemergeaswellaslowercosttocustomersfromthetransition.

click for contents

vector response climate change commission draft advice 2021

Documents