2021

Aurora Energy’s future distribution pricing to support the low carbon economy

Aurora Energy’s future distribution pricing to support the low carbon economy

22 Nov 2021

Aurora Energy is consulting on how the company proposes to develop its electricity distribution pricing to support electrification and a low carbon future, and the company is encouraging customers to have their say on their proposal.

Chief Executive Richard Fletcher said the company wants to reform its pricing approach, so it supports customers as part of New Zealand’s drive towards electrification and decarbonisation.

“We see NZ electricity networks as central to enabling customers to uptake and optimise emerging green technology and we are committed to ensuring our customers are empowered to do exactly that.

“We want to give customers choice about how and when they use electricity. The goal is to develop efficient distribution pricing that makes it easier for customers to make choices about how they use the electricity network and make energy-related investments like solar panels, batteries and electric vehicles,” he said.

Changes are planned for the electricity distribution sector over the next five years, to move towards pricing that is more reflective of the costs incurred in providing electricity distribution services.

The main changes are likely to come from April 2023 and include phasing in a mix of prices depending on the time of day customers use electricity, changing the proportion of fixed charges so that overall charges are more uniform, and looking at a new option for how capital investment costs are allocated.

Aurora Energy General Manager Regulatory and Commercial Alec Findlater said the organisation is asking people what they think about the proposed changes now, even though some of them won’t be implemented until 2023, because they want to make sure people understand why the changes are happening and what it means for them.

“Aurora Energy’s distribution charges are only part of a customers’ total electricity bill, and we know that a number of electricity retailers don’t show a breakdown. The distribution pricing changes we’re proposing can benefit customers, so long as they are able to see and react to new price signals,” he said.

“We know that some electricity retailers transparently pass through our charges, while others repackage them as they see fit. The proposed changes we’re consulting on rely on either future prices being transparently passed on to customers and shown on their bills, or electricity retailers and flexibility traders developing innovative services to help customers manage their electricity demand.”

Mr Findlater said efficient distribution pricing is critical for the upcoming transition to a low carbon future that is affordable for customers, while still providing a reliable electricity supply.

 

FAQs

 Why is Aurora Energy changing how electricity distribution prices are charged?

We want to position our network for the future and activity support a decarbonised future through our network, and enabling customers to make ‘green’ choices is part of that.

 For over 100 years our residential prices have largely been based on the amount of electricity you consume, regardless of when you use it. We’re proposing some changes that will send customers better price signals in the future, so they are more in control of the choices they make. We want to give customers more choice in how and when they use electricity, including whether to make energy-related investments like solar panels, batteries and electric vehicles.

 What are proposed changes to electricity distribution pricing?

We’re looking at three main changes:

  • Phasing in a mix of prices depending on the time of day you use electricity
  • Changing the proportion of fixed prices so the charges are more uniform
  • Looking at a new option for how we allocate capital investment costs

 If people are using more electricity, why can’t you build a bigger electricity network?

Rather than just build more poles and wires to meet demand, we’re proposing pricing incentives that encourages shifting electricity consumption into off-peak periods.  Lowering peak demand will delay or even avoid network investment, and ensures that prices can be kept as low as possible for everyone.

 What do you mean by phasing in a mix of prices depending on when you use electricity?

Moving to time-of-use pricing from 1 April 2023 means you’ll have options to pay less if you use power at off-peak times, or pay more when you use it during peak times. For example, you can choose to save money by charging your electric vehicle overnight, or setting the dishwasher and washing machine for off-peak times.

 What are the changes you’re proposing to fixed charges?

Like all electricity distribution companies, Aurora Energy has costs that are largely fixed and independent of the amount of electricity that is transported through the network. Under the existing arrangements of low fixed charges and higher variable charges, network costs are being over-recovered from high users and under-recovered from low users. We want to increase the proportion of fixed charges to reduce this inequity.

 What’s the new option for allocating capital investment costs?

In summary it means that, for example, if one of the pricing areas (Dunedin, Central Otago or Queenstown Lakes) has 40% of the electricity network’s asset value, then customers in that area will pay 40% of Aurora Energy’s overall investment-related costs. However, for overhead costs such as network engineering planning, our 24/7 control room and our business support functions like accounting, those costs will be spread across the entire network, regardless of location, meaning that all customers receive the benefit of network scale.

 Why don’t all electricity retailers show the breakdown on their bills?

Our distribution charges are billed to electricity retailers, who choose how those charges are passed on to customers. We know that some electricity retailers transparently pass through our charges, while others repackage our charges as they see fit.

 Because electricity retailers combine several costs, including wholesale energy costs and distribution costs, there is no guarantee that our new distribution prices would pass transparently through to your electricity bill. 

 What’s an electricity retailer in comparison with Aurora Energy, who is an electricity distributor?

Several companies work together to supply your electricity, from generation and transmission to sending you your power bill. The below diagram shows where Aurora Energy fits in. You can see a version of this diagram here.