Parliamentary Commissioner for the Environment - Te Kaitiaki Taiao a Te Whare Pāremata

A review of the environmental performance of the Electricity Commission 1 July 2006 - 30 June 2007

This report is a review of the environmental performance of the Electricity Commission (EC) for the year 1 July 2006 to 30 June 2007. The approach used is to focus on five particular areas of work that are relevant to the year under review, rather than undertaking a systematic audit.

The five work areas are:

• electricity efficiency programmes, such as subsidising the sale of energy efficient light bulbs
• the monitoring of "hydro spill", that is, water flowing past a power station that is not being used to generate electricity
• the introduction of more sophisticated electricity meters – meters which could help households and businesses better manage their electricity use
• the incorporation of wind power into the electricity grid
• the issue of who pays for transmission lines and the consequent impact on investment in renewable forms of electricity generation.

The EC has carried out a considerable amount of work developing programmes to improve efficiency of electricity use by households, businesses and industry, and is to be commended for this.

There is, however, a significant issue that needs examination when considering the EC's role in improving electricity efficiency. Focusing solely on electricity may not give the best environmental result. In some instances switching from electricity to gas or wood may give greater environmental (and economic) benefits than improving end-use electricity efficiency. In particular, residential space heating is a key driver of winter peak demand, and what some have called the 'electrification of space heating' may well increase the height and duration of those peaks. Peak power is largely generated by burning fossil fuels.

This in turn raises the wider issue of the scope of the EC's functions. What may be best from an environmental perspective for electricity may not be best across the whole energy sector. In short, is there a case for the Electricity Commission to evolve into an Energy Commission? In other jurisdictions, energy governance agencies are usually responsible for both electricity and gas. Looking further ahead, if electricity becomes a major transportation fuel, should there be some kind of joint governance of electricity and biofuels?

The EC is also unusual in international terms with respect to its powers. Despite many years of effort, New Zealand struggles to make real gains in improving energy efficiency. The energy governing body in the United Kingdom sets mandatory energy-saving targets for electricity and gas suppliers. The EC, of course, has no such powers, but this "light hand" is not the norm for energy governance in other countries. The development of advanced metering systems is another example of where the EC can only guide, but other jurisdictions mandate.

Due to the intermittent nature of wind generation, there are challenges in integrating a significant increase in wind generation capacity into the system. Through the Wind Generation Integration Project, the EC is removing technical barriers to integrating wind into the grid, and is to be commended for this.

There is, however, an active debate over whether the Transmission Pricing Methodology that the EC has recommended to the Minister for approval discourages investment in renewable generation. The EC's position is that the debate is irrelevant because the preferential treatment of renewables is not required in the Government Policy Statement (GPS) on Electricity Governance, and that what is required is the adoption of efficient pricing.This seems to be a case where goals in the GPS are in conflict; that is, the goal of economic efficiency is in conflict with the goal of reducing greenhouse gases. Ideally, such conflicts should be explicitly acknowledged and the GPS be amended to provide guidance to the EC on the relative importance of different goals.

Summary of the Commissioner's Recommendations

In the report, the Commissioner makes four recommendations to the Electricity Commission and two recommendations to the Minister for Energy. The Commissioner recommends that:

1. the Electricity Commission continues to carry out residential end-use electricity efficiency projects, and does this in conjunction with the Energy Efficiency and Conservation Authority.
2. the Electricity Commission undertakes a study assessing the programmes used by energy governance agencies in other jurisdictions to encourage or require energy suppliers to meet end-use energy efficiency targets.
3. the Electricity Commission collate the hydro spill data published by generators and investigate the causes of hydro spill events where the event is classified by the generator as 'cost', 'economic', or 'other', and that have occurred when thermal plant has been generating.
4. the Minister of Energy requests that lines companies assist the Electricity Commission in the testing of the total load able to be shed from load control arrangements, such as the installed ripple control infrastructure and the newly installed advanced meters.
5. the Electricity Commission undertakes a formal independent peer review of the Generation Expansion Model, and the relevant modelling work, to check the validity of its conclusions regarding the impact of the Transmission Pricing Methodology on future renewable generation.
6. the Minister of Energy amends the Government Policy Statement to provide guidance on how to reconcile environmental and economic objectives when they come into conflict.

Four reports looking at electricity meters and pricing plans, commissioned by the PCE, are referred to in the review of the Electricity Commission.