Electricity Industry (Small-Scale Renewable Distributed Generation) Amendment Bill

I move, That the Electricity Industry (Small-Scale Renewable Distributed Generation) Amendment Bill be now read a first time. I nominate the Commerce Committee to consider the bill. My bill deals with breaking down the barriers for all small-scale clean energy, but in New Zealand this mostly means solar. So I would like to start at the beginning, where it was once said there was light. About 150,000,000 kilometres away, in the sun’s core, hydrogen atoms are fused into helium through nuclear fusion, and sunlight, or photons of energy, find themselves after 10,000 to 170,000 years, and possibly billions of collisions within the sun, finally escaping, reaching the surface, and travelling into space. Those photons then travel at the speed of light, and over the course of the 8.3 minutes they take to get to earth, if they hit a solar photovoltaic panel on someone’s roof, they are turned into free, clean energy. My bill is about how we deal with that electricity, and the rules around it.

Up and down the country and across many countries, I have met with various people who have gone solar and are excited by the ability to produce their own power from the sun. The International Energy Agency, and even our own Treasury, acknowledges that solar power has a big role to play in a low-carbon, clean-energy future. Up and down New Zealand I have met dozens of Kiwis who have gone solar. They tell me that they have gone solar because they love the freedom and the sense of energy independence it brings. What they have seen is, as power bills reach record highs and solar power’s costs reach record lows, that the costs have dropped some 99 percent across the course of my lifetime. Those people have looked up at their roofs and they have wondered.

As individual consumers, they do not want to be totally dependent on the big old power companies and just passively pay the power bill, which seems to keep going up. They want to be able to do it for themselves. They want to be able to participate, but the unfair market rules in New Zealand mean that for many Kiwis the solar dream has become a headache. I have met with farmers, business people, school principals, and marae representatives—all people who have invested their own money in solar—but I would like to talk about a couple whom I met in Auckland. Roly and Gail Runciman are superannuitants in Howick in Auckland, and they went solar. They told me that they went solar in their retirement age; they wanted to spend their life-savings to try to fix their power bills, as they were on a fixed income.

Last year Roly grabbed a ladder, took me up on his roof, and proudly showed me his solar panels. What we discussed up there was how it was that the power companies had all the power in the relationship—that they could set the buy-back rate for his surplus energy, which they then sold on at full retail price. We talked about how the power companies had recently slashed their buy-back rate by 72 percent, at short notice. Roly told me: “It’s stacked against someone who wants to do something a little bit entrepreneurial, as well as doing something for the country.”

Now, along with that, there is additional ridiculous red tape when it comes to solar. Across the country there are 29 different regional forms, fees, and rules. Some lines companies take months to deal with an application. One solar company told me that when it quotes for solar panels for a customer, of the 60 days it takes them to put a solar panel on someone’s roof, only 1 day is spent actually installing the panel, the rest is dealing with paperwork. Some cities require a resource consent, some do not. Some have fees, some do not. In some places, like Cambridge, you can pay up to $850 to connect to the grid, yet only an hour-and-a-half drive up the road in Auckland, it costs zero.

I do not think it is on for power companies to have all the power, and for the little guy to have none, except the power to switch to another retailer, which treats them exactly the same. So that is why I drafted this bill—to give those Kiwis a fair go. My solution is a simple, common-sense amendment to the Electricity Act to empower the Electricity Authority to act as an independent umpire. The Electricity Authority would be empowered to deliver on three tasks: the first is setting a fair and reasonable non-subsidised buy-back rate; secondly, establishing standardised contracts to provide certainty for all participants; and, thirdly, for reducing that ridiculous regional red tape with a standardised connection framework. The big issue was the buy-back rate, and currently the buy-back rate is entirely decided by the electricity retailer, which, you could argue, has a commercial imperative to see a solar customer as a competitor or a threat to its profits.

So if surplus solar energy is produced on someone’s roof, those electrons automatically flow back through the grid, and, essentially, are used by the neighbour or someone down the road. That neighbour or someone else down the road is charged at the full retail rate—an average of 26c per kilowatt-hour across the country—yet the power company unilaterally decides what to give them, and it can change this with only 30 days’ notice. Currently this is as low as between 4c and 8c. It is entirely out of step with other countries and it is incredibly unfair.

I do not think it should be politicians setting the rate, but I definitely do not think it should be the power companies—the ones with all the power—setting the rate. That is why I support having an independent umpire. So I believe the answer is for the Electricity Authority to develop an understandable, transparent, and clear formula that is fair and reasonable. I do not believe this is about setting up households to compete with power companies; it is definitely not about trying to make fortunes via public subsidies for people going solar. It is simply about fairness and certainty.

So my bill is trying to help those consumers—the schools, the businesses, the maraes—but I also believe it is helping the power companies, because the power industry finds itself at a crossroads in 2015. For 100 years it has grown fat by selling more power—that has been its business model. It has pushed power down wires in one direction, and thought about it like water-pipe engineers—trying to get all those electrons from point A to point B. But disruptive technology like solar, like batteries, and like electric vehicles is asking them to think more like computer engineers. It is as different now as sending mail by the post is to people sending emails over the internet.

So my bill asks those power bosses a fundamental question: will you fight solar, or will you work with it? Because currently it looks like the power companies are scared of solar, and they are actively trying to discourage those Kiwis trying to do it themselves. So if we continue those rules that give all the power to the electricity companies, we are simply going to force people to go off-grid with battery technology, leaving fewer people on the grid, raising prices, causing more people to leave the grid—in other words, the utility death spiral, which is being discussed so often overseas.

Over the last adjournment I was over in Silicon Valley and I met with Tesla Motors to discuss their new lithium ion Powerwall battery. I also met with Enphase Energy, which is doing great research and development work in Christchurch and has teamed up now with Genesis Energy to offer battery storage solutions for Kiwis here. The price of batteries is halving every 8 years, akin to Moore’s Law, and what we are seeing is the ability to harness storage technology to deliver cheaper, cleaner, smarter electricity for everyone on the grid. So the choice is: are we going to work with solar and battery technology, or are we just going to force them off and see batteries as their ticket to go off grid? My vision is 100 percent clean energy, a modern smart grid with customers in control, with customers having power—but this is going to require those electricity companies to think differently about their role. They have to think as energy service companies and care about their customers’ needs and what the customers want, and not just try to sell more power down the wires to drive their profits.

So I am urging power companies to support my bill for a clear, fair, and transparent regime for solar homes, or they may well just see their customers leave them. Ultimately, though, my bill is a vote on fairness. It is a vote for certainty, and I am asking MPs today in this Chamber: are they going to be standing with those individual Kiwis like Roly and Gail—Kiwis in Tauranga, Palmerston North, Ōhāriu—or are they going to be standing with the big, old-fashioned power companies? We can set fair and reasonable rules for distributed generation, we can allow consumers to participate in the electricity market, we can see a more modern, resilient grid, and we can grow more good local jobs.

I am hoping that members can support this bill. We can shine a little light on it—excuse the pun—and if we get a hearing in a select committee, we can hear from solar customers, solar companies, and the electricity industry, because there is a real issue. My bill, I believe, is a good way to deal with it, but let us have that discussion in the select committee. I believe it deserves a little bit of sunlight. Kia ora.

I think it is very interesting that the member Gareth Hughes makes an impassioned plea for New Zealand to move progressively towards more renewable energy. What I want to say to him is that in 2010 there were very significant changes to the electricity industry marketing arrangements that were designed to encourage greater use of renewable energy, and in 2014 we saw that figure soar just a little above 80 percent of all our electricity being generated from renewable sources. We are on track to have that generation reaching 90 percent by 2025, so there has been a fundamental shift—probably the biggest shift—in the way in which electricity is dealt with in this country during the last 5 years. There is no question about that.

The bit I disagree with the member on is the assertion that unless there is a higher price paid, or a fairer price paid, more people will go off the grid. The reality is that to stay on the grid at the moment represents a good deal for anyone who chooses to have some supplementary arrangements around generation for their particular home. I know a little about this because I am doing this myself. I expect that some of the household costs that I might face will be reduced because I will have a system where generated electricity will first meet demands at my own property, and any surplus will then be exported over the import/export meter and, as the member said, picked up by, perhaps, a neighbour or someone else, simply because it is the shortest distance for any of the electrons to particularly travel. But that does not take away the need for there to be a reliable grid for the times when there are not huge amounts of sunlight, when there is not sufficient electricity generated from a roof space to supply either the needs of the particular residents or, perhaps, anybody nearby as well.

So the issue is, then, what the balance is between a wholesale price that is struck for electricity, which, remember, is struck on a market mechanism, and the price that is paid for delivery of electricity to your home. At the moment, if you look at it, if someone has a solar system—and that is largely what we are talking about, because there is not enough embedded wind for us to really get comparative figures on it at the present time—then if someone is with Contact Energy, they will get an 8c a kilowatt hour payback for exported electricity. If they are with Genesis it is 5.46c a kilowatt hour. If they are with Mercury Energy it is 8c a kilowatt hour. If they are with Meridian Energy it is a 7c summer rate and a 10c winter rate. If it is TrustPower it is 7c across the year.

The point here is that if you go to the deepest, darkest part of winter this year, 2015, the wholesale electricity rates—if you take just one day that is reasonably average for the days in July, then you will get a wholesale electricity rate of somewhere around about 4 to 4.5c per kilowatt hour. The electricity companies will be buying at that rate and they will be selling at a higher rate, but they have all of the infrastructure that is necessary to generate that electricity in the first place, the infrastructure to monitor how much of that is being used and to actually be able to put a price on it. I do not think it is reasonable to say we want to have a structure that says that that price cannot fluctuate.

The suggestion that somehow the Electricity Authority is going to come up with an algorithm that will deal with the embedded rate on a daily basis, alongside some sort of spot price, I think is hopeful thinking. What it will lead to is higher prices, because you cannot have a demand for electricity in New Zealand that is relatively constant in its growth rate—although substantially reduced on what we faced in 2009. In 2009 we were looking to have to add about 150 megawatts per year of generating capacity to the system each year. We are nowhere near that now, because there has been this different way of dealing with electricity. But to say that the next step is to tie the feed-in tariff, effectively, to some sort of formula struck by the Electricity Authority, I think will not lead to lower prices. It will lead to higher prices, in fact, because the higher you go with that price, if it is struck at a reasonable rate, the greater the burden it is—or you become, as the generator, in my case—on everybody who takes a little bit of that electricity.

So I think also, then you look at market trends. Right now it is virtually impossible to watch peak-hour television without seeing solar energy companies advertising their products at pretty attractive rates. I have got to say that there is quite a difference between those attractive rates and what you end up paying, because of the relatively small size of the systems that are being advertised in the first place. None the less, the take-up rate is extraordinary.

If we just look at that, solar energy in New Zealand has in the last 3 years in fact gone up by three times. So people are making choices about their energy security, about their energy supply, definitely not based on price but based on what they perceive as being a good contribution they can make to good environmental outcomes in New Zealand. I would ask myself: why would we want to disrupt that? Why would we want to be saying that we must have some compulsory system that makes it so attractive that everybody will automatically go out and sign up to it? Because that is what the member is asking for. He is asking for authority in this bill for the Electricity Authority to come up with some sort of algorithm, or whatever it might be, to determine what the daily price is—or the monthly price, or the yearly price—for electricity.

I cannot see how it is a good thing to say to schools—for example, which can buy their electricity through, say, Meridian Energy spot-price planning that might take them down as low as 3.5c on some days in the winter and even lower in the summer—that, in fact, by having a feed-in tariff that is at a much higher level, even though it will not provide all of the services to that school, there is going to be such an encouragement that they will go out and make that sort of investment. They will not do it for that reason, because we are a long way from a point where the investment in solar energy is rational enough for people to get economic benefit from it.

If the member was prepared—

💬 Stuart Nash: No, that’s not true.

The member over there, Mr Nash, calls out across the House: “That’s not true.” Well, I look forward to him making his speech that will give the figures that will indicate that it is an economically rational decision to put in sufficient photovoltaic panels on the roof of a house to run that house and provide a bit of surplus, and for that surplus to actually pay for the capital investment over a reasonable period of time. If it is over 25 years it might happen. If it is over 30 years it definitely will happen. But if it is over 10 years it will not happen, and no amount of mucking around with the price is going to change that. The reality is that the more people who are taking electricity out of an embedded system the higher the price for anyone else who has to take it from a network system. There is no getting away from that fact at all.

I am not surprised that we are getting that from Mr Nash. He was a man who was supportive of some of the dopey electricity reforms of the Labour Government the last time that it had the opportunity to be in Government. He was a strong supporter of all of the compulsory arrangements around solar energy and everything else.

💬 Stuart Nash: What? I wasn’t in Government.

Well, he says now he was not there, but we know he was out knocking on doors telling people to vote for the Labour Party. He was at the time.

This is not a bill that I or the National Party will be supporting. [Bell rung] Two minutes? I have got 2 minutes. That is good because there is a lot more I want to say about the dopey policies of the Labour Party during that time. In a 9-year period we had no fewer than four electricity crises—four. Four times the Government went to New Zealanders and said: “There’s a problem. The lakes are too low. We are going to have to ask you all to conserve electricity and, by the way, we are going to have to build this massive white elephant, the reserve generation capacity. We are going to spend $90 million building it and another $90 million feeding it with diesel fuel—very, very clean for the environment.” It took simply a reform of the electricity marketing arrangements to ensure that in the last 7 years there has not been an electricity crisis. We are now seeing electricity prices fall and in 2014 we saw the driest year in New Zealand’s history and not one flicker of the lights.

So this is one of those nice, feel-good ideas that will cost people who have the least capacity to buy into it a great deal more than they are paying at the moment.

Gerry is right. I am sure that if Helen Clark in 2005 had not told the Labour voters in Epsom that they had to vote for Richard Worth, then I would have been in that Labour Government. But, unfortunately, it did not happen in Epsom, and I lost it.

Let me tell you a story. When I lived in Mount Eden we used to drive past an appliance store, and there was a big plasma TV in there and it was $10,000. The sort of thing that we used to say, when we drove past it, was: “When I win Lotto, I’m going to buy that television set.” Ten years on, you can now buy a plasma television, twice the size and much better quality, from The Warehouse for $500. The point of my conversation is that demand drives innovation, and at the moment there is an incredible amount of money being spent on disruptive technologies, which is driving innovation to the point where the price will come down and solar and battery technology will become affordable to a good number of New Zealanders.

One thing Mr Brownlee said—I should call him “Sexy Coal Gerry”, I suppose—that was quite salient was when he talked about what he is doing in his house. He said “At the moment, we will stay on grid.”, and at the moment I agree with the Minister. At the moment, it is not necessarily a rational economic decision to put solar on, because the payback is a long time. But the thing that I do know is that the future for electricity is changing; I do not know whether it is going to be in 5 years or 10 years, but the bottom line is that in 10 years’ time the electricity generation story will be completely different from what it is now.

But the other thing that I read from this bill—and I could be wrong, and this is where I think the Minister may have misread the bill, but maybe I have—is that this bill is not saying there has to be a higher price for buy-back. What it is saying is that it needs an independent arbiter in the Electricity Commission to actually set legislative terms and conditions that those who are actually implementing solar—

💬 Hon Gerry Brownlee: Price control.

No, I have been on record, I think, saying that I do not think subsidies in this market work. If there is a subsidy for the solar generator, then those people who actually cannot afford solar are subsidised, and I do not think that is right. If there is a subsidy for the power companies—i.e., they pay a lot less—then those who cannot afford solar are subsidising it. I think it should be somewhere around the wholesale rate, and this is why two power companies actually dropped their price considerably earlier this year. They said “Why should we have to pay considerably more than the wholesale rate?”, because, in effect, they were subsidising the people who put solar in. I do not think that is right.

But what I do think needs to happen is there needs to be a level of certainty for those people who have made a decision to implement solar. I do not think that certainty is there if the only organisations that have the ability to set the price are the ones that have to buy it. In fact, the reason why the Electricity Authority was set up in the first place—and I personally think it was a great initiative, so credit where credit is due—is actually to provide an independent body that will advocate on behalf of consumers and will, in a way, mitigate a lot of the power, excuse my pun here, that the power companies do have. I think it has done not a bad job of, first, educating consumers; second, holding a lot of these gentailers to account; and, third, providing the sort of independent arbiter that we need in a country of 4.5 million people, a long country, and in many places with not enough people to make a lot of this stuff economic.

The Labour Party is supporting this bill to the select committee for the very reason that I would love to hear what the experts have to say on this. I have done a lot of research into this, but I do not consider myself an expert. If the experts take a good hard look at this and say that this is not a bad way forward, then that is great and we will support it on the way forward. If they do not, then let us hear what they have to say in the first place. This is why the Labour Party is supporting this bill, because it is about what the future looks like, and we need to start addressing these issues now. Thank you very much.

Thank you for the opportunity to take a call this evening on the Electricity Industry (Small-Scale Renewable Distributed Generation) Amendment Bill. I begin by commending the member Gareth Hughes, whom this bill belongs to, and congratulating him on the ballot. He has been very lucky.

I have to say that I agree with what Stuart Nash said. The technology is not actually quite there to do it now. I think this is something for further down the track when technology actually catches up with us. It is sort of like mobile phone technology. Mr Hughes and I have talked about the price of mobile phones many, many times over at the Commerce Committee during our time here. When mobile phones first arrived in New Zealand they were so expensive that they were available only to those people who really wanted to have that technology, and they paid a high price for it. Look at where mobile phone technology is now. Back in those days you could not even text people. You could not even have memory on the phone for 10 people—10 of your best friends perhaps. Mobile phone call charges have dropped humongously as well. So technology needs to get to where it is feasible for people to use it. I think we probably need to actually wait for that.

The National Party opposes this bill because it seeks to change the current regime of solar and renewable energy generation in New Zealand. It seeks to change it in a way that is not in the best interest of the electrical market or consumers at large, and it should not be progressed to further readings. I do not support it going to a select committee. We oppose it because we do not believe that interfering with the market to support one form of electricity production over another is a benefit to taxpayers and consumers alike.

I think that Minister Brownlee actually called it price control, and that is exactly what Mr Hughes is proposing—that we should actually control the price of solar generated electricity feeding back into the grid and that it be paid a specific price, a higher price than what the power companies are prepared to actually pay. Do you know that, as Minister Brownlee said, New Zealand already has at least 80 percent of electricity being generated in a renewable form? I come from a country where traditionally our ondol, the warm floors that we love in Korea, were generated by coal, and many, many places in that country still use carbon, coal power, to generate that. We in this country are very, very lucky and I think this is a bill that we do not require.

Debate interrupted.

The House adjourned at 10 p.m.