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

I rise on behalf of New Zealand First to speak to the Electricity Industry (Small-Scale Renewable Distributed Generation) Amendment Bill. The energy sector, in New Zealand First’s opinion, is essentially broken. There is a great deal of detail that needs to be debated in this House. However, as time allows only a simple summary of these issues, it is to state the very real fact that electricity prices have risen in real terms nearly 50 percent in this country.

Originally, the energy sector was publicly owned and democratically accountable. The industry aims were motivated by this question: how do we best benefit the people of New Zealand? Now electricity is not viewed as an essential service; instead the market system would rule where the question of profit maximising or even profiteering became the motivator of the individual organisations.

Today this debate is about a fundamental question: what is the future of energy here in New Zealand? Is it the private sector? Is the private sector not, in fact, worried about the future of its core business? Is it worried, and if it is worried, is it supportive of empowering other businesses? I would like to quote from Gareth Hughes’ letter exactly what the intent of this bill will do: “This bill is a simple amendment of the Electricity Industry Act to empower the electricity authority to amend the electricity industry code and to act as an independent umpire.

The reality is that New Zealand needs legislation like this. In fact, it is only a start. In New Zealand we have plenty of sunshine hours, and on average per annum we are looking at 2,000 hours. I also want to point out that New Zealanders want a choice in whom they decide to spend their money with. I acknowledge that in today’s world consumer needs are much more diverse, and consumers want more options.

In Rotorua there is a marae generating its own electricity through geothermal, hydro, and solar-panelled energy sources. What it struggled to do was find somebody to buy back its surplus when the time was right. When it did find a retailer, it excitedly signed up, only to see its bucks drop down, month by month.

New Zealand First supports this bill because homeowners want to make environmentally and financially sound investments. This bill seeks to create fairness in the market; it seeks to address a real imbalance between the retailers and small independent generators. [Interruption] Sorry, I am just finding my piece of paper. I have so much to say on this that I actually got lost in my paperwork. So, in simple terms, this bill seeks to amend the Electricity Act. If the Electricity Authority was independently empowered, then the three tasks this bill sets out to achieve are a fair and reasonable buy-back rate, standard contracts, and standard connection frameworks across all regions.

I find it odd that currently the power retailers are the very people who sell this power to the consumers, and are also the very people who are buying back the surplus from those very consumers. If the Electricity Authority was independently empowered with these tasks, and this bill seeks to achieve this, then as a country we would be supporting renewable energy use.

Minister Brownlee voiced his concerns that this bill will encourage consumers to go off the grid. The intention of this bill, as it shows, seeks to set a fair and reasonable buy-back price. Mr Brownlee also described the need for balance, but the retailers are drifting that balance in their favour as the big players look to protect the infrastructure.

To ask the Electricity Authority to act as an arbitrator is reasonable. Examples of this exist overseas—models that actually work. New Zealand First supports this bill being referred to the select committee so that New Zealanders can come along and let their voices be heard, and that is what a good democratic process needs. New Zealand First supports this bill.

I rise in opposition to the Electricity Industry (Small-Scale Renewable Distributed Generation) Amendment Bill. In doing so, we reflect on this member’s bill. First, I ask myself, will the bill deliver the purpose that it claims, and is it actually seeking to address a real issue—so is there any point to it, and will it do it?

In this case, let us first look, because the purpose of the bill says—and I will just quote a portion of it—that it is to “break down existing barriers and provide a fair regime … to encourage greater renewable distributed generation.” So the claim is that there are barriers and that the situation is not fair.

Let us first turn our attention to the so-called barriers. Solar photovoltaic energy doubled between 2013 and 2014, and the trend has remained upwards. So if we look at the number of installed control points around the country that are photovoltaic, on 31 August 2013 there were 1,205 of those. On 30 June 2015 there were 6,161. For the member’s benefit I will just point out that that is a 500 percent growth. So to claim that somehow there are inherent barriers is to go against what is actually happening and what people are choosing of their own volition to undertake across New Zealand.

Secondly, let us look at an issue of fairness. If there is not such a great barrier, what is the fairness to be addressed? Our point would be that if the member is going to subsidise generation for one form, which is in an otherwise competitive market, then we are actually just interfering unnecessarily in that market, and creating distortions. Because what the member is seeking to do is to set not only terms and conditions of contract but a price for the buy-back of excess generation into the grid for a period of 10 years. Unfortunately, that will require retailers to purchase electricity often at a price that is greater than the wholesale price they could otherwise pay. In other words, the marginal cost of electricity will be higher under their model than it would be on the open competitive market that we have today. You see, New Zealand has already got 80 percent renewable energy. The additional megawatt, kilowatt, or watt that is provided at the moment is most likely to be provided from a renewable source.

So, in fact, all the member’s bill would do is two things: one, it would displace other renewable generation—that other renewable generation that is cheaper than the cost that the member would demand retailers pay for these small-scale generators—but it would also undermine the competitiveness that we already see in the market today. Because today there is amongst the retailers a range, a mix of prices on offer for excess generation. Some, it is true, might pay less than the wholesale price as they would see it, but there are some that would offer more. So really what that tells us is that people should be focused on looking at the options that are available to them and choosing the best one for them.

So what I would say in conclusion is that although, at a semantic or theoretical level, the idea of encouraging additional photovoltaic energy generation and helping to incentivise people to do it through a fixed price might sound good, if you actually look at the way the market has been working and the growth that we have seen in the installation of such generation, all it would do—all it would achieve—is to negatively distort a market that is working and has been growing on its own.

I simply think, and I would say to the sponsoring member, that if the bill were to succeed and go ahead, this idea that the bill would give certainty to small-scale generators of a certain amount of price for them would come merely at the cost of every other consumer of electricity. They would have to pay more for the generation of those small-scale generators, rather than the marginal cost on the next watt, the next kilowatt, the next megawatt through what are almost certainly otherwise renewable sources. I oppose this bill and I call for members across the House to do likewise.

I am very pleased to speak in the first reading of the Electricity Industry (Small-Scale Renewable Distributed Generation) Amendment Bill, and I want to begin my comments by congratulating Gareth Hughes. He is a very hard-working MP; he is also one of the luckiest MPs in terms of getting member’s bills drawn. I do not know what the trick is—I do not know whether he is a betting person or whether he does Lotto—but every time he has had a member’s bill drawn it has been worthy of debate at least, and, I think, worthy of referral to a select committee, as is this one.

I want to briefly comment on the member who has just resumed his seat, Brett Hudson. It must be very fortunate for him—lucky, perhaps—that he has come to this House after just a year with so much knowledge about so many things that he is able to give a 5-minute speech saying why this bill should not just be rejected but should not even be considered by the Parliament because it is not perfect. I just think that demonstrates a lack of confidence and a lack of commitment. I think that members should have the courage of their convictions to send a bill to a committee, where it can be debated, and if their view is correct, well, they may well want to offer some improvements to the legislation or, if they totally reject the principle of it, then they will win that debate in the court of public opinion as well as in a House where they know they have got a predetermined majority.

So put it to the test, National Party members of Parliament. Let it go to a select committee, because we know that members of Parliament in the Opposition do not have the advantage of having a huge department at their disposal, where they can say “I’ve got this brainwave of an idea.”, as clearly some Ministers do, and then they get their department to draw up the legislation. We have to do it pretty well on our own. But usually there is a germ of a good idea that can be built on, and we should at least have that debate, because we know that the biggest challenge facing our planet is climate change, and we know that we have a lot of capacity that is not yet captured in New Zealand to increase our use of solar power. So if that is an agreed problem—I should not pre-empt the member. The member who just resumed his seat may well be a climate change denier, but most people on our planet think there is an issue with climate change, and this is one of the many contributions that could be made towards our contribution to a fair response to climate change.

So the current situation is that electricity companies have the sole ability to say at what price and under what conditions a small-scale power generator can feed their surplus electricity into the grid. That is called the feed-in tariff or the buy-back rate. At the moment, electricity companies are the sole determiner of that position. What this bill seeks to do is address that issue, because it is clearly not a balanced position. Energy companies can change the buy-back rate at short notice. They do not have any independent oversight of that. They do not have to explain why they have changed the buy-back rate; they can just do it. Although, to be fair, some of them do and give good reasons, but they are not required to.

So what we have got is a lot of uncertainty in this area. People who are planning to install solar do it on what the current market assumptions are, but not knowing whether those might change within an hour or a day or a week. Or people who have already installed it might say “We don’t know what the future position is.”, so they are buying a product without knowing what the repercussions are. This bill just has a very simple amendment to the Electricity Industry Act. It empowers the authority to amend the code so that there is a mandate to act as an independent body in terms of setting prices, the terms, and the conditions for those buy-back contracts.

As I said at the beginning, I want to commend Gareth Hughes, not just for this bill but for the consistent work that he has done in this space. It is something that New Zealand can do better. I think we should take every opportunity to say: “What are the options available to us?”. For members of the Government, they should say: “Well, we don’t think this is a perfect solution, but we have the courage of our convictions to send it to a select committee and have it debated.” But instead of that, all we have had from Government members is: “No, no, no.” I do not think that is the sort of response the New Zealand Parliament should be giving to a good idea. We should be supporting it to a select committee, debating it, and let us see whether we can make some progress on these really important issues.

Tēnā koe, Mr Deputy Speaker. Amongst that confusion, it seems that not only are Government members tired of saying no but also they just seem too tired to debate this particular bill.

💬 Carmel Sepuloni: They’re just tired in general.

They are just tired in general. Maybe they need to consider more ways of renewable energy—something to get them a bit more proactive in the debate in this House.

Can I echo the sentiments of my colleague the Hon Ruth Dyson towards Mr Hughes for his fantastic work and, indeed, the entire Green Party for your continual work in this space around making sure that we leave a taonga and we leave an environment for our tamariki and for our mokopuna. So I rise to support this bill in its first reading.

The bill amends the objective of the Electricity Authority to include the line “to promote … greater use of renewable energy, including from distributed generation sources,”. We will break that up into two parts. The first one is “to promote … greater use of renewable energy,”. I am well-connected in the Māori circles and I visit many marae across the country. I know of many discussions across marae around the country, all around how do they involve themselves in the market of renewable energy. They are looking for better ways to utilise their natural resources, from water to wind and, of course, to capture the great sunshine that we have.

So anything that incentivises our people to get involved in more renewable energy sources I think is a very good thing. Although the member opposite mentioned how we are already functioning at around 80 percent of renewable energy sources, well, what is wrong with aiming towards 100 percent of renewable energy sources? So that is a good thing to be able to promote, particularly amongst our Māori communities—the ability for them to get involved in renewable energy sources.

What kinds of benefits does this bring? It obviously brings benefits. As the tourism spokesperson, I can say that those in the international community look to New Zealand. They look to New Zealand for leadership in this particular space. They also look to New Zealand because of our beautiful environment. Most people who come here want to go to see our beautiful mountains. They want to swim in our beautiful rivers, which, sadly, at the moment is just a little bit harder to do than it was when I was a child. They also want to come here to water-ski on the lakes and to go on bush-walks and track walks and even on cycleways.

They want to be able to do all of this, and I think if we can move our country into a focus on our environment, which I believe is just one part of this bill and what it tries to promote, then that can only mean good things for our tourism industry—but with a word of caution there, that it must be managed and it must be maintained in a clear plan to make sure that the boost in visitor numbers does not have a negative impact on our environment. But I digress.

My colleague the Hon Ruth Dyson talked about the distributed generation sources. The bill talks about the fact that if you establish a renewable energy source and you have excess power and you want to redistribute your power to the national grid then you should be able to do so, and you should also be able to do so at the market rate. As it stands currently it seems that the bigger power companies, which have a very big strong stranglehold on the industry at the moment, get to dictate and determine what that looks like, without any real sort of independent authority or oversight. So I think that this is a particularly good bill. I want to just echo Labour’s support for this bill and also to congratulate Mr Hughes. Kia ora tātou.

Could I begin by agreeing with some of my colleagues in paying tribute to Gareth Hughes for bringing what I believe is a well-intentioned bill. This House, at its best, exists to improve public policy for all New Zealanders, and I think that is what Mr Hughes has sought to do with this bill. I have actually corresponded with him at some length about the bill and how it might work, and whether or not its intentions, which are good, might be matched by good results. I felt that, as Parliament’s only electrical engineer, I should come and explain why I think the results of Gareth Hughes’ bill may not match the good intentions.

I think the question that we should ask ourselves when making legislation or when we regulate as Ministers is: what is the problem definition? What is the market failure that we are seeking to allay by taking this action? As far as I can understand, there are a number of concerns that Mr Hughes has. One is that there is collusion. He is suspicious that the prices that different retailers offer for buy-back have moved somewhat in sync in recent times. That is not unusual in a commodity market. The whole point is that there is really only one type of product, and the price is fairly uniform across the market. If indeed there was collusion occurring, it would be an open-and-shut case for the Commerce Commission under existing law, so I do not think there is a problem that justifies action there.

The next concern gets a bit technical: the idea that for distributed generation the call on distribution networks is somewhat smaller than what it is for other forms of generation. As the member has put it, we are really just sending electrons next door to the neighbour’s house. That is not quite accurate. It is not so much the electrons that move; they drift at about 7 millimetres per second. It is the wave of energy that energises the grid that moves, and it does so almost instantaneously. The point of transmission and distribution networks is that they are, with very small line losses in general, equally useful wherever you may be. That is the point of a network, and if you wish to have access to that network then you must pay for using it, wherever you may happen to be.

I think there is an argument that other reforms should take place, that there should be more time sensitivity in the price charged for access to distribution and transmission as it becomes technically feasible to measure the time of use, or at least cheaper to do so. But it is simply not the case that because your dependence on the grid is perhaps more fleeting than others—the fact is, if you still want to be able to access the grid, then you have to be able to pay to access it.

Finally is the idea that there simply is not enough certainty in what the future price will be. Well, I agree. That is a problem that all generators face. The Hon Ruth Dyson brought this up. Whether you are Mighty River Power or whether you are Mr Speaker or whether you are, perhaps, Gerry Brownlee, who tells us he has a solar panel, you face that uncertainty. But, again, there is no market failure here. There are actually solutions already emerging in the market to insulate people against that uncertainty. People will allow you to have solar panels installed owned by a third party, and they take the risk away from you, so there are already market solutions to this perceived market failure. It seems that the market failures that the legislation is supposed to be addressing either do not exist or are already well addressed by market mechanisms.

However, there are unintended consequences. What we are ultimately saying is if there is going to be some sort of fairness in a deal then some authority has to know what a fair price is and be able to enforce that it is charged over time. There are really two ways you can get a price wrong: too high or too low. If it is too high it will actually discourage retailers from entering the market, which would be disastrous for the whole intention of Gareth Hughes’ bill; if it is set too low then, of course, you are going to end up starving retailers from being able to actually serve the market that way. Whichever way you get it wrong, you are going to actually counteract the intention of the bill.

So I am opposed to this bill. It has very good intentions, but for all the reasons I have laid out the results will not be good enough to match those good intentions. Thank you.

I call on Gareth Hughes—5 minutes in reply.

Kia ora, Mr Assistant Speaker. Ngā mihi nui ki a koutou, kia ora. This bill about to be voted on is about fairness, it is about certainty, and it is about power. It asks the questions: who has the power—is it the electricity industry, or consumers as well? It asks who the electricity system works for—just the big companies, or for everyone? It also asks a fundamental question of our electricity grid: going into the future, will the industry continue to discourage solar Kiwis, thereby forcing them into batteries and off grid, or will it work with them and harness the national and network benefits they bring?

In this speech I would like to outline the solutions the bill brings, but also address some of the objections. First, I would like to thank all the dozens of homes, schools, businesses, farms, and maraes that opened their doors to me, let me up on to their roofs, and proudly showed me their solar panels. I would like to thank the clean energy industry in New Zealand, particularly the Sustainable Electricity Association New Zealand. I would like to thank Grey Power, and I would like to thank the New Zealand Labour Party and the New Zealand First Party for their support for this bill.

I drafted this bill a few years ago as a common-sense, pragmatic solution to the real issues facing Kiwis. My bill, in a nutshell, simply empowers the Electricity Authority to act as an independent umpire, to standardise contracts, and to set a fair, reasonable, non-subsidised buy-back rate. We are seeing Kiwis go solar in record numbers, but what they have found out is that it is the power companies that have all the power, and this is the problem definition that David Seymour asked me about.

One of the problems is that they face ridiculous regional red tape. Across the country there are 29 different regional rules, forms, and fees. For solar installers, of the 60-odd days it takes to install a panel, 59 are to deal with paperwork. Remember this: the people across the country who are part of small businesses installing solar panels and the people shelling out money to invest in solar will remember the parties that voted to continue this ridiculous red tape.

Currently solar Kiwis do not have a choice. The only choice they have is between a range of seven retailers that offer them similar low buy-back rates that seem to move in concert. They tell me they feel ripped off because they know their surplus solar electrons are being sold at the full retail rate. This is an average of 26c across the country, considerably higher in some regions, yet they are offered rates as low as 4c. They feel hard-done-by because they can get less than the wholesale rate, yet the retailer sells it at full whack. It sells it as if the entire electricity grid were behind those electrons—or waves, David Seymour—flowing to the neighbours.

These people cannot trade on the spot market. They do not have teams of lawyers to argue the contract terms, and in many cases it is the retailer that has all the power and sets the terms. It offers no rationale in return, and it can change it again at short notice.

This bill supports a fair, reasonable non-subsidised buy-back rate that is not set by politicians, and it is definitely not set by the power companies. It is set by an independent umpire, and it would take into account the generation costs, the avoided transmission and distribution costs, network benefits, and other aspects like administration.

In the debate we heard Gerry Brownlee say that it was all about higher prices. No, it is not. It is not about subsidies. It is about a fair and reasonable price, set by the National Party’s own authority. Then Mr Brownlee said that it would be too complicated. Perhaps I have a little more faith in the Electricity Authority than the Minister who established it. Then he called it price control. What we have at the moment exactly is price control. It is a small number of very large and wealthy companies that dictate the price—there is no say for the little person—and this bill breaks into their cushy old business model of simply selling more electricity.

Melissa Lee said: “Well, it’s not solar’s time yet.” Well, that is not what Deutsche Bank said about New Zealand this year, nor is it the experience on the ground. Kiwis in record numbers are going solar because of record-high power bills and record-low solar costs. They are voting with their wallets, and investing their own money. They are simply asking for more certainty and a fair go.

The Electricity Authority says that it is wasted and that it is the poor old electricity industry that is getting a raw deal from customers. The same argument is analogous to saying that someone who does not drive during the day, only at peak hour, and rides a bike the rest of the time is subsidised by other motorists. It is a red herring. It is not the solar customer’s fault that that is the current distribution pricing model adopted by the industry. I think it is deeply unfair to decry consumers for ignoring the same price signals that the power industries ignore.

What we see is a clear choice between shining a little sunlight on the issue and hearing from all these people—continuing the discussion around the select committee. This is my question to members: will they stand with the big old power companies, or will they stand with the little people of New Zealand, who want a little bit of fairness, a little bit of certainty? Kia ora koutou.