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7/11/2024·5 mins to read
Electricity Authority launches proposed reforms for connecting distributed generation and load
The Electricity Authority (Authority) is consulting on proposals that would significantly change the rules for connecting generation and load to distribution networks in the Electricity Industry Participation Code 2010 (Code).
The Authority has released two consultation papers:
- “Network connections project: stage one amendments”
- “Distribution connection pricing proposed Code amendment”.
Submissions on both are due by 5pm on Friday 6 December 2024, and there will be a two-week period following that for cross-submissions.
The Authority is running webinars on both proposals on Monday, 11 November.
We discuss below the main aspects of the Authority’s proposals.
Network connections project
The Authority is concerned distributors’ network connection processes are not fit for purpose and may be hindering electrification. The Authority is looking to create a framework that will provide certainty and consistency for distributed generation and load connections through changes to Part 6 of the Code.
The current consultation (stage one) covers the processes for connecting larger-capacity distributed generation and load (> 10kW for distributed generation, > 69kVA for load). Stage two will cover the connection processes for smaller-capacity distributed generation (≤10kW). The Authority is not planning to regulate connection processes for smaller-capacity load (≤ 69kVA).
The key proposed changes, anticipated to come into effect in 2026, are:
- Processes for larger-capacity distributed generation connections: The Authority is proposing to amend the current application and approval process for larger-capacity distributed generation in Schedule 6.1 of the Code, including having separate processes for medium (> 10kW, < 300kW) and large (≥ 300kW) distributed generation. The thresholds are based on maximum export power to the network rather than plant capacity (which is the basis for the current Schedule 6.1 thresholds). These new processes are based on the current process in Part 2 of Schedule 6.1 but with more prescription around steps and timing, particularly for large connections.
- Processes for larger-capacity load connections: The Authority is proposing to add new application and approval processes for medium (> 69kVA, < 300kVA) and large (≥ 300kVA) capacity load. These new processes are based on the proposed processes for medium and large distributed generation connections.
- Pre-requisites for large distributed generation and load connections: A final investment decision by the applicant and Overseas Investment Office approval (if required) would be default pre-requisites for final applications for the connection of large distributed generation or load.
- Prioritisation and capacity rights: The Authority is proposing to add detail about how distributors must prioritise final applications for the connection of distributed generation and load (the consultation paper uses the term “capacity rights”). This would include requirements for distributors to have, and adhere to, queueing and management policies for the connection of large distributed generation or load. An applicant for the connection of large distributed generation or load would need to comply with distributor-set milestones for its project to keep its place in the queue.
- Connection pipeline and network capacity: Distributors would have to:
- publish a “network connections pipeline” for large distributed generation and load connections, which lists final applications in priority order
- provide pipeline information to the Authority
- regularly publish and update information on network capacity.
- Regulated and prescribed connection terms: The Authority is proposing to amend the regulated terms for distributed generation connections in Schedule 6.2 of the Code, which apply in the absence of a negotiated connection agreement. Only a few amendments are proposed, most of which are helpful for distributors. New regulated terms for load connections (and prescribed terms for load connections by applicants who are not already participants) would be added.
The Authority is not currently proposing material changes to the default dispute resolution process (Schedule 6.3), the distributed generation pricing principles (Schedule 6.4) or the prescribed maximum fees (Schedule 6.5), other than extending the dispute resolution process to disputes about load connections and load connection pricing.[1]
Distribution connection pricing
Historically, the Authority has taken a light touch approach to distributor connection pricing for load but is concerned this approach has not provided “strong or consistent incentives for efficient pricing”, which it believes is “likely slowing down electrification and adding unnecessary costs that can flow through to consumers”. In particular, the Authority is concerned that:- low connection charges on some networks may lead to newcomers being subsidised by existing users; and
- high connection charges on other networks can pose a high fixed cost barrier to newcomers and dampen connection demand.
The key proposed changes, anticipated to take effect on 1 April 2026, are:
- Charges for network enhancements and capacity: Connected customers would only have to pay for the “minimum scheme” for their connection (unless they choose one or more enhancements). The minimum scheme is the least cost solution for the connection, in accordance with good electricity industry practice or a lower standard as the distributor and connected customer may agree. Distributors who recover network capacity costs through connection charges would be required to apply standard rates published by the distributor.
- First mover disadvantage: For certain network extensions, distributors would have to collect contributions from later connected customers and pay them to first movers. This will mitigate first-mover disadvantage, which can incentivise customers to delay their connections.
- Transparency: If requested by the Authority or a connection applicant, distributors would have to provide a connection charge reconciliation, breaking the connection charge down into the parts of it relating to net incremental cost and non-incremental network costs.
- Reliance limits: Connection pricing would have to stay within reliance limits (a measure of the extent to which a distributor’s connection and system growth investment is funded through connection charges). The Authority is proposing a limit of either 47% or the distributor’s actual reliance percentage for the year ended 31 March 2024, whichever is higher.
- Alternative contractual model: The Authority is considering implementing some of its proposals through default contractual terms between distributors and their customers.
The Authority is aware its proposals may have implications for distributors subject to price-quality regulation under Part 4 of the Commerce Act 1986, to the extent distributors would have to recover more costs through ongoing revenue. The Authority expects impacted distributors to resolve this with the Commerce Commission before the proposed new connection pricing rules come into effect (anticipated to be 1 April 2026). If this is not achievable, distributors may apply to the Authority for a Code exemption.
Get in touch
If you would like any assistance with your submissions on the consultation papers or have questions about anything discussed in this article or how it could affect you, please get in touch with one of our experts.
Special thanks to Sam Chaytor-Waddy for his assistance writing this article.
[1] The application of the dispute resolution process to load connection pricing is covered in the distribution connection pricing consultation.
