The Electricity Authority (Authority) has released a consultation paper proposing amendments to the transmission pricing methodology (TPM) to remove potential disincentives to investments in battery energy storage systems (BESS).

The Authority has identified two aspects of the TPM that could undermine efficient investment in BESS. The proposed amendments aim to level the playing field for BESS relative to other generation technologies. New Zealand’s first grid-scale BESS will be connected to the grid later this year.

The proposed amendments to the TPM will change the way connection charge allocations for shared connection assets and residual charge allocations are calculated.

Connection charge allocations for shared connection assets

The costs of connection assets are recovered from Transpower’s customers directly or indirectly connected to them.^[1] Where there are multiple customers connected to a connection asset, ie the asset is a shared connection asset, the costs of the asset are shared between the connected customers according to connection charge allocations calculated under the TPM.

A customer’s connection charge allocations are calculated annually, and are calculated differently over two periods:

• the first two pricing years of the customer’s connection to the grid (initial period); and
• the period after the customer has been connected for two pricing years (ongoing period).

A customer’s connection charge allocation for a shared connection asset and pricing year is the customer’s anytime maximum demand (connection) (AMDC) and/or anytime maximum injection (connection) (AMIC) at the customer’s connection location(s) as a percentage of the sum of every connected customers’ AMDC and AMIC.^[2]

In the initial period, Transpower estimates the customer’s AMDC or AMIC depending on whether Transpower expects the customer to predominantly take electricity off or predominately inject electricity into the grid.

For the ongoing period, Transpower calculates the customer’s AMDC and AMIC based on metered values from the previous capacity year and uses both values to calculate the customer’s connection charge allocations.

The AMDC for a non-BESS customer will greatly exceed its AMIC, or vice versa depending on what sort of customer they are, so this difference in methodology between the initial period and ongoing period does not cause a significant increase in the customer’s connection charge allocations.

However, a BESS customer will likely have roughly equal amounts of grid offtake and grid injection over a capacity year,^[3] meaning the customer’s connection charge allocations are likely to increase significantly when the customer enters the ongoing period. This could lead to the customer being charged double the connection charge of an equivalent-sized non-BESS load customer or generator during the ongoing period, potentially discouraging BESS investment.

To avoid this outcome, the Authority is proposing that connection charge allocations for shared connection assets be calculated during the ongoing period based on the greater of every customer’s AMDC or AMIC.

Residual charge allocations

Residual charges recover Transpower’s maximum allowable revenue not recovered through other transmission charges (residual revenue).

Transpower’s residual revenue is allocated to load customers (through residual charges) based on customers’ gross load.^[4] The allocator is called anytime maximum demand (residual) (AMDR) and is calculated from the customer’s baseline gross demand (in MW) adjusted according to lagged changes in the customer’s gross energy use (in MWh).

The mixed MW/MWh formula for calculating AMDR means “low load factor (peaky) customers who increase energy consumption will experience a greater increase in their residual charge compared to a higher load factor (flat demand profile) customer increasing consumption by the same amount.”

The Authority is concerned this could unreasonably impact customers investing in new load or emerging technologies, particularly BESS, and therefore disincentivise such investments or make them more expensive to finance.

The Authority is proposing to amend the TPM so that increases in a customer’s gross energy use will increase the customer’s AMDR at the same MW per MWh rate for all customers.

Timing

The Authority is proposing that the changes will come into force in April 2026, for the 2026/27 pricing year.

Submissions on the consultation paper are due by 16 September 2024.

Get in touch

If you have questions about how these proposals might affect you, or you would like assistance to prepare a submission, please get in touch with your usual SG contact, or one of the experts below.

Special thanks to Sam Chaytor-Waddy for his assistance in writing this article.