Episode 7: The Authority’s refreshed strategy

In this episode, Carl speaks to Sarah Gillies, Chief Executive, about the Electricity Authority Te Mana Hiko’s refreshed strategy and how it will help guide New Zealand through a rapidly changing electricity system. Together, they discuss the Authority's vision of reliable electricity at lowest cost for New Zealand consumers, the challenges and opportunities created by electrification and renewable generation, and the five strategic priorities that will shape the Authority's work in the years ahead.

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Transcript

SPEAKER_00 0:06

Kyota, welcome to the Electricity Brief. Each episode we bring you a conversation with the people that are shaping New Zealand's electricity market. We talk about what's happening, why it matters, and what it means for you. In this episode, we're joined by Sarah Gillies, the authorities' chief executive, to talk us through the refresh strategy. Kyota, Sarah.

SPEAKER_01 0:26

Kioda, Carl.

SPEAKER_00 0:27

It would be fair to say, Sarah, that the electricity sector's been going through a season of rapid change. What are the key drivers that you see?

SPEAKER_01 0:34

New Zealand's electricity system has been changing for a while, but we're entering, I guess, a more intensive phase. And we're seeing renewable energy becoming cheaper, we're seeing thermal generation getting more expensive, and gas is less available. And at the same time, on the demand side, I guess more parts of our lives, like transport and industry, are switching to electricity. And so that's pushing demand up. On top of that, the way electricity is generated is changing too. So we're moving more towards wind and solar, which has big benefits in terms of low-cost electricity. But it also means the system is more dependent on the weather and more complex to manage. And all of that means we need to invest significantly in the system, not just in generation, but also in things like storage, flexible demand, and new technologies to help keep everything reliable and affordable. And that's where we come in. As the regulator, we've got a really important role to play in helping shape how New Zealand navigates this transition and what our energy future looks like.

SPEAKER_00 1:37

So with all of that change and thinking about the scope of the authorities' role, has your vision changed as well?

SPEAKER_01 1:43

Yeah, it has. Our vision is simple: reliable electricity at lowest cost for New Zealand consumers. So for us, that means making sure the lights come on when people need them and that the system is running as efficiently and as cost-effectively as possible. That doesn't mean that we want to run the system at the cheapest possible cost to the detriment of investment in the system itself, but we've got our eyes on that long-term efficiency of New Zealand's electricity system.

SPEAKER_00 2:10

I know in the past the authorities talked about dividing the work between affordability and reliability. Has anything changed in that regard?

SPEAKER_01 2:17

No, that's still really central for us. And when we talk about affordability, what we really mean is making sure that electricity is generated and delivered at the lowest cost over time for New Zealanders. And alongside that, reliability absolutely matters too. We want a system that is secure, that is resilient, one that can handle shocks, keep the lights on, and consistently meet people's demand. It's really about balancing both, running the system efficiently at the lowest cost, while making sure it's dependable.

SPEAKER_00 2:49

And what else is new?

SPEAKER_01 2:51

So we've landed on five strategic priorities that will guide where we're headed. They help us keep moving in that direction towards that overall vision, but in a way that lets us adapt as things change. Because the environment we're working in is shifting pretty quickly, and we need to be able to respond to that.

SPEAKER_00 3:08

And I understand the first priority is about strengthening the wholesale market.

SPEAKER_01 3:12

That's right. So we're focused on strengthening the wholesale market. So working to make sure that pricing is accurate, risk is well managed, and competition is effective. That's what gives investors the confidence to be able to invest in new generation and flexibility. And that ultimately helps keep supply secure and prices under pressure. So one of the work programs you'll see in this space includes our battery energy storage work. Now, as you get more wind and solar coming online, obviously the big challenge with those is they're not always there. And so that's where batteries come in. They store excess energy and then release it when it's needed. So that kind of helps smooth things out. And so some of the changes that we're proposing are really about letting batteries do their job better. So that system stays reliable and affordable. Right now, the rules, the market rules, they they kind of cover things like how bids are made and how power is dispatched. They don't fully utilize the flexibility that batteries offer. And so that can lead to inefficiencies. And so we want to focus on updating those rules so that batteries can respond faster and help balance the system more effectively. There's also the non-discrimination rules that we brought in as part of creating that level playing field. And that's about helping make sure that gene tailers treat their retail arms the same as they treat other retailers on price and non-price terms. And those have just been brought in. And so we'll be keeping a really close eye on how those are followed.

SPEAKER_00 4:38

And then a very important one for New Zealand: strengthening system security. That's right.

SPEAKER_01 4:43

So we're working to strengthen system security. That's about making sure that the power system can consistently match supply and demand and operate safely, even as it becomes more complex and more reliant on intermittent generation like wind and solar. We are also supporting the new dry year framework announced by the government recently. And we'll keep working closely with partners right across the system to make sure New Zealanders can really count on secure, reliable electricity at the lowest cost. Our future security and resilience program is a multi-year effort, and it's focused on really enabling new and existing technologies, particularly integrating that boom in renewable generation, and building a system that is reliable, flexible, and future focused.

SPEAKER_00 5:27

And the third strategic priority is a really interesting one: enabling flexibility.

SPEAKER_01 5:32

Yeah, it's a really interesting space. So we are focused on enabling flexibility across the system. That's things like demand response, storage, and other resources that help balance supply and demand and firm up renewables in a cost-effective way. And a big part of that work is about making sure that the right incentives are in place so we get more of that flexibility coming into the market. And we've already got some important pieces of work underway. For example, we've recently proposed options to give people better visibility of network constraints and capacity. And that kind of transparency is a building block and it helps people see where it makes sense to invest or connect, which ultimately leads to a more flexible and efficient system. We've also put in place rules to increase what we call the default export limit, and that's about enabling households with solar and other distributed generation to get more value from what they produce. We're also seeing progress in making networks more dynamic, things like rebates for when households send surplus solar back to the grid, and more retailers offering time of use pricing as well. There is huge potential on flexibility. So we're also looking more broadly at distribution pricing, how we can sharpen those price signals to unlock more flexibility and deliver more efficient lower cost networks for everyone. And a couple of months ago, we ran a series of workshops to explore what else might be needed to enable flexible supply and demand and where we can play a role. And we got some great feedback, and that's now shaping a dedicated flexibility work program, and that will help make sure non-network solutions can compete on an equal footing. So across all of this, a lot of our work, what we're doing on battery storage, for example, also supports flexibility. So all these pieces are connected and they often deliver across multiple priorities at once.

SPEAKER_00 7:24

Which brings us to the fourth one: network efficiency.

SPEAKER_01 7:27

Yeah, so we're supporting network efficiency. And the idea behind this is pretty simple. It's really about trying to bring down that overall cost of what it takes to move electricity around the network, because that makes up quite a big chunk of what people pay on their power bills. So if we can find ways to reduce those costs, then the goal is that people will start to feel that benefit at the end of the chain. So one important way that we can reduce those network costs is pushing forward all of that work on flexibility that we've just talked about. So whether it's price signals to reduce the pressure on the network at peak times or non-network solutions that are cheaper than upgrading the network, all of that helps to keep network costs down in the long run. But it's not just about flexibility, we're also trying to make it faster and easier to connect to distribution networks. So reducing the complexity and the cost and encouraging more consistency across distribution businesses. And that's going to be really critical as we get more of the economy electrifying. We're also making really good progress on connection pricing. So until recently, there weren't many rules on how distributors set pricing for new connections. So earlier this year, we introduced some changes to try and make those approaches more transparent, more consistent, more efficient. And we've recently introduced some new rules that will protect people who are connecting to the network from facing those higher upfront charges than they need to be. So that will create a better environment for growth in network connections.

SPEAKER_00 8:51

And all of that brings us to the fifth and final priority, which really brings everything together. Walk us through this one, Sarah.

SPEAKER_01 8:58

Yeah, so we're focused on being a strong responsive regulator, and that's about making sure that we've got the right tools to deliver on our objectives. It's about protecting consumers, enforcing the rules effectively, and making better use of data and insights to guide our decisions. And one great example of this is Billy, our new comparison and switching tool. That's about helping New Zealanders understand their power costs, enabling them to compare electricity options and choose what works best for them. So looking ahead to the 26-27 year, our work program is centered on those five key priorities. And they help us focus on the regulatory interventions that can make the biggest difference, ensuring reliable electricity at lowest cost for New Zealand consumers. And those priorities, they provide the foundation for the work that we'll be doing over this coming year. But as we go, we'll keep testing our assumptions, we'll keep assessing the costs and benefits of our activities, and we will adjust the work program where we need to. That way we can make sure that we're focusing on the things that are most likely to deliver the greatest benefit for New Zealand consumers.

SPEAKER_00 10:00

There's a lot of work underway, Sarah, and it's really great to see the authority pivoting to address the challenges and opportunities of a rapidly changing sector. Really appreciate your time with us today.

SPEAKER_01 10:10

Thanks, Carl.

SPEAKER_00 10:11

And if you'd like to read more about the Authority's revised strategy, you can find it online at our website, www.ea.govt.nz. Kakitiano. That's all for now. We'll see you again soon.