In September this year, the Authority consulted on proposed changes to the Electricity Industry Participation Code 2010 (Code) to remove the requirement for distributors to make payments to certain pre-2017 distributed generators for avoided cost of transmission (ACOT).

Having considered submissions, cross-submissions, and feedback on grid reliability, the Authority has now decided to amend the Code to remove the requirement for distributors to make these payments. This is on the basis that:

  • The current ACOT payment regime is costly, poorly targeted, and inefficient.
  • Nodal pricing provides a more accurate signal of where and when generation is of value for grid reliability.
  • The introduction of real-time pricing, and the dispatch notification product, will allow more parties (including distributed generators) to participate in nodal price discovery and dispatch.

The Authority has decided not to provide a phase out period for ACOT payments, noting that:

  • Grid reliability: where nodal prices are not effective in incentivising targeted grid support, Transpower as system operator has tools to manage near-term risks, and Transpower as grid owner has obligations to plan for investment solutions.
  • Security of supply: ACOT payments are not an efficient or effective tool for managing security of supply. Ahead of winter 2023 the Authority and the System Operator continue to focus on targeted interventions for system security purposes.

We note for context that parties have continued to invest in new distributed generation since 2017 – installed capacity of distributed generation increased by approximately 25% from 31 December 2016 to 30 June 2022. None of this new distributed generation is eligible for ACOT payments. There continues to be a large distributed generation development pipeline.

You can read more in the decision paper below: