Transmission pricing

Why transmission pricing matters

What is transmission pricing and why is it important?

New Zealand’s national transmission grid is a critical part of the electricity system, providing households and businesses with safe and reliable electricity all day, every day.

The transmission grid transports electricity across 12,000 kilometers of transmission lines from where the electricity is generated, to industrial customers and to local lines companies, from where it flows to our homes and workplaces.

Transpower owns and operates the grid on behalf of all New Zealanders. Building, maintaining, and running the grid costs around $800m each year.

The transmission pricing methodology (TPM) determines how Transpower recovers those costs from electricity generators, local lines companies and directly connected industrial consumers. In other words, the TPM sets out who pays how much.

The Electricity Authority decided in April 2022 to adopt a new TPM. The new TPM gives effect to the 2020 Transmission Pricing Methodology Guidelines [PDF, 477 KB] that the Authority published on 10 June 2020.

Why is the TPM changing?

There are a number of problems with the current TPM. These include:

• Spreading the cost of transmission investments across the country regardless of who benefits from them
• Encouraging industrial consumers and local networks to invest in their own batteries or generation (including diesel generation) simply to avoid transmission charges, meaning other New Zealanders have to pay more
• Imposing a high congestion charge at peak times, even when (and where) there is no congestion on the transmission grid
• Charging a “tax” on South Island generation (compared to North Island generation) without good reason.

The Electricity Authority found that these problems resulted in extra costs for New Zealanders and would get in the way of New Zealand making the right future investments in electricity generation and transmission at the right time, to support the mass electrification of transport and industrial processes – a core part of reducing the country’s carbon emissions.

The new transmission pricing methodology

The new TPM is centered around a benefits-based approach. This means households and businesses pay for the service they receive according to how much they are expected to benefit from it. They do not pay for transmission investments they’re not expected to benefit from. And they do not pay congestion charges when there is no congestion.

Paying based on expected benefit reflects the core service the transmission grid provides – reliable electricity flowing to New Zealanders 24/7. For example, while there is generally a plentiful hydro-electricity supply in the South Island, South Islanders benefit from North Island transmission assets that bring power down to them on winter nights when the hydro lakes are low. 

The new TPM can be found in Schedule 12.4 of the Electricity Industry Participation Code(external link). 

How this benefits New Zealanders and New Zealand

The new TPM puts in place better incentives for new investment in electricity generation and transmission. This means investors are rewarded for making the right investments in the right place and at the right time. That will promote:

• New electricity being produced and transported around the country at the least overall cost, keeping the total cost of the electricity system for New Zealanders as low as possible
• Bringing forward investments in cheaper renewable generation – increasing the speed and reducing the cost of New Zealand’s transition to a low-emissions economy.

The new TPM will also lower the cost of electricity at peak times when consumers want to use electricity the most, by spreading the transmission cost more evenly through the day.

What this means for New Zealand consumers’ bills

The new TPM rebalances current transmission prices. While it benefits New Zealanders over time by keeping the cost of the electricity system as low as possible, when the new TPM is implemented some transmission customers will pay more and others less than they do now.

Transmission charges are passed on to retail consumers, making up about 10 per cent of the average consumer’s total power bill.  

Transpower’s role is to implement the new TPM that the Authority has decided on, which the Authority completed following extensive consultation with stakeholders.

Each local network decides how to pass on transmission charges to the businesses and households connected to that network, taking into account guidance provided by the Authority.

Energy retailers can choose what costs they pass on to their customers so check Powerswitch as prices vary between retailers.

Transpower will implement the new TPM in prices from April 2023.

Any questions regarding the implementation of the TPM should be directed to Transpower.(external link)