End of generator subsidy saves NZ energy customers millions

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The Electricity Authority says New Zealand electricity customers are set to save around $25 million to $35 million each year after a decision to scrap consumer-funded subsidies for generators connected to local electricity distribution networks.

This subsidy was introduced in 2008 to allow Director Generator operators to claim the ‘Avoided Cost of Transmission’ (ACOT) revenues, under a scheme that incentivised the installation of electricity plants on local networks that took pressure off the national grid.

Under these rules, the price of ACOT payments reflect the transmission capacity in the area – the greater the capacity, the higher the ACOT payments. This unfortunately created a perverse incentive, as direct generators would install plants in areas where there was already an oversupply of electricity capacity. The network capacity would then have to be upgraded to support this additional generation, driving up grid costs and ACOT revenues for direct generator operators.

Chief Executive of the Electricity Authority, Carl Hansen said: “The current rules mean consumers are paying for distributed generation that doesn’t reduce costs for them. Over the last eight years, the rate of ACOT payments has increased by 79%. Effectively, New Zealand consumers are subsiding the owners of distributed generation.”

Some Direct Generator operators may still claim ACOT revenues, however Transpower must now assess whether the plant genuinely relieves pressure off the national grid. This change will be progressively introduced in different parts of the country from 1 April 2018 and will be fully implemented by 1 October 2019.

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