Electricity is a basic necessity in Kiwi homes and though we use it every day, it’s likely not something we give too much thought to. In this article, Canstar Blue explains how electricity works and where our power comes from.
How do consumers get electricity to their homes?
The electricity industry in New Zealand can be broken down into four components – generation, transmission, distribution and retail. The process in which power is ultimately delivered to homes and businesses essentially goes through these four main components.
Electricity generation and transmission
Approximately 80% of New Zealand’s electricity is generated by renewable sources of energy. While most of this is generated at hydroelectric stations, we also generate power from wind, coal, gas, solar, geothermal and diesel sources.
In New Zealand, there are six main companies which produce power. These are:
- Contact Energy Limited
- Genesis Power Limited
- Meridian Energy Limited
- Mighty River Power Limited
- TrustPower Limited
- Todd Energy.
When generated, electricity is then transmitted through to a national transmission grid. Transpower, the company which owns and operates the national grid in New Zealand, transports high voltages of electricity from the generation stations to the national grid via grid exit points around the country.
It is at these grid exit points that local distribution network companies take over and distribute the electricity to electricity retailers.
Once electricity is transmitted through to the grid exit points, distribution network companies (also known as line companies) take over and transport the electricity to commercial and residential customers, that are connected to the electricity network, through medium and low voltage cables.
The process of transporting electricity from the national grid through to consumers is not as straightforward as it sounds. The distribution network companies generally sell the electricity directly to retailers, who in turn, provide electricity as a service to you.
Electricity retailers sell electricity directly to you, the consumer. Typically, retailers buy electricity from distribution network companies at wholesale prices. These prices at which retailers buy electricity vary depending on supply and demand.
In New Zealand, we have quite a competitive retail market, which allows you to choose who you want to buy electricity from. Take a look at the electricity retailers that rated highly in terms of customer satisfaction in Canstar Blue’s 2019 review of NZ power companies.
How is your electricity bill calculated?
How much you’re being charged for electricity can often be quite expensive, so it’s a good idea to understand how you’re being charged.
The Electricity Network Association (ENA), which represents the 27 distribution network companies in New Zealand, suggests that your electricity bill can be broken down into five cost components.
According to the ENA, your electricity bill is made up of the costs of:
- Generating the power – which is approximately 30% of your bill.
- Transporting electricity from the national grid to your local area – this includes the costs of maintaining and operating the national grid, which makes up 10% of your bill.
- Delivering electricity to your home or business – this includes the maintenance of the poles and wires in your community and fixing faults, making up approximately 26% of your bill.
- Selling you electricity – including administration costs and reading and maintaining your electricity meters, which accounts for 20% of your bill.
- The GST component in every dollar, which typically makes up 13% of your bill.
The final bill that you will receive is comprised of:
- A daily fixed charge rate – this is displayed as cents per day and covers meter rental, meter reading costs, and a fixed fee that’s charged by the distribution network and retail companies
- A variable charge, which is based on power usage – usage is displayed as units or kilowatt hours (kWH) and the variable rate is displayed as cents per unit or kilowatt hours c/kWH.
It’s important to take into consideration that GST is charged on the total of the fixed and variable amounts.
To find the best price and electricity service, compare retailers in New Zealand with Canstar Blue’s customer satisfaction table.