Michael Stiassny, chairman of Auckland lines company Vector, says current regulation doesn't incentivise the electricity sector to foster new technology into the market.
In a speech to the Downstream energy sector conference in Auckland today, Stiassny said utility companies like Vector are "now in the grip of an innovation avalanche". They're dealing with the rise of distributed generation, customer-owned distributed energy resources (DERs) such as solar PV, demand response and energy storage, as well as the opportunities provided by new smarter distribution grid technology and analytics which led to new models for electricity delivery and consumption. Something utilities the world over are struggling with, he said.
"The commonality is that traditional utility business models are based on increasing electricity demand and the need for investment in centralised technologies. And, in most jurisdictions, the regulatory environment does not yet incentivise innovation or indeed recognise the shifting goal posts," Stiassny said.
Vector lost a lengthy court battle in 2013 with the market regulator, the Commerce Commission, which sets prices for its services. Vector, supported by fellow lines company Powerco and a number of other monopoly operators including ports and airports, argued the competition authority was unreasonably restricting their profitability and wanted alternative approaches to valuing their regulated assets.
Stiassny said New Zealand's current regulatory regime assumes that new network investment will have an average life of more than 40 years and that the bulk of positive cash flows should be skewed towards the end of that period when the company looks to renew the assets. But that doesn't reflect the increasingly rapid technological changes that could cause once-essential assets to become redundant and further regulatory change, he said.
Commerce Commission chairman Mark Berry told the conference the regulator was aware of the challenges facing the industry from new innovation. Last month it sought feedback on including changes to the Weighted Average Cost of Capital (WAAC) for airports in its cross-sector review of input methodologies, which includes electricity distribution. The review is due for completion by the end of next year.
"We're looking forward to hearing the response from interested parties. One of the challenges is the potential impact disruptive technologies and the implications arising from that for asset values. There's a question around what the timeframes should be for those technologies," Berry said.
Stiassny said Vector was up for the challenge of delivering the smart grid of the future and was already on the way to delivering it.
"We understand that we have to reinvent ourselves as agents of change and facilitators of integration. But, as with every utility the world over, we are reliant on the regulator to develop new models for electricity delivery and consumption that are innovative and enable us to deliver what our customers want," he said.
Vector has been championing solar energy for some time and has installed more than 300 of its SunGenie solar units across Auckland in a trial of the technology.
Meridian Energy chief executive Mark Binns told the conference yesterday that only some consumers could afford solar power and the costs of maintaining the electricity network were falling unfairly on those who couldn't afford it.
But Stiassny said solar power costs were continuing to fall to a level most people could afford. He said Vector is also exploring the possibility of community solar projects where panels are placed on community facilities such as the local library, and each panel is effectively owned by a customer. The value of the energy produced by that panel is then credited to the customer's account each month.
"These schemes are increasingly common in both the United States and European countries where uptake is limit only by the speed at which new projects of farms can be established," he said.