Why transmission pricing matters in a changing electricity system

New Zealand's electricity system is changing rapidly. Demand for electricity is growing as homes, businesses and communities adopt new technologies and electrify. New renewable generation, including wind and solar, is being built in new locations, with a substantial pipeline of projects being progressed across the country.

New infrastructure is needed to connect new sources of generation to the places where electricity is used.

As the electricity system becomes more complex, it is increasingly important that new infrastructure and resources are developed in the right place, at the right scale and at the right time. This is where transmission pricing plays a critical role.

Every day, consumers benefit from the national grid moving electricity from where it is generated to where it is needed. Building, operating and maintaining this infrastructure requires significant investment.

Transmission costs make up around 8% of an average consumer's electricity bill. The Transmission Pricing Methodology (TPM) determines how these costs are shared among the people and organisations that benefit from it. This helps ensure consumers do not pay more than necessary for transmission infrastructure that delivers benefits elsewhere. When costs are allocated to those who receive the benefits, it creates stronger incentives for generators and electricity users to make efficient investment decisions. This helps promote efficient use of the network and supports a reliable electricity system at lowest cost for consumers.

Better pricing supports better outcomes

Efficient network pricing is essential for delivering better outcomes for consumers.

The TPM aligns transmission charges with the benefits users receive from the national grid. Those who benefit more from transmission infrastructure contribute more towards its cost, helping ensure costs are allocated efficiently across the electricity system. This strengthens investment signals across the electricity sector, supports more efficient use of network infrastructure and encourages investment where it delivers the greatest value for consumers.

These pricing signals matter because transmission assets can remain in service for decades. Making efficient investment decisions today shapes how the electricity system performs for years to come.

Supporting New Zealand's energy future

The electricity system of the future will look different from the one we have today.

The TPM has been designed to support this transition. It is cost-reflective, future-focused and capable of adapting to changing patterns of generation and demand. By providing clearer signals about the value of transmission infrastructure, it encourages new generators and electricity users to consider the transmission impacts of where they locate and connect.

Significant transmission investment will be needed to connect new generation, meet growing demand and support emerging large-load customers, such as data centres. A beneficiaries-pay approach helps ensure the costs of that investment are borne by those who benefit from it, rather than being spread more broadly. This supports cost allocation across the electricity system that helps maintain efficient incentives for transmission investment decisions.

Continuing to improve the framework

As the electricity system changes, transmission pricing arrangements must continue to work effectively in practice.

At the Authority, we are making targeted refinements to the TPM to better align charges with benefits, and to reduce administrative costs. This work is part of our broader network pricing reform programme, focused on ensuring the overall pricing framework sends coherent and durable signals for network use and investment across the electricity system.

In parallel, Transpower is undertaking an Operational Review focused on improving how the TPM operates. Together, this work will help identify opportunities to improve efficiency, transparency and workability across the transmission pricing framework.

Looking ahead

Transmission pricing is not something most consumers think about when they switch on a light or charge an electric vehicle. However, it helps shape many of the decisions that determine how electricity is delivered, what it costs, and how the system evolves.

As New Zealand transitions to a more electrified and renewable system, efficient transmission pricing will continue to play an important role. By aligning costs with the benefits users receive, the TPM supports efficient investment across the electricity sector, and helps deliver reliable electricity at lowest cost for New Zealanders.

Tim Sparks, General Manager, Networks and System Change

Electricity Authority Te Mana Hiko