Avoided cost of transmission payments

We decided to amend the Code (effective 1 April 2023) to remove the requirement for distributors to make avoided cost of transmission (ACOT) payments in accordance with the new transmission pricing methodology. This is on the basis that:

• The current ACOT payment regime is costly, poorly targeted, and inefficient.
• Nodal pricing provides a more accurate signal of where and when generation is of value for grid reliability.
• The introduction of real-time pricing, and the dispatch notification product, will allow more parties (including distributed generators) to participate in nodal price discovery and dispatch.

We decided not to provide a phase out period for ACOT payments. You can find out more in the ACOT decision paper and ACOT Code amendment instrument.

In 2023, we will start a new project to explore the wider set of incentives for investment in distributed generation in order to determine whether their efficiency can be improved.

This project is to amend the Code to make it clear that payments by distributors to eligible distributed generation for avoided cost of transmission (ACOT) are no longer required.

We believe that the current ACOT payments are inefficient. They lead to transmission costs shifting between regions, without significantly reducing transmission investment by Transpower.

Removing ACOT payments would:

• Reduce the overall cost of electricity for consumers – ACOT payments cost consumers around $35 million in the 2021 pricing year.
• Promote competition by levelling the playing field between distributed generation, grid-connected generation and other grid support options for Transpower.

Our proposed changes are consistent with the new transmission pricing methodology (TPM). They also work with TPM to help deliver benefits to consumers and support New Zealand’s transition to a low‑emissions economy.