Energy Competition Task Force

This option supports the development of new intermittent generation, such as wind and solar. Access to firming (from flexible generation that can run at any time, such as hydro or gas peakers) enables developers to enter into power purchase agreements (PPAs) with large users and retailers that match their supply of electricity to their customers’ demand profile, and manage the risks of variable generation volume (eg, when the wind does not blow or the sun does not shine). The Authority will consider requiring gentailers to offer a minimum volume of flexible electricity in the form of long-duration contracts that could be used to firm new generators’ PPAs. A deeper and more active market for PPAs will enable more generation investment.

The Authority is facilitating the development of standardised flexibility products through the establishment of an industry co-design group. The Authority is also working on equivalent regulated products as a backstop. This work actions two recommendations from the Market Development Advisory Group. Flexibility contracts are a form of insurance product and provide the buyer with protection against high spot prices at specific times. They are important for retailers, and are expected to become more important as the proportion of intermittent generation, such as wind and solar, increases. Standardised flexibility products will provide the sector with more information about future electricity prices, which will support risk management and investment decisions. Ultimately, consumers will benefit from more efficient competition, which will put downwards pressure on pricing.

This option would design rules to require gentailers to offer a minimum volume of their flexible generation base to buyers in the form of risk management contracts. This option will be considered as a backstop if previous measures aimed at increasing the supply of firming contracts in the market don’t produce the intended uplift in competition. This is consistent with the Market Development Advisory Group’s recommendation 13. Although this is a backstop measure, designing the rules now will advance the work so it can be implemented quickly if needed.

The Task Force will investigate the pros and cons of various measures to ensure a level playing field between gentailers and independent retailers. It will help us understand what measures would be appropriate, the risks and possible triggers, and inform the development of a stronger regulatory response if other measures in this Task Force work package aren’t creating the change needed. Possible measures that will be investigated include non-discrimination rules, which would require generators to treat the retail arm of their operations the same as they treat other retailers.

This option would see distributors pay a rebate when consumers export surplus energy back into the system at peak times. While this better rewards consumers who have invested in technologies – such as solar and battery systems – the benefits might be shared to all consumers in the long term through lower lines charges. This is because the electricity is generated locally when and where it’s needed, and eases pressure on the local distribution network where it’s constrained. This avoids the need for distributors to build more infrastructure to cope with higher demand peaks, meaning lower overall costs, and lower prices for consumers in the long run. This option would further incentivise investment in home solar and battery systems.

Time-of-use pricing allows households to get cheaper electricity by moving their electricity use to off-peak times. Although this is increasingly being offered by retailers, the Task Force will consider making it a requirement for retailers above a certain size to offer their customers. Time-of-use pricing gives households more ability to manage their electricity use and costs. Shifting a significant amount of electricity use to times when it is abundant and cheaper will reduce demand peaks. This means cheaper wholesale electricity costs that can flow through to lower prices for consumers.

This option would better reward consumers who can provide energy back into the system – most commonly through rooftop solar and batteries – at peak times. Currently many of the rates retailers offer to buy back energy from these households don’t reflect the value of that electricity at the time. This option may encourage more people to invest in solar and batteries, as well as reduce electricity bills for all consumers over time if it reduces the cost of peaking generation.

One of the ways to help manage our electricity supply is to lower demand at peak times. Industrial plants that use a lot of electricity can make a meaningful contribution to this by using less electricity when it’s scarce and expensive. The Task Force is considering measures that would enable industrials to be appropriately rewarded for the benefit their flexible electricity use brings to the system, freeing up more supply and reducing the need for more expensive electricity generation to manage peaks. This could also provide industrials with an additional revenue stream.