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vector response climate change commission draft advice 2021 VECTOR RESPONSE | CLIMATE CHANGE COMMISSION DRAFT ADVICE 2021 1
contents
This document is an interactive 1 Executive summary 3
PDF designed not to be printed. 2 Introduction 8
Please use the interactive contents
3 Future energy systems need to be designed for – and start with – the customer 9
page for navigation.
3.1 We support the Commission’s principle to leverage co-benefits – we see this as being aligned with the ‘decarbonisation dividend’ 10
The opposite headings are links. 3.2 Digitalisation is a key enabler of affordable energy 12
3.3 Data is a key enabler of customer and utility solutions – including new flexibility services and demand response markets 14
3.4 Energy efficiency measures and distributed generation have a key role to play to support affordability and decarbonisation 16
4 Levers to expand the market for new renewable generation and broaden competitive pressure 22
4.1 There is an opportunity to meet growing electricity demand through levelling the playing field for independent, distributed generation
and greater EDB participation in solar and micro-grids, and through a review of current market dominance and behaviour 23
4.2 Lifting the archaic cap on regulated network involvement with connected renewable generation is an opportunity to increase
renewable generation, strengthen network optimisation and contribute a new competitive pressure to the wholesale market 28
4.3 Our future energy systems should align the objective of strengthening resilience in the context of a changing climate as
well as meeting future demand 29
4.4 An urgent spotlight needs to be placed on the potential for solar to displace carbon-intensive generation over
New Zealand summer months and enhance existing hydro storage capacity 31
4.5 Unleash the value of demand response to meet future electricity demand affordably 32
4.6 Unlocking the value of distributed generation can add an important, needed and new competitive pressure into the supply chain 34
4.7 Rapidly expanding the market for renewable generation to support the Commission’s pathway will require market reform in the
electricity generation market 34
5 Dynamic optimisation is key for affordable electrification 37
5.1 The Commission’s ambition to electrify transport should be supported by bold policy action 38
5.2 Managing demand driven by the EV uptake in the Commission’s pathway requires smart dynamic EV charging to
avoid increasing network peaks 40
5.3 Dynamic optimisation is about delivering more with less, not more with more and offers a self-reinforcing pathway to decarbonisation 45
5.3 Symphony graphic 48
5.4 Let’s learn from others regarding the need for smart integration of new distributed generation 50
5.5 Unlock the value that sits between historic regulatory-imposed silos 50
6 Rethink regulation 54
6.1 Our regulatory framework and decision making needs an urgent mindset shift to deliver decarbonisation 55
6.2 Dynamic optimisation requires coordination and the right type of investments 56
6.3 Driving competition and decarbonisation requires a fundamental shift to the regulatory approach of the energy sector 59
7 Achieving the pathway set out by the Commission requires us to take a whole systems approach 61
7.1 Avoid cost by urgently coordinating our regulatory regime around the goal of decarbonisation 62
7.2 We consider a Ministry for Energy and Decarbonisation to be a key enabler of the Commission’s pathway 63
8 Gas transition challenges 65
8.1 A Gas Transition Contract is needed to establish an agreed and managed transition to meet the objectives of Government, customers and gas
infrastructure owners 66
8.2 Achieving the most efficient net reduction in emissions from gas requires us to assess the use of gas across the energy
supply chain – including both generation and its end use 66
8.3 Transitioning gas to electricity would have a significant, and currently unaccounted for, impact on the electricity network 68
8.4 Not all gas users would be able to electrify within this budget period. However, the viability of keeping the gas network
available only to them, if all other users transitioned to electricity, is uncertain 69
8.5 Options to efficiently achieve the Commission’s emission reduction pathway at least customer cost 70
VECTOR RESPONSE | CLIMATE CHANGE COMMISSION DRAFT ADVICE 2021 2
executive summary
Affordable electrification lies at the heart of Vector is a key enabler of Aotearoa New Such disruptive service offerings and “whole of
Aotearoa’s decarbonisation pathway. Zealand’s decarbonisation goals, and we see system” cost reduction business models were
that role rapidly accelerating. not anticipated in the siloed market structures
To deliver affordable electrification, change is
of the original Bradford energy reforms
our only option. Vector does not believe we can Vector has led the way in investing and
designed around a different objective. We
continue to squeeze a new energy system, with innovating in new customer choice and
instead need reforms that focus on customer
different characteristics and new objectives, into solutions to respond to the challenges arising
outcomes, balanced with government and
our 1998 electricity market design with its “more from climate change, decarbonisation and new
business needs, but with a modernised
with more” supply-side dominated lens. Vector technologies. We do so through our Symphony
objective able to better serve the energy sector.
believes that the Government’s renewable strategy and by partnering with global leaders
This is particularly true as rapid advances in
generation and transport electrification in a range of technologies. Vector’s strategy
renewable energy, digital technology and
ambitions call for more than just tinkering supports decarbonisation by focussing on
electric transport look set to only accelerate
with existing market and regulatory structures customers, balancing commercial outcomes
as economies commit to investing trillions of
founded on marginal economic efficiency as and questioning whether the current energy
dollars to solve decarbonisation objectives.
the key objective. This objective was designed system will be up to the challenge ahead.
for the initial market reforms of nearly a quarter- Aligned policies and forward-looking
To deliver decarbonisation, we need a bold
century ago. But to deliver for the future, a regulatory settings are urgently required.
and collective vision of a new energy future
new phase, and certainly new ambitions for
that ensures customer choice, affordability Vector has long called for a Ministry for
the electricity sector calls for regulatory and
and reliability. Energy and Decarbonisation as the necessary
policy settings with a broader decarbonisation
catalyst to align policies and forward-looking
objective able to capture new value and deliver The potential of dynamic optimisation, through
competitive and regulatory settings supportive
greater customer choice. If we do not take the harnessing data and the aggregated flexibility
of industry transformation. The siloed structures
opportunity to design, shape and regulate the of new customer demand-side assets, is just
of today’s regulatory frameworks relate to a
sector differently, we doubt there will be an one example highlighting the need to move
different time and today deliver an electricity
affordable path to decarbonisation through business incentives away from “more” to
supply chain dominated by process regulation,
electrification. This sentiment is reinforced “better” at every stage of the electricity value
fragmented regulatory bodies, a blind-belief in
by our current engagement with overseas chain. Aggregated flexibility, such as new
market theory and a dominant focus on remote
regulators looking to fundamentally recalibrate customer demand-side assets being proven on
supply. Change is needed within the sector, and
energy regulatory objectives to support Vector’s Auckland network, offers immediate
across policy and regulation - to align policy and
decarbonisation. “avoided cost” efficiencies which in turn unlock
regulatory goals, effectively monitor progress
new competitive pressure from demand to
and deliver regulatory accountability, and, to
genuinely rival supply.
ensure strong coordination, particularly with
transport given the importance of transport
electrification.
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A managed and agreed transition for gas is now threatening to break the regulatory settings support network transformation,
needed to avoid significant customer cost compact, Vector is calling for a new Gas digitalisation for smart and connected
and disruption for 300,000 households and Transition Contract to be agreed between gas EV charging, and appropriately fund the
small businesses. infrastructure owners and the Government as investment required.
a means to maintain investor and customer
There is an urgent need to find a sensibly Every lever needs to be considered to promote
confidence in our transition and ensure
balanced gas transition compact that meets investment in renewable generation.
customer choice, reduced economic impacts,
the objectives of Government (carbon and
and investor confidence are all maintained Further leveraging distributed renewable
affordability objectives), customers (disruptive
through the transition. generation is an opportunity to unlock a
supply and cost of appliance replacement)
wider investor base to meet the Commission’s
and gas network infrastructure owners Finally, customers have significant investments
requirement for a rapid expansion of renewable
(financial return and economic maintenance). in gas-based appliances that remain expensive
generation. To support the country’s renewable
If a clear transition path cannot be agreed, to replace, but the cost implications of any
generation targets it will be important to
there are likely to be significant customer cost gas transition extend to associated structural
unleash new investment by those with the
implications as well as major disruptions for changes to commercial and residential property
capacity and capability to both deliver a diverse
businesses and households. This is because to accommodate changing technologies
base of renewable generation but also to
gas networks will likely be forced to cease (estimated as between $2,000 and $5,000 per
support disruptive business models able to
investment to maintain supply in large parts premise). Combined with risk of early transition
meet changing customer behaviours
of the network - well before any targeted from network termination (but ahead of
and assets.
customer transition timeframes. This in turn customer appliance replacement) such costs
is likely to invoke significant backlash from as can be expected to invoke additional customer Vector’s vision is to Create a New Energy Future.
many as 300,000 household and commercial backlash further underscoring the value in an Vector’s optimism for the future lies with
gas customers across New Zealand. agreed Gas Transition Contract. decarbonisation not only being a climate
The Commission’s proposal to effectively curtail Electrification of transport calls for bold policies. imperative, but also an opportunity to drive
use of gas network infrastructure over time significant modernisation through digitalisation
Electrification of transport in New Zealand
fundamentally breaks the regulatory compact and, the use of data, unlocking greater
is so fundamental to our carbon reduction
and the basis on which infrastructure owners optimisation and thereby delivering full system
pathway that bold and aligned policy initiatives
have historically, and in good faith, invested. cost efficiency for the benefit of customers.
to support EVs and hybrids are called for. To
A fundamental aspect of such a regulatory
ensure the infrastructure is ready and resilient
compact is that capital returns on such
for electrification, there must be a step-change
assets are matched to the 40-50 year lives of
in confidence that our policy and regulatory
the assets. With the Commission’s proposal
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Key recommendations • Greater network visibility of EV installations • Account for the interplay between gas and
and access to smart metering data to support electricity including the significant impact any
1.1 Ensure that EV chargers are smart to
coordinated management and network gas transition will have on electricity networks
minimise the impact to electricity network
planning . and energy affordability.
peaks and therefore cost to consumers
1.2 Consider the impact on electricity peak • Consider timing, the optionality of green gases
Smart EV charging must be enabled and
demand from any proposed transition away for gas users to transition to, and the significant
integrated with the network to manage new
from gas, and, the need for a managed downstream impacts and costs on customers
demand for electricity. By algorithmically
transition if significant customer backlash is and infrastructure providers.
staggering the times that EV chargers draw
to be avoided
power from the network, widespread smart • Support an important discussion between
EV charging will ensure that new demand Analysis jointly commissioned by Vector Government and infrastructure owners to agree
from EVs can be managed on the network has found that accounting for capital costs a new Gas Transition Contract to avoid a likely
without unnecessary capital costs and reliability (currently excluded from the Commission’s scenario of significant customer backlash.
impacts. Initiatives to curb peaks in response assessment of household costs from
1.3 Re-engineer our system to drive new
to new demand, supported by integration with transitioning from the end use of gas) would
decentralised renewable generation – rather
network infrastructure, is an opportunity to cost customers between ~$2,000 - ~$5,000 – to
than our current bias towards remote
increase utilisation, reducing electricity costs accommodate the replacement of customer
generation
to all customers. Specifically, we recommend water heating and cooking, or, water heating,
levers to ensure: cooking and space heating, respectively. We We recommend re-engineering our electricity
recommend that the Commission: market to drive greater uptake of distributed
• That the supply of EV chargers in New
energy systems. Enabling and incentivising
Zealand are smart and digitally enabled - • Reconsider their analysis around likely
a wider range of generators (including
including rapid amendments to regulatory customer cost of the transition from gas
distributed, standalone generators) and
settings and network connection standards to proposed in their pathway, reflecting the
demand-side participation supports electricity
accommodate new or updated standards. true capital costs which would be required of
affordability while also lifting community
customers as well as customer impacts from
• Alignment of these standards with building resilience as the economy electrifies. Localised
change in infrastructure investment – which
codes and wider regulations, and ongoing energy systems increase resilience and avoid
could be avoided through a balanced transition
coordination between infrastructure providers the cost of unnecessary transmission upgrades
compact. If we do not have a balanced
and Local Government (including for the and losses from remote build generation. We
transition for gas this will result in unnecessary
Commission’s recommended charging recommend that:
increased costs to gas customers, higher costs
infrastructure plan).
to electricity customers, as well as compromise • The Commission recognise the dominant
• The integration of smart chargers with digital the investment that is needed for the focus historically applied to remote supply
platforms to enable optimisation across Commission’s own pathway – which includes a solutions and which has crowded out a
network infrastructure role for gas out to 2050. balanced focus on the value of distributed
VECTOR RESPONSE | CLIMATE CHANGE COMMISSION DRAFT ADVICE 2021 5
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generation and demand side participation that to our existing electricity market model
harnesses customer assets and actions. (via the Electricity Authority) driven by the
objective of increasing marginal efficiency and
• That the Commission enable active demand
consumer welfare incrementally over time
side participation in meeting the target to reach
(via the Commerce Commission). Neither of
60% renewable energy by 2035 – including both
these narrow objectives truly enable the rapid
granular demand response, as well as storage
or transformational change and investment
solutions such as those being investigated by
needed now , nor are they fit for the significant
the NZ Battery Project to help overcome the dry
challenge of decarbonisation and the
year risk.
coordinated integration of customer assets.
• Greater emphasis is placed on the investment Therefore, we recommend:
in, and integration with, digital platforms for
• That the regulatory frameworks governing
secure network management and coordination.
the Electricity Authority and Commerce
• The cap on electricity network company Commission be reconsidered and redesigned
involvement with connected renewable in light of decarbonisation to ensure electricity
generation be removed to increase the uptake regulation supports, rather than hinders, the
and smart integration of distributed generation. delivery of decarbonisation.
•That regulation be aligned with the uptake of • Shifting from a regulatory framework that
community and customer owned distributed responds to the risk of the Bradford era
solar – including to support the pathway reforms – to one which puts customers and
to allow multiple traders on a single ICP to decarbonisation at the centre.
better promote disruptive business models for
• That regulatory frameworks remove the
customers such as peer-to-peer trading.
shackles on those with capital and capability to
1.4 Rethink Regulation to ensure that it deliver the bold change which is required of our
supports the future, not simply the objectives electricity system.
of the past
Current regulatory frameworks were
designed for a different time in the evolution
of the electricity sector. For the purposes of
the original Bradford market reforms, key
regulatory frameworks promoted refinements
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introduction The Commission’s pathway requires which Vector can enable through but we face some barriers.
Vector commends the Commission’s The strategic expansion of the Investment in future ready Regulation of networks is backward
electricity system for the affordable infrastructure, including: facing, promoting incremental benefit
draft advice on the need to transform electrification of energy use. to ensure a minimum standard is
• Dynamic optimisation of networks
our energy systems. delivered. It does not promote the
• Using data, digitalisation and type of forward investment and
It is clear that Vector and other energy decentralisation to significantly fundamental transformation required.
companies must play a decisive role in enabling improve efficiency
The sector is siloed, hindering the full
New Zealand’s emissions reduction pathway. As • Enabling coordinated smart charging potential of data and digitalisation
of EVs.
a majority customer owned business, Vector is required to realise dynamic
optimisation.
focused on doing so while also unlocking major
Rapid expansion of renewable • Driving the uptake of solar as a Our current, centralised system, locks
co-benefits for energy consumers. However
generation source of new renewable generation standalone generators out of the
current regulatory settings – designed around and competition in the market. market.
an out-dated model of a linear and siloed • Direct network investment in EDBs are prevented from investing
electricity sector – will prevent us from realising renewable generation and micro-grids significantly in renewable generation.
that full potential, ultimately putting New • Powersmart solar projects – including Aspects of our regulatory and market
Zealand’s transition to zero emissions at risk. for large commercial customers. framework add undue complexity and
undermine the value proposition for
In this submission Vector asks the Commission customer-generators.
to build on its draft advice to include Distributed generation and demand The provision of a range of multi-site The current centralised mindset
recommendations to remove barriers holding response to unlock new value and storage/battery solutions – including focuses only on the supply side, at the
help to reduce the amount of fossil- distributed solutions expense of demand side solutions and
us back and to empower us to unlock the fuelled generation required levers. This risks locking in unnecessary
Solar and distributed generation can
required energy transformation. offset demand for hydro generation, costs for future generations.
keeping reservoirs full for peaks, and There is a need to re-engineer our
Our message is that to deliver on the
can directly reduce emissions used for energy system to start with demand,
Commission’s pathway we need to rethink gas peaking during summer months rather than centralised supply in our
our energy system. An energy system with Leveraging demand response to transition to greater renewable energy.
the consumer (rather than the centralised flatten demand peaks can help us to
powerplant) at the centre will unlock benefits of strategically overcome the dry year risk
decarbonisation, affordability, customer choice, Our future electricity systems are Investment in cyber security, Regulation and the resulting allowable
resilient in the context of new risks decentralised network solutions – revenue for EDBs does not support
and resilience. including micro-grids and V2H, as well the level or type of investment which is
as future ready networks to deliver required today to deliver for the future.
continued security of supply in a
changing environment
VECTOR RESPONSE | CLIMATE CHANGE COMMISSION DRAFT ADVICE 2021 8
future energy systems need to be designed for – and start with – the customer
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customers are We support the Climate Change Commission’s
(the Commission’s) focus on reducing emissions
UK Think Tank, Challenging Ideas, this latest
report has been developed in partnership
the drivers of our
from the end use of energy – such as transport, with global cross-industry project team –
industrial processes and buildings – and the including Vector, Centrica, Elexon, the UK
emissions reduction
relevance of customer behaviour and impact Electricity System Operator, and Imperial
in reducing emissions. Just as our successful College of London’s Grantham Institute for
response to climate change relies on changes Climate Change – and proposes a shift in
pathway – as well to consumer behaviour, underpinned by the
right enablers, the transformation of our energy
the way we assign value through our energy
system by unlocking value between the silos
as our new
systems to a low emissions future also needs to and enabling participation of a wider range
start with the customer and be supported by of actors. The notion of a decarbonisation
enabling platforms. dividend holds that decarbonisation is not
energy future We agree that innovations that enable
consumers to participate in the market will help
just a cost that customers have to bear – but
rather, by transforming our supply chain
to start with the customer rather than the
reduce the amount of fossil-fuelled generation.
powerplant, our transformation should add
Starting with the consumer in transforming
additional value to their lives. Focusing on
our energy system can deliver other profound
co-benefits, or the ‘decarbonisation dividend’
benefits to the affordability, resilience, choice,
is about shifting the mindset, analytical
and efficiency in electricity market. These
frameworks and the view of the key risks and
benefits will also promote the confidence
objectives that sit at the heart of our energy
that is necessary for consumers to invest and
market governance. As highlighted by previous
convert to electrification.
reports led by Challenging Ideas, ReDesigning
3.1 We support the Commission’s principle Regulation, the ‘trilemma’ has been at the
to leverage co-benefits – we see this as being centre of wider energy policy thinking for ten
aligned with the‘decarbonisation dividend’ years and positions energy market decision
We support the Commission’s principle to making as a balancing act between security,
‘leverage co-benefits’ – or benefits which decarbonisation and affordability. In doing so:
go beyond reducing emissions that can be “the trilemma has created the impression
gained through our pathway. We see this as that there are trade-offs, and that these
being strongly aligned with the notion of a are competing problems, rather than
‘decarbonisation dividend’ – captured in the complementary ambitions’.
recent report ReCosting Energy. Led by the
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By framing our energy transition as an
‘inherently zero-sum game’ this approach puts Vector/EECA V2H trial
a ceiling on the ambition of what our energy
The value of distributed solutions for increasing customer resillence is Vector’s Vehicle to home (V2H) trial. This
systems can deliver for customers, and on the
enables customers in Piha, a community which is at the edge of our electric network, to power their homes in an
transformation that is required to create a
outage utilizing the remaining EV battery capacity.
decarbonised, customer centric energy system.
“By replacing the problems with
ambition, the issues around
security of supply, decarbonisation
and affordability can be dealt with
by adopting a forward-moving and
dynamic approach”. – ReShaping
Regulation, Challenging Ideas, 2017
The Commission’s advice considers potential
co-benefits in terms of health, environment
and ‘broader wellbeing’. There is an opportunity
and a need to further leverage co-benefits of
customer affordability, customer choice,
and resilience.
We recommend that the Commission broaden
its understanding of ‘co-benefits’ to capture a
wider scope of benefits across the supply chain,
and that it be deepened to capture the benefits
that can be delivered by customer centric
energy services through the supply chain.
As is discussed further in Chapter “Dynamic
Optimisation for Affordable Electrification” in
section “Unlock the value between silos”, the
value of new energy technologies and assets
through the whole system is demonstrated by
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the Whole Energy-System Cost metric (WESC). 3.2 Digitalisation is a key enabler of Behaviour Change, and recommend that
As an alternative to the levelized cost of energy affordable energy enabling data and digitalisation of energy
(LCOE), the WESC reflects the net cost or value usage should be a recommendation under this
Ensuring that distributed systems deliver
of energy assets on a dollar per MWh basis – ‘Necessary Action’.
the most value for all users of our electricity
accounting for whole system benefits such as
system requires their integration and This transition is a shift which is occurring across
displaced generation, system balancing impact,
management through the right digital industries and our economy, in response to
and distribution network impact. This illustrative
platforms – like Vector’s Distributed Energy climate change and the need to gain value
analysis has has found that despite their capital
Resource Management System (DERMs). The in a way that is more sustainable than just
cost, a residential smart EV charger for instance,
importance of smart network management generating, distributing, and consuming more.
actually adds new value to the system of ~$174
of new distributed assets is discussed further
NZD per MWh. As a key enabler of this transformation, our
under the chapter “Dynamic optimisation for
energy systems are not immune to this
Vector’s View: affordable electrification”, and the potential to
imperative to change. Our energy supply
unlock new value in meeting future demand
Truly unlocking these benefits requires us chains need to move away from a central
from distributed generation is discussed
to transform the way that we consider our planning mindset, to the enablement of
further under the chapter “Levers to expand
energy systems – to start with the customer, distributed, customer driven, systems. This
the market for new renewable generation and
rather than centralised supply. This is an requires us to manage new complexity driven
broaden competitive pressure.” As is mentioned
exciting ‘tipping point’ for electricity where by the integration of more distributed assets
further, digital solutions like DERMs can act
the old-fashioned market design is being truly and bi-directional flows of power – rather
as a platform enabling the integration of new
challenged by a new market designed from than the perpetuation of a centralised, linear
technologies, as well as the emergence of new
the bottom up and facilitated by the supply chain.
competitive markets and products. This is about
digital revolution.
enabling the creation of new markets – which
are not constrained by the currently flawed
market structure.
Leveraging these platforms to support the
delivery of optimal customer services, drives
our transition from a commodity based to a
service-based energy system. We support the
Climate Change Commission’s recognition of
the value of platforms and business models for
affordable electrification, and we support the
Commission’s Necessary Action 16 – Support
VECTOR RESPONSE | CLIMATE CHANGE COMMISSION DRAFT ADVICE 2021 12Doing more from less – from consumption to optimisation “To deliver Net Zero requires a philosophical change in how we look at the energy system from a consumption model to an optimisation model, driving value rather than commodity, fully utilising capital rather than wasting it and most importantly recognising, rewarding and incentivising consumer and demand side optimisation. With the potential of millions of assets, generation, storing, hedging we need to unlock the value and potential of a much wider group of players – a consumption model will stand in its way.” – ReCosting Energy, 2021
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This transition is a shift which is occurring across 3.3 Data is a key enabler of customer and
industries and our economy, in response to utility solutions – including new flexibility
climate change and the need to gain value services and demand response markets
in a way that is more sustainable than just
Data can drive efficient, customer centric
generating, distributing, and consuming more.
energy services, which enable affordable
As a key enabler of this transformation, our electrification. For example, ensuring that
energy systems are not exempt from this Digital inclusion network planning and investment is built on
Covid-19 has accelerated digitalisation. Whilst this
imperative to change. Our energy supply data driven analytics rather than traditional top-
is an opportunity for decarbonisation this is also a
chains need to move away from a central down planning can ensure that infrastructure
challenge to ensure that the benefits are distributed
planning supply-side dominated mindset, equally. By avoiding cost at a system level, digitally
is built to enable customer choice and to meet
to the enablement of distributed, customer enabled optimisation gains benefits for all energy customer needs. Other disrupted industries
driven, systems. This requires us to manage consumers – not just those who have invested in have put customer needs and preferences at
new complexity driven by the integration of smart distributed assets – like solar PV and the heart of their design – the same needs to
more distributed assets and bi-directional flows battery systems. be true for our entire energy value chain in
of power – rather than the perpetuation of a order to achieve the pathway proposed by
We support the Commission’s recommended
centralised, linear supply chain. As is discussed Equitable Transitions Strategy, however we
the Commission.
further in Chapter “Dynamic optimisation for recommend that the timeline for this should be Providing customers with near real-time
affordable electrification” Vector has led the brought forward to avoid locking in impacts to low feedback can also trigger important
way in this strategic direction through our income households through decisions that are made
behavioural change. In winter 2019, our peak-
Symphony Strategy – which seeks to deliver before the end of 2023. As well as avoiding cost
time rebate trail, in partnership with Mercury,
future ready energy systems that enable through smart infrastructure design (including the
demonstrated customers’ willingness to reduce
decarbonisation and respond to customer smart management of new demand from EVs) digital
inclusion, should be a key objective of this strategy.
the load during peak hours upon notification
needs, by leveraging a range of solutions and
24 hours prior. The programme was targeted
value streams to ultimately deliver more with
specifically to only reward those who could
less. However, we continue to experience
contribute on a specific day and did not
regulatory decision making which impedes,
penalise those who had higher loads than
rather than supports, this approach. Just as the
usual. We observed that reduction potential
Commission’s pathway reflects the investments
is quite similar to a direct control solution like
that need to be made today to deliver for
hot water load control. Smart meter data will
the future, energy solution providers need to
be essential to monitor the response over a
incorporate the right solutions now to enable
prolonged period to understand if response
our transition and avoid cost in the future.
fatigue will set in.
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As seen in many other industries, data unlocks As New Zealand transitions to a low emissions Vector is currently undertaking a trial of
significant value through transformation. Data economy, the need for near real-time and 200 smart EV chargers in Auckland, using
can drive efficient, customer centric energy more granular data delivered by smart the trial to understand customer charging
services, which enable affordable electrification. meters is becoming more apparent offering behaviour and its impact on electricity demand
For example, network planning and investment potential benefits which extend through our peaks. This trial, which is discussed further in
that is driven by data analytics rather than energy supply chain – delivering new value to Chapter “Dynamic optimisation for affordable
traditional top-down, aggregate level, planning customers. Smart meter services can enable electrification”, will help to inform smart
can ensure that infrastructure is built to enable granular demand response programmes, network management and the design of
customer choice and to meet customer needs. remote connections and disconnections, energy systems which meet customer needs
Other disrupted industries have put customer and near real-time data for network and preferences, efficiently. For example,
needs and preferences at the heart of their performance monitoring. interim findings have found that pricing
design – the same needs to be true for our incentives have limited impact in changing the
In conjunction with digital platform like
entire energy value chain in order to achieve the time of charging, and that algorithmic charging
Vector’s DERMs, smart meter data can enable
pathway proposed by the Commission. – which staggers charging – has a key role to
the efficient integration of distributed energy
play in flattening demand peaks (as opposed
There is an opportunity to unlock further resources (DER) into low-voltage networks
to scheduled charging, for instance). These
customer value by improving the flow of data without compromising system security and
insights highlight the value of digitally enabled,
through our energy system. For example, reliability, as well as dynamic load control. The
data driven energy systems.
it has taken several years of negotiation for need for network coordination for the efficient
networks to gain access to consumption integration of DER is discussed further in the There is an opportunity to unlock greater
data from incumbent gentailers refusing to Chapter “Dynamic optimisation for Affordable efficiencies and innovation through data
make this available – despite the benefits that Electrification”, section 3.5 – “Unlock the value generated by smart meters. Metering service
this data can add to network planning and between silos”. Unlocking the value of data providers such as Vector Metering are well
operations – including outage detection and through our energy system, in conjunction with placed to deliver data services, ensuring the
safety improvements. This has almost been digital platforms, is key to delivering integrated realisation of significant network and customer
resolved by way of the latest default distributor energy systems which meet customers’ benefits and avoiding the unnecessary cost
agreement (DDA) facilitated by the Electricity needs and deliver greater system efficiency of duplicating information systems. The New
Authority (EA). However, we consider this – effectively incorporating digitally enabled Energy Platform (NEP) developed by Vector and
process and the time that it has taken for demand-response solutions such as smart Amazon Web Services (AWS) will enable energy
networks to access this data to be an example EV chargers. companies to leverage further value from
of coordination failure. data through enhanced analytics capability,
delivering smarter energy services.
VECTOR RESPONSE | CLIMATE CHANGE COMMISSION DRAFT ADVICE 2021 15click for contents
The New Energy Platform (NEP is a data is known as a country of innovators and 3.4 Energy efficiency measures and
analytics and IoT solution set to be developed problem solvers. Being an early mover in distributed generation have a key role to play
and co-funded by Vector and Amazon Web researching new technologies and adopting to support affordability and decarbonisation
Services (AWS) through the strategic alliance existing technologies will benefit not just
As part of the multi-year strategic alliance the climate, but the economy and wellbeing There is an opportunity to go further in driving
between Vector and AWS, the New Energy of New Zealanders”. – the Climate Change these future outcomes by targeting passive
Platform (NEP) is an Internet of Things (IoT) Commission housing standards and enabling smart home
and analytics solution for the energy industry technology in our future housing stock
Investing in smart, energy efficient buildings
and will be introduced first in Australia and
(both new and retrofitted) and digitally enabled Energy efficiency can prevent wasted
New Zealand. Drawing on cloud, IoT, and data
analytics technology, this platform will enable energy systems is also an opportunity to align emissions, support healthier, warmer homes,
greater energy data processing, and smart, our Covid-19 economic recovery with our and deliver greater affordability. We agree with
efficient energy services. The insights collected emissions reduction pathway. Energy efficiency the Commission’s comments that:
by the NEP will support the development is job-intensive. For example, the American “household electricity bills will depend
of tailored product and pricing solutions for Council for Energy Efficiency Economy (ACEEE) on electricity prices, as well as demand.
customers based on their energy consumption has found that a $1 million investment in a Households that are able to make energy
habits. In the future, insights from the NEP will building efficiency improvement will initially
enable energy companies to develop innovative efficiency improvements may be able to
support approximately 20 jobs throughout the reduce demand or improve the level of comfort
solutions and new market models that economy”. As highlighted by the ACEEE “An
accelerate the uptake of renewables, electric in their homes. Households should be able to
energy efficiency investment creates more jobs reduce their household electricity bills by, for
vehicles, and digital applications. The NEP can
displace legacy systems creating a step change than an equivalent investment in either the example, switching to heat pumps, or installing
in processing power, flexibility. economy on average or in the utility sector and insulation or LED lightbulbs”.
fossil-fuels. Most energy efficiency jobs are also – the Climate Change Commission
Driving smart, customer centric future energy local because they often consist of installation
systems which can deliver decarbonisation We support any intervention to support
or maintenance of equipment locally”.
requires the right capability equitable investment in energy efficiency. Our
International partnerships can also strengthen data has found that higher income households
As highlighted by the Climate Change
Commission, ensuring the right level of New Zealand’s data analytics capability, digital have benefitted from energy efficiency at a
capability needs to be underpinned by economy for future high value job creation, as rate which is four times faster than low income
investment in the right skills development - and well as an efficient, digitalised energy transition. households. In Auckland access to energy
our digital economy: The strategic alliance described above, through efficiency is not a level playing field. Access to
which Vector and AWS are co-funding the finance and home-ownership remains a key
“the education and science and innovation
development of the New Energy Platform to determinant of the rate of change. Over the last
systems in Aotearoa are critical for ensuring
take to global markets, is set to create at least 30
low emissions economic growth…Aotearoa
new, highly skilled, roles in Auckland.
VECTOR RESPONSE | CLIMATE CHANGE COMMISSION DRAFT ADVICE 2021 16click for contents
decade, we have seen owner-occupied homes We agree with the assumptions related to the Examples of international policies to drive more
decrease energy use at a faster pace than future energy intensity of homes mentioned efficient housing include:
tenanted homes, which adds to the burden above. Whilst there are a number of uncertain
• In Germany, passive builds that meet a set
of increasing Auckland house prices for those variables which would impact this, this is
efficiency level qualify for significantly reduced
not on the property ladder. On behalf of its broadly consistent with our own current energy
interest rates for the life of the loan that can
customer owners, Vector’s majority shareholder efficiency modelling for Auckland. As always
transfer between owners (available for the first
Entrust, continues to prioritise investment in there is an opportunity to change our projection
mortgage only).
solutions which deliver new value to customers. of the future based on the investments that we
make today – this is what underpins the Climate • The case of the EU, which doesn’t allow
The Commission has also noted that
Change Commission’s emissions reduction incandescent lightbulbs, has shown that the
improvements in energy efficiency may not
pathway. The Commission is proposing our additional up-front cost of efficient lightbulbs
always translate into lower demand, as many
future be more than the sum of today’s inputs tends to reduce over time, as demand and the
customers may choose to heat their homes
and actions multiplied by years. We agree and market expands. An advantage of being a ‘fast
more as a result of savings made.
hold that there is an opportunity to turn the dial follower’ of this policy is that the market for
“Because homes in Aotearoa are typically further on energy efficiency gains by making LED lightbulbs already exists at scale globally.
underheated in winter, households may choose the right investments today. We recommend • The benefits of increasing the thermal
to heat their home more after improving that the Commission push further in its view of capacity of buildings is also being investigated
energy efficiency, rather than reducing their what is possible by way of a smart, digitalised in Switzerland. This approach focuses not
energy use or emissions. We assume that energy future which is built around customer just on insulation efficiency but leverages
existing homes’ energy intensity improves by needs – including to recognise the potential of the larger thermal capacitance of heavier
6% by 2035. We assume newly built homes are IoT enabled smart home technology buildings to enable them to retain warmth,
35% more energy efficient compared to and passive housing –to strengthen allowing slow, constant heating – as opposed
today’s performance”. energy efficiency. to having peaks when people come home.
– the Climate Change Commission
The desired net effect is that less heating
We note that passive housing – houses which is required, particularly during spring and
require much less heating – would reduce autumn, as the heat from the day lasts
the impact of energy efficiency savings being through the night.
offset by more heating (known as the “rebound
effect”), strengthening the connection between
efficiency and reduced demand. Passive
buildings ‘turn off the tap’ when it comes to
wasted energy and wasted emissions.
VECTOR RESPONSE | CLIMATE CHANGE COMMISSION DRAFT ADVICE 2021 17click for contents
Transforming operational efficiency “The most significant operational carbon
emissions are the indirect carbon emissions
We note the Commission and the Ministry of
from the use of electricity and water when
Business Innovation and Employment (MBIE)
we live and work in buildings…approximately
are focused in the same direction when it
20% of all energy in NZ is consumed in the
comes to the Commission’s recommendations
operation of buildings. Currently many
to strengthen efficiency measures and the
buildings are cold, damp and poorly ventilated
operational performance of buildings, and
which impacts on occupant health and
MBIE’s Transforming operational efficiency
wellbeing. The indoor environmental quality
framework consulted on last year. However, we
(IEQ) of buildings is primarily related to how
also note the timeframes proposed by MBIE
much energy is required to maintain suitable
do not match the timelines set out by the
indoor conditions throughout the year i.e., the
Commission. MBIE has proposed the creation
operational efficiency.” - MBIE
of an Operational Emissions Cap and Water
Use Cap for new buildings that will tighten in There is a further opportunity to offset this
a series of steps, reaching a final cap by 2035. demand and reduce emissions from buildings’
Energy efficiency measures related to existing electricity consumption through the integration
buildings are however outside the scope of of distributed solar and battery solutions. We
the programme. Given existing buildings are note that onsite renewable generation and
expected to make up approximately 65% of storage is not covered by MBIE’s building for
New Zealand’s building stock in 2050, as well climate change programme. This represents a
as a similar percentage of building-related missed opportunity. We recommend that the
emissions, this represents a missed opportunity Commission further recognise the potential
to achieve emissions reductions in the building of distributed generation, and recommend
management sector. further steps to drive the efficient uptake of
distributed energy systems. Further details on
We support a faster progression of work
these recommendations are in Chapter “Levers
to transform operational efficiency of new
to expand the market for new renewable
and existing buildings, including with the
generation and broaden competitive pressure”
recommendations below, in line with the
and “Dynamic Optimisation for affordable
timelines proposed under the Commission’s
electrification”, section “Let’s learn from others
emissions budgets. As noted by MBIE:
regarding the need for smart integration of new
distributed generation”.
VECTOR RESPONSE | CLIMATE CHANGE COMMISSION DRAFT ADVICE 2021 18case study
The Kainga Tuatahi project, in partnership between Vector and Ngāti Whātua, supported by Entrust,
provides behind the meter solar and battery systems for each of the 30 houses at Kupe street – a
residential development for iwi first home-owners delivered by Ngāti Whātua Ōrākei. This project was
designed to align with the objectives of Ngāti Whātua – to develop Waro Kore Papakāinga – a carbon
zero community – with affordable and healthy housing. This includes bringing together innovative
energy systems, waste systems, healthy waterways, kai sovereignty, and
ecological enhancement.
The project enables customers to generate and store power for their own consumption and to export
any surplus to the grid for a credit. In the year ending 2020, the solar battery systems provided on
average, 36 percent of customers’ total consumption. Overall, Kupe street households used 20% less
grid sourced kWh pa on average than the control group. In the first four months, this resulted in savings
of around 12.55 tonnes of carbon dioxide equivalent (CO2e). The systems have reduced some home-
owners’ electricity bills – for power from the centralised grid – to as little as $13 per month.
Kupe Street – Ngāti Whātua Orakei housing
development and site of Kainga Tuatahi project, Vector, In addition to delivering these customer benefits, the trial, which is still ongoing, seeks to assess the
launched 2016
performance of tesla powerwall batteries in maximising solar consumption, increasing resilience (by
providing back up electricity for customers in the case of an outage), and reducing peaks. Analysis has
so far shown that residential batteries can contribute to a 30% peak reduction in conjunction with solar.click for contents
We strongly support the Commission’s We support: Recommendations
recommendation to enable more independent
• “Necessary Action 9: increase energy • We recommend that Leveraging and
generation and distributed generation.
efficiency in buildings” including the enabling digitalisation be added as a principle
There are further opportunities to encourage
recommendation to introduce mandatory underpinning the Commission’s advice. This
distributed energy systems on the network
measures to improve the operational will ensure that the Commission’s analysis and
through market and regulatory change – which
energy performance of commercial and recommendations will support smart energy
could play a role in changing our
public buildings, as well as to continue systems. This should include consideration for
market structure
improving energy efficient standards for all how investment choices being made today
As highlighted by ReCosting Energy, new buildings, new and continuing stock, support digital inclusion – ensuring that all
transforming our system to start with the through measures like improving insulation customers benefit from the value
customer and to unlock the ‘decarbonisation requirements. We recommend that these of digitalisation.
dividend’ requires us to ‘reward customers’ measures incorporate the impact of onsite
• We recommend that we start from the
actions and assets’. generation. We recommend that these
customer, rather than the power plant, in how
measures incorporate consideration for
There are a number of aspects of our current we consider our energy system and make
onsite generation.
regulatory framework which inhibit the investments for the future. This requires a
customer value proposition of investing in • We support the Commission’s re-engineering of our system to start with
these assets. For example, under our current recommendation to expand assistance which demand, not supply.
regulatory framework there can only be one targets low-income households.
• We recommend that the Commission include
retailer per ICP preventing customers from
• We support the recommendation “Assess enabling digitalisation of energy usage and data
sourcing some generation from the grid and
the Government’s current standards and to drive energy decisions as a recommendation
other generation from community or Peer-to-
funding programmes for insulation and under the Commission’s Necessary Action 16:
Peer traded with other consumers, for example.
efficient heating to determine whether they Support Behaviour Change.
Further market and regulatory barriers to the
are delivering at an appropriate pace and
integration of new renewable generation is • We recommend that the Commission’s
scale, and how they could impact housing and
included in the next Chapter “Levers to expand recommended Equitable Transitions Strategy,
energy affordability. The Government should
the market for new renewable generation and include digital inclusion as a key objective.
give particular consideration to potential flow
broaden competitive pressure.”
through costs to tenants, and to government-
owned housing stock.” Included under
Necessary Action 1: An equitable, inclusive and
well-planned climate transition.
VECTOR RESPONSE | CLIMATE CHANGE COMMISSION DRAFT ADVICE 2021 20click for contents • We recommend the implementation of open standards for future smart home technology and products – this can avoid the risk of tech lock in and support the longevity of investment choices made by customers. We see an opportunity for this to be incorporated into MBIE’s Building for Climate Change workstream. • We recommend that public housing procurement decisions align with passive, smart, future housing stock including efficient joinery for new builds. Having enough of the right components ready for affordable, future- ready homes is critical. The greatest gains for future energy efficiency can be made at the point of construction. • In addition to targeting energy efficiency we consider incentives for smart and passive home solutions. VECTOR RESPONSE | CLIMATE CHANGE COMMISSION DRAFT ADVICE 2021 21
Levers to expand the market for new renewable generation and broaden competitive pressure
click for contents
4.1 There is an opportunity to meet growing making New Zealand’s renewable electricity (as has been the case with Tiwai’s continued
electricity demand through levelling the generation available for wider New Zealand, subsidisation).
playing field for independent, distributed supporting affordable electrification and our
As has been highlighted recently by Climate
generation and greater EDB participation in pathway to net zero, this exit would ensure
Change Minister, James Shaw, New Zealand
solar and micro-grids, and through a review that infrastructure which has been funded
needs to consider measures to police carbon
of current market dominance and behaviour significantly by tax-payers, delivers value
in imports, and, whether such measures are
to them – rather than an overseas owned
to be included in a review of free allocations
The impact of Tiwai for both New Zealand’s aluminium smelter.
(‘industrial allocations’) under the Emissions
domestic pathway and global emissions –
As has been recognised by the Commission Trading Scheme (ETS). The European
including imported emissions
in its draft advice, and in particular in Parliament has recently supported a proposal
The Commission has found that we need to the commentary around the Nationally to tax imports from countries with lower carbon
increase annual electricity generation by 20% Determined Contributions (NDCs) it is key costs than in the EU – applying to imports
by 2035 to meet future energy demand. This is that New Zealand makes a fair contribution of energy and energy intensive products
including the assumption that Tiwai exits fully to emissions reductions globally. Part of this is including steel. We support the Commission’s
by 2026. approach is considering emissions which are recommendation for a ‘first principles’ review of
As noted by the Commission, industry needs produced through global supply chains, and the free allocation of emission credits to energy
certainty to make the investment in generation the impact that our decisions would have on intensive businesses in New Zealand – and
to meet future demand. The continued these emissions. hold that future decisions around Tiwai need
uncertainty around the exit of Tiwai – which to consider the impact of the business on New
Whilst Tiwai does not disclose its emissions Zealand’s imported emissions.
the business has continually used as part of
from shipping currently, importing primary
a political negotiation strategy – has deferred Leverage new, distributed generation to meet
materials to produce aluminium in New
this necessary investment. We agree with the future demand
Zealand and exporting the product to global
Commission that:
markets, would produce significant emissions. Meeting the future demand included in the
“electricity generation companies may not Taking a wider view of global emissions and Commission’s pathway will require us to bring
commit to this expansion in capacity while scope two and three emissions, if Tiwai were a range of new sources of generation to market
there is uncertainty around the future of the located in a different economy which was – including distributed generation. The value
New Zealand Aluminium Smelter at Tiwai closer to markets and primary materials, these of distributed solutions to increase renewables
Point”. – the Climate Change Commission emissions would be largely avoided. Just as is demonstrated by the ‘renewables revolution’
New Zealand ought not to export emissions, experienced by the UK – whereby in 2019 over
With Tiwai currently consuming around 13 we also should not import them – particularly 14% of UK renewable generation was from small
percent of New Zealand’s total electricity, the when we are spending tax-payer and/or scale generation systems – across over one
timing of this exit will be material. As well as electricity consumer funded subsidies to do so million different systems.
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