Some thoughts on the "solar tax" and the future of lines companies

First of all lets get the disclosures out of the way: I work for a lines company. Not one that charges any sort of "solar tax" at the time of writing.  Obviously these thoughts are my own.

Be warned, there is a bit of background in this text - enough I hope for someone with very little understanding of the industry to follow.

There has been a bit of noise in the New Zealand media recently about a lines company that has increased the daily charge for those customers with solar panels installed, and not unexpectedly there has been a bit of a fuss kicked up on social media about "greedy power companies" "resisting change" and being "threatened by emerging technology". I suspect a lot of this is just emotive spouting, but there also seems to be quite the misunderstanding by the general public about how our power system works, so I'd like to take a look at a few of these things to see if there is any truth to such claims.

First of all what does a lines company do? The prime purpose is to deliver electricity from the transmission grid to homes and businesses. A secondary purpose is also to connect distributed generation (that is, generation that is not directly connected to the grid) to the rest of the network. Some lines companies also operate in the generation market, the retail market, and even the communications market. These are usually run as separate businesses and are not relevant to this discussion.

What does it cost to operate a lines company?

There are a many factors that vary such as the kind of terrain, the density of customers, the climate and so on. However one is common: if you increase the peak load through any given network, it will be more expensive to operate. This is just common sense because for a higher peak load you need to have thicker conductors and cables, bigger transformers, perhaps bigger clearances. Purchase, installation and maintenance always increases in price when you are dealing with equipment that increases in its capacity or throughput. Another reason why the peak throughput costs lines companies? Transpower.  Transpower charges lines companies for taking power from Grid Exit Points (GXPs), and it charges based on the highest 12 peaks for the year. These charges are not small (think in the millions).

With this in mind, you would think that a lines company would try to keep it's peak load as low as possible, but this doesn't actually happen as much in reality. Perhaps the best example is the upper south island (USI) group of companies, which coordinate together to manage their peaks, primarily to reduce the Transpower charges. But because these companies already have the capability to effectively manage their load due to participation in the USI scheme, they also use it to manage their own local constraints such as maintaining N-1 capacity at substations, and maintaining acceptable voltage levels at locations that are constrained at peak times due to inadequate cable/conductor capacity. Below is a graph of a typical winter week where each line represents one of the USI lines companies MW load  (not all of them are included).

USI Load Control

USI Load Control

Notice how towards the end of the week, the higher peaks (probably due to colder weather) are being leveled off.  This is done by using ripple control to turn off hot water heaters.  Here is a close up of the of some more peaks.

Load Control

Load Control

The USI load control scheme has a large number of benefits, chiefly allowing for deferment of upgrades and saving on Transpower GXP charges. Hopefully this results in savings for the customers in terms of their distribution charge but this is quite difficult to show either way.

How lines companies charge their customers

The fairest way would probably be a fixed daily charge which covers basic overheads, and a peak usage charge which charges the customer based on the highest x number of peaks - similar to how Transpower charges the lines companies. Because at the end of the day, it doesn't matter to the lines company if you are using 1kW for 364 days of the year, if you use 1MW on the 365th day it still needs to install a 1MW transformer. Customers tend not to like this kind of charging at all, because it means that if there is a really cold day and they have their heat pumps, ovens and kettles going then they get charged a lot, even if they use relatively little for the rest of the year. So, lines companies usually charge a fixed daily rate, and per unit charge which you pay based on the amount of electricity you actually use.  They work out the prices so that when all is said and done they have about the right amount of money.  This seems fair, but it certainly doesn't mean that people whose usage drives the actual price of delivering electricity are necessarily paying their fair share.

This brings us to the elephant in the room: the alleged "solar tax". Let's look at customers that have solar panels installed, but have no storage (batteries), as these are the biggest category of solar users. Lets take a look at a graph of solar panel power output during the day:

Solar output during the day

Solar output during the day

The important line here is the blue that corresponds to output during the winter.  Nearly all regions in New Zealand set winter peaks, and from the graphs above we can see that these peaks occur between 7-9am and 5-7pm.  Notice that the solar panels are doing very little during these times, which tells us that presently solar panels do nearly nothing to reduce the peak load on the network, and that during the peak times solar customers will still be getting the vast majority of their power from the grid, and therefore have the same impact to the network as if they had no solar panels at all! However, the lines company is now receiving less revenue from these customers because they are not receiving any income from the usage during the day, but it still costs them the same amount to have them connected. Therefore the lines company might want to increase the fixed portion of the charge for these customers so that their contribution more accurately reflects the impact that they have on the grid - which is the cause of the present outrage.

Other options might be to increase the fixed daily charge for everyone (this makes everyone angry about increasing power prices), or increase the per unit charge (this also makes everyone angry about increasing power prices). This brings us to the ultimate conclusion, that having solar panels is never going to be as economic as not having any solar panels at all, until there comes a point in time where we can either store this energy very cheaply, or there is a demand to use it at the time it is generated.  So let's take a look at these possibilities.


We currently have no effective means of storing electricity. Batteries have a limited shelf life, about 10 years for lead acid technologies, and similar for things like the Tesla Powerwall (although I've heard that the PowerWall capacity drops off dramatically with time).  To supply a 2kW load with batteries you are talking several thousand dollars up front cost, and along with ongoing maintenance and replacement costs this is really only an option for people living in remote locations without an existing grid connection.  However - battery technology is always improving, and there will likely come a time where it will become cost efficient for a residential customer to have a few kWh of storage in their own home.

Using it

The obvious answer to all this in my view is electric vehicles.  If they are to become commonplace, why would we not charge them up during the day while they are parked up at work and use all that solar power generated by panels on everyone's homes?  This means that we don't need to bother with installing batteries at home for the solar panels to be useful.  It means that the existing distribution network will be utilised to shifting the energy around from homes where it is generated to places where cars are charged.  Obviously there are going to have to be upgrades done in the network to support this but it is not rocket science - especially if everyone gets on the same page.

So in summary,

  1. I don't think solar panels are worth installing until the time comes that solar cars become common place
  2. Lines companies are going nowhere, and will remain an essential part of the electricity network
  3. The so called "solar tax" is not unfair, it is simply a natural reaction from the lines companies to people having effects on the network that they didn't think about when they installed their panels
  4. Installing batteries is a complete waste of money at this point in time
  5. 1) and 4) don't apply if you live in a remote location without an existing grid connection.
  6. 1) doesn't apply if you are able to use the bulk of your energy during the day - e.g. you work from home.

I'd be interested to hear thoughts from others (educated thoughts only please - I don't want to hear what greenpeace has to say).  Drop me a line.

| October 26th, 2016 | Posted in ShowerThoughts |

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