Summarised by Centrist
The Electricity Authority is reviewing whether the figure it uses to value the economic cost of blackouts is still fit for purpose, after conceding the current default Value of Lost Load may be “out-of-date” and that a “single average value for the entire country is unrealistic”.
The benchmark was set at $20,000 per megawatt-hour in 2005, and officials are now reassessing whether it still reflects how dependent New Zealand has become on reliable electricity.
The figure does not set household power bills. Instead, it is used in planning decisions about whether network upgrades are worth paying for.
Electricity Networks Aotearoa chief executive Tracey Kai said it is “a proxy that we use to value how painful a power outage is”, covering things such as lost heating, refrigeration, business activity and banking disruption. Hayden Glass, the Authority’s general manager of wholesale and supply, said it is “primarily used for investment and reliability assessments” and helps answer whether a network improvement “improves security of supply enough to justify its costs”.
Glass also admitted the measure is a “blunt tool”, because the value of lost electricity differs between households and businesses, by time of day, and by how long an outage lasts. He said it reflects “the theoretical economic cost of losing supply rather than a payment to consumers” and acknowledged that “New Zealand’s economy, technology use and reliance on electricity have changed significantly” since the figure was set.
Other agencies have already used higher numbers. Transpower has used $25,000/MWh in some work, and the Commerce Commission uses the same figure, updated in 2019.
The Authority says a refreshed benchmark would improve investment decisions, market planning and “transparency about the trade-offs involved” when supply is tight. The work had been delayed while the authority focused on the government’s Energy Competition Task Force.
