Electricity networks and transmission charges...What are they, why are mine going up, and how will this impact my bill?
From the 1st of April this year network and transmission costs will be increasing. At the end of last year the Commerce Commission approved increases of transmission and networks costs (that’s the cost of the infrastructure that transports electricity around the country).
First things first it’s helpful to give you a breakdown of your energy bill. Your bill is made up of about 7 different components. These are:
The reason that costs will be going up so significantly this year is due to a number of factors.
There has been a significant increase in network and transmission prices that will be charged for operating the poles and wires that get power from where it’s generated all the way to your property.
The Commerce Commission sets what network and transmission companies are allowed to charge every five years. The latest review has amounted to a much larger increase than we have previously seen - the average increase is 26%.
This is because of a combination of higher interest rates and higher input costs. This will vary by network region and usage, however an average consumer will see a $10- $25 per month increase from these changes. This month networks are finalising their prices. As we get notified of these we're working through what this will mean for individual customers, and any changes will be communicated to existing customers in March.
While it’s not welcome news, this increase will fund much needed infrastructure upgrades that will ensure our electricity system will be resilient and secure going forward. The last thing we want is a system that isn’t able to keep up with the demands of increasingly electrified households and businesses.
A lot of our “assets” - so the physical infrastructure that transports our electricity - were built in the 1960s and 1970s. Because of their age, network and transmission companies are spending more than they have previously to support the network and its growth. Some areas will have specific circumstances that need to be factored in too, such as the impact of extreme weather events like Cyclone Gabreielle and growing populations.
Other contributors to price increases will be…
Increasing wholesale power prices
Since 2018 wholesale electricity prices have risen significantly. We buy the energy we sell to you on an “electricity market.” Buying electricity on this market means we purchase electricity at a fixed price to use in the future.
Here's a simple way to think about it:
Imagine you're buying concert tickets - you can either:
Buy them now for a show next year at today's set price
Wait and buy them just before the show, but prices might go up or down
The electricity market works the same way. Companies can:
Lock in potentially lower electricity prices now for power that will be used months or years ahead
Or buy power at whatever the market price is when they need it
The benefit of buying it at a fixed price to use in the future is predictable costs and protection for customers if prices rise unexpectedly due to weather or other circumstances.
But, the prices of electricity that we purchase on this market are slowly increasing. Before 2018 the average price was $70-80 per MWh. Since 2021 it has been an average of $150+ per MWh and the average ‘longdated’ (so more than a year in the future) price is $200 per MWh.
Electricity Authority levy, and the Government’s phase out of the Low User Tariff.
The Electricity Authority’s levy only makes up a tiny percentage of your bill, the Electricity Authority, who regulate the industry, are indicating that they will be seeking more funding this year.
Additionally, the Government is phasing out of the Low User Tariff. Electricity companies like Octopus are charged a fixed daily network and metering cost. In 2024 this was capped at $1.20. From 1 April 2025 it will be $1.50, which could lead to some customers experiencing increased costs. But for most people fixed charge increases should be partially offset by variable (what you pay for what you use) charges.
