Frontier has produced a Whole Electricity System Cost (WESC) analysis for Vector, New Zealand’s largest distributor of electricity and gas. This work was commissioned as part of Vector’s response to the New Zealand Climate Change Commission’s recent consultation.
Traditionally, costs of generation have been compared using the Levelised Cost of Electricity, which calculates the cost of building and running a power plant per MWh of electricity produced. However this ignores important distinctions between generation technologies, such as their flexibility or reliability. The WESC metric was developed by Frontier for BEIS (formerly DECC) to capture the wider costs and benefits of generation technologies. Frontier recently carried out work for the ReCosting Energy project in the UK, which extended this metric to cover demand-side technologies: Demand-side response, energy efficiency, and electrical energy storage.
For Vector, we produced a simplified version of this analysis specific to the New Zealand market. This demonstrates how there are many demand-side technologies that have the potential to be more cost-effective, in terms of their wider value to the system per MWh, than generation technologies. Energy efficiency technologies in particular may offer a particularly compelling alternative to baseload generation, and demand-side response with electric vehicles may be very cost-effective once their significant capacity adequacy benefits are taken into account. Going forward, policymakers should therefore ensure that demand-side technologies are considered alongside generation, and can receive the benefits they provide to the system.
Vector’s response to the Commission draws on this analysis, and includes a range of recommendations, including on how the energy system can be transformed to enable involvement from a wider range of market participants. The full Frontier analysis can be downloaded here.
Frontier regularly advises on issues relating to the decarbonisation of the energy sector.
Our Australian sister company, Frontier Economics (Asia-Pacific), worked with us on this project.