Data key to Vector investment decisions

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Data key to Vector investment decisions

10 Nov 2016 | BusinessNZ Energy Council

By Felicity Wolfe, Energy News -  Wed, 09 Nov 2016

Smarter use of data from a number of sources is helping Vector decide how to best cater for Auckland's energy needs, chief executive Simon Mackenzie says.

The firm has made a "huge investment" in data analytics to understand and predict future trends in consumers' energy behaviour and likely effects on future network requirements.

The information comes from several sources, including Auckland Council, Statistics New Zealand, census data, appliance sales, and Vector's own network usage history. Looking at building consent activity, for example, gives a good idea of what will happen to demand in an area, Mackenzie says.

Vector is already putting those suburb, or even street level, insights to work. That data helped identify the Glen Innes substation as a candidate for installing the network's first Tesla 1 MW battery rather than completing a more costly traditional upgrade, Mackenzie says.

"We have a different mind-set – one that questions the conventional wisdom about how we invest and think about investment in our networks."

While population growth could increase energy volumes, data and trend analytics show potential for that to be offset by home-owners installing more insulation and energy efficient technologies, he said at a BusinessNZ Energy Council seminar in Wellington yesterday.

Work already completed shows that underlying household consumption in the city has fallen an average 12 per cent in the past eight years with huge differentials between the most- and least-efficient suburbs.

"That tells us there is a 20 per cent potential for energy reduction in those areas."

Household consumption in Glen Innes has fallen 11 per cent, to date. But Mackenzie says widespread take-up of LEDs could result in much lower demand still.

Cost conscious

Vector supplies electricity to about 558,600 connections in Auckland. That is up by about 7,500 new ICPs in the year to September, according the EA data.

Mackenzie says the city's rate of expansion is just behind that of some cities in China.

"We are at the front end of having to meet Auckland's growth, which by global standards is extremely high."

The cost of catering for that with traditional infrastructure could be as high as $2 billion by 2025 but smart use of data could help halve those costs.

Investment decisions are very important for a network which is under scrutiny from its shareholders which includes consumer-owned Entrust with a 75.4 per cent stake. Making the wrong investment decisions now is a cost to consumers and shareholders, Mackenzie says.

"We are not going to blindly build to old paradigms or belief systems regarding regulatory protection leaving customers to fund white elephant infrastructure," he says.

"The decision then becomes, why would we invest in massive increase in capacity when there is still a potential 20 per cent reduction in volume, before anything like solar or other new technologies comes?"

Technology shift

Vector is also embracing technology changes because it believes they offer good future business opportunities.

Alongside its regulated gas pipelines and lines network, Vector has seven non-regulated divisions which now generate 45 per cent of the group's revenue.

These operate in competitive markets in telecommunications, solar and battery solutions, smart metering, bottled gas, gas trading and vegetation management, both in New Zealand and Australia and the Pacific.

"We do not think of ourselves as a utility - we are a technology company."

He says there is a "big shift" happening in the industry, and called on equipment manufacturers to better meet networks' changing needs.

Electricity assets need to be smaller, cheaper and modular and don't need to last 40 years any more. That equipment also needs to be smart. Mackenzie says the software controlling devices will play a much greater role in delivering services.

An example is BMW's plan to install identical motors in all its vehicles but then offer software upgrades to access additional performance.

"You can buy an upgrade to a motorsports series for a weekend and go back to a 316 when you want to drive normally," Mackenzie says. "There is no rational reason why that sort of thinking shouldn't be coming into a lot of the energy sector and particularly the manufacturers."

Regulatory redesign

Mackenzie suggests the electricity sector's regulatory frameworks also need modernising.

When the current regulatory system was set in the late 1990s it was not foreseeable that home owners could cost-effectively generate electricity, or trade it via a mobile app.

"It's a completely different world from when a lot of the settings that are around today were put in place."

While it is "early days" for solar, storage and peer-to-peer trading, he says consumers' ability to do this will only grow as the technology improves.

"If the industry tries to put up barriers, consumers will find ways to navigate around these, ably assisted by customer-centric companies."

Vector is watching for energy-related Air BnB- or Uber-style firms which could be based in "Palo Alto or Beijing" and would not have any regard for jurisdiction or local rules.

"Today's consumer won't be owned. They have the power and they will exercise it as they see fit and they don't care about the current industry structures."

Carbon classifications

Mackenzie says international trends to watch for include greater distinctions being made between renewable generation and the level of CO2 emissions produced per kilowatt-hour.

Under the latter test, the country has 55 to 65 per cent carbon-free generation as opposed to 85 to 90 per cent renewable.

He says global funds and investors are increasingly seeking this type of disclosure.

"I'm not saying there is anything wrong with our reporting," he says.

"We can still celebrate the amount of carbon-free generation we have, but I think we have to make sure we don't get caught by a classification debate."

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