The electricity market in New Zealand is extremely competitive, with consumers able to switch retailers to gain lower prices, and more consumers using metering and home energy management systems to save more. But the electricity proposals of the Labour and Greens parties would be less able than the current market to meet consumer needs.
These are among the key findings of an analysis of the electricity market commissioned by BusinessNZ and undertaken by Sapere Research Group.
BusinessNZ Chief Executive Phil O’Reilly says it is valuable to get rigorous analysis on a sector that is complex and sometimes poorly understood.
“The electricity market was established in 1996 and has operated under changing rules since then. The research makes it clear that under the current 2010 rules, the electricity market is developing towards a highly competitive, well-functioning market.
“The electricity market’s greatest problem has been a lack of transparency around prices. Energy companies have not explained price changes clearly enough, and this has led to doubts about whether prices have been unnecessarily high in the past. BusinessNZ is recommending that energy companies ensure that the reasons for future price changes are meticulously itemised. We also recommend investigating whether we should have rules for information disclosure around price setting.
“The Sapere research also notes that a segment of the market may be experiencing energy hardship in having to spend too great a proportion of their income on house heating. BusinessNZ recommends investigating options for policies within the market and the social welfare system to help alleviate this,” Mr O’Reilly said.
Sapere found the electricity market is achieving positive outcomes against five key criteria:
1. Secure supply of electricity
2. Efficient operation and market transactions
3. Efficient investment in assets
4. Social requirements
5. Environmental requirements
Sapere also analysed NZ Power proposals (Labour and Greens policies) against the same criteria. Sapere concluded that these policies would be less able than the current market to meet the five criteria, and would not resolve transparency or energy hardship problems. . .
The Labour Green power plan would make the electricity supply less secure, lead to less efficiency in operation and market transactions, less efficiency in investment, poorer social requirements and poorer environmental requirements.
Rather than fixing any problems, real or perceived, it would exacerbate them and the people who would be most disadvantaged by the added costs and poorer efficiency would be those least able to afford them.
That isn’t unusual when ideology comes before practical considerations.
Key findings of the report are:
• Outcomes under all of the public policy goals are for the most part positive but there are some areas where more effort should be applied
• Security of supply has improved under the market, and investment in generation, transmission, and distribution assets is keeping ahead of demand without government subsidy or direction
• Retail electricity price increases have not been transparent enough
• There appears to be insufficient action to address energy hardship experienced by some consumers who live in houses that are too cold and damp
• The NZ Power proposal would be less able than the current market to deliver against the five goals, and would not resolve transparency or energy hardship problems
• Retain current electricity market framework as superior to the alternatives across a range of desirable policy objectives
• Aggressively pursue net-benefit positive improvements to the efficiency of the current market arrangements by improving price transparency:
i. Investigate rules for information disclosure around price setting
ii. Fast-track Electricity Authority and MBIE workstreams on price transparency
• Confirm the nature and size of the issue of energy hardship, acknowledging that efforts by the electricity market will benefit those affected only marginally
• Implement options to aid those experiencing energy hardship, in a systematic, whole of-government way (including the appointment of a lead agency), such as:
i. Requiring landlords who receive state money to make their houses available for social housing to submit their houses to a ‘warrant of fitness’
ii. Replacing the poorly targeted Low Fixed User Charge with a better initiative
iii. Reviewing initiatives in health and welfare that can help address energy hardship
The full report is here.