In any industry, from construction to car sales, competition is vital. That’s because it works to deliver better outcomes for consumers. Newer, smaller companies - like us here at Flick - come into the market and challenge the status quo with innovation, new products and better customer service.
But for far too long now, Aotearoa’s electricity market has been dominated by a handful of large ‘gentailers’ (companies that both generate and sell power). They’ve been able to build billions of dollars worth of generation assets over time, thanks in part to generations of taxpayers who’ve funded the building of dams.
These gentailers sell the power they generate to independent retailers, like us (those who don’t generate). But they sell it at different - and more expensive - prices than they sell to their own retail arm. That means that they’re able to use this market power not just to make whopping profits, but also to make it pretty tough for anyone else - especially smaller independent retailers - to compete.
And although gentailers sell themselves power for cheaper, it doesn’t mean they pass cheaper prices on to consumers. In fact, their retail prices are often higher than the independents like Flick who only sell electricity.
While there have been some small changes to the electricity market following the Electricity Price Review in 2019, it has mostly focused on the retail side of the market, and hasn’t done much to tackle the big issue of the flawed wholesale electricity market.
And since our arrival on the scene back in 2014, we’ve seen many, many examples of gentailers abusing their power. Over the years, we’ve been very vocal about issues with the market, and we’ve called out lots of dodgy behaviour. Here’s a couple of examples:
A claim in 2018 alongside Electric Kiwi, Vocus, Pulse and Vector, asking the Electricity Authority (EA) to review price conditions which were much higher than justifiable and supported by inadequate market rules.
The government is failing to act with any urgency on the wider issues which allow these problems to continue to occur, and the EA is failing to do its job to promote competition and ensure an efficient market that benefits consumers.
But we’re not flicking around. We know that it doesn’t have to be this way. There’s a solution to stop market power being abused and create a level playing field where competition thrives.
So we’re petitioning the Government to split electricity generators and retailers to break up big power, or at the very least, to ensure all electricity retailers buy wholesale electricity on the same market.
The government and EA need to address the dominance of a small number of large incumbent gentailers in the wholesale market to tackle the cause of the fundamental underlying issue that has, and will continue to, stifle retail competition. Ultimately, the use of market power will continue to keep prices higher than they need to be, and that impacts on bills for homes and businesses too.
The big power companies are incentivised to maximise profits for their shareholders, with little regard for a wider social responsibility to deliver fair prices for electricity – an essential ingredient for New Zealand’s economic growth and individuals’ well-being.
Prices are currently at record highs (check out our latest market update or our Facebook page for some news stories on this), and with the market as it is, we strongly believe that Aotearoa’s goals of 100% renewable energy and decarbonisation are in jeopardy.
If the market was functioning well, existing and new participants would be incentivised to solve the dry year and storage problems we’re seeing at the moment, rather than the government having to build storage as they are investigating, and we’d see lots more independent investment in new renewable generation.
While we know that low lake levels and gas supply issues this year are playing a role in the high prices, they’re also being used by the Government to detract from the underlying issues that won’t go away when the rain comes. And any impact from the New Zealand battery project that the Government is hanging its hat on as a supposed solution will, realistically, be a good decade or so away - we can’t afford to wait for this solution to play out.
Until the Government steps in to make significant structural changes, prices will continue to rise, businesses will continue to close, and gentailers will continue to profit unfairly and at the expense of everyday Kiwis and their businesses.