The Blog

How the electricity market is hurting our people

For many Kiwis, there’s a reality to life in Aotearoa that’s stressful and scary - it’s a reality that means worrying about the cost of power, choosing not to use electricity so that there’s enough money for food, living in a house that’s cold, damp and mouldy, and having to take out a high-interest loan to cover the power bill.

It’s a pretty grim picture, right? But the stats don’t lie:

  • The Government’s 2019 Electricity Price Review reports residential electricity prices have risen 48% since 2000.

  • Over 100,000 New Zealand households now live in energy hardship, unable to heat their homes adequately, and a lot of these households are homes to young children.

  • More than 25,000 Kiwi kids are hospitalised with respiratory issues each year, and it’s believed that energy poverty contributes to 1,600 unnecessary deaths in New Zealand each winter.

To add to that, Consumer NZ’s recent annual survey highlights some of the problems Kiwis have faced in the past 12 months, with 14% of respondents saying they’ve had to borrow from family or friends to pay their power bill, while 7% have had to take out a loan.

Energy hardship is not a new issue, but it’s one that’s complex. It’s about low wages, poor quality housing and the cost of energy. And when those energy costs keep rising (and have risen faster than inflation) something needs to be done; otherwise it’s our most vulnerable members of society that will suffer.

Here at Flick, we expect that the record high wholesale power prices of recent months are going to make life even more difficult for those already struggling to cover the cost of electricity. The high power prices will eventually trickle down to the back pockets of New Zealanders.

So what can we do to bring electricity prices down? Well, a big part of that problem stems from the design of NZ’s electricity market which allows a few bigger gentailers (those who generate and sell power) to dominate. These gentailers sell the electricity they generate to independent retailers, like us, but they sell it at a more expensive price than they sell to their own retail arm.

Because they’re selling power to themselves for cheaper, you’d expect their customers to benefit from that, right? Not so much; in fact, gentailer retail prices are often much higher than the prices of retailer-only companies. So what gives? Well, the problem is that the market set-up allows them, as a generator and retailer, to abuse their power, push prices high and diffuse retailer competition. They’re protected from the price volatility that independent retailers face, and it’s in their best interests to keep market prices high for a service that’s deemed a necessity for human wellbeing.

Industry competition is what drives prices lower for consumers. The playing field is anything but level when some companies are advantaged by the market set-up over others. It hinders growth, innovation, and efficient pricing - in short, we’re all worse off.

So far, we believe the government has failed to act with any urgency on the issue of market design; similarly, the Electricity Authority (EA) has failed to do its job to promote competition and ensure an efficient market that benefits consumers.

So our petition calls for 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 markets as independent retailers.

Gentailers are incentivised to maximise their profits, and ultimately, the use of market power will continue to keep wholesale prices higher than they need to be for this very reason. But that impacts on the power bills of Kiwi homes and businesses - and while the cost of power remains high, energy hardship in Aotearoa will worsen.

Until the Government steps in to make significant structural changes, gentailers will continue to profit unfairly and everyday Kiwis will bear the brunt of high power prices.

Join the revolt against big power. It’s time to bring electricity prices down.