The Blog

Will our electricity market roadblock clean power?

Climate change is the hot topic on everyone’s lips right now (as it should be), and there’s a collective sense of hope that the final Climate Change Commission report will mean some serious steps to help Aotearoa take better care of Māmā Earth.

A transition to a more electrified economy is a big part of the plan, with less reliance on fossil fuels, and requiring us to do better with how (and when) we use our power.

But getting there won’t be straightforward, particularly when it comes to our electricity industry’s ability to cope with the increased demand for power. It’s estimated that demand will jump a whopping 22.5% between now and 2035 - an increase which will put pressure on our infrastructure and systems.

But the issue isn’t just about making sure we don’t run out of power (though that is a BIG issue, as we’ve seen this week) - it’s also about ensuring we can deliver affordable energy to New Zealand homes and businesses. And right now, it’s unlikely that electricity will be affordable enough in New Zealand to support the transition - and a fair transition for all Kiwis - to a low carbon future.

Why? Well, wholesale market prices are at record highs now (and have been for the last few months), and this eventually trickles down to our power bills. If the market design stays the same, and demand increases, unaffordable prices will be here to stay just when we need power the most.

A big barrier to our net-zero transition is the current electricity market design which allows for companies to be both retailers and generators (aka gentailers). They’re able to sell themselves power at cheaper prices than they would to an independent company (known as internal transfer pricing), and that’s not great for competition or Kiwi consumers who eventually pay the price with higher power bills.

It also means those gentailers are profit-driven to keep the price of power higher and the supply-demand balance very tight, and minimal investing in new and innovative renewable generation to cover low hydro storage and gas shortages (fyi - in this year’s June quarter alone, our thermal generation increased by 45% and more than half of that generation came from coal!).

So what does that all mean for the move to electrification? It means that those who can’t pay bigger electricity bills will be left behind, either pushed further into energy poverty or unable to afford to make the shift in the first place.

And it means that those businesses who use lots of power are likely to see creeping electricity costs (maybe even so high they can’t afford to remain in business, as we’ve seen in the last couple of months), and those that are able to switch their fossil fuel-powered processes to electric will be unlikely to do so when power when prices are so high.

So what needs to happen? The government and EA need to address the dominance of a small number of large incumbent gentailers in the wholesale market that are able to stifle retail competition.

That’s why 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.

Ultimately, the current market design favours gentailers over independent retailers, pushing power prices higher than they need to be, and in our view, jeopardising Aotearoa’s goals of 100% renewable energy and decarbonisation.

In a well functioning market, we’d be unlikely to see the issues we’re facing now with reliability, dry year and storage problems because existing and new participants would be incentivised to fix it. We’d be seeing lots more independent investment in new forms of renewable generation, and creative and innovative ways to tackle the problem, rather than relying on the Government to invest billions in building storage.

Something needs to be done, and it needs to be done now. Sign our petition and JOIN THE REVOLT against big power. It’s time to bring electricity prices down.