Competition holds down power prices

Electricity demand is growing but competition is keeping a lid on prices. Photo / Christine Cornege

Four largest retailers losing market share as smaller companies emerge and gain increase in customers.

Electricity demand is edging up but strong competition is keeping a lid on prices and could push them down this year.

The Electricity Authority's annual review of the sector also shows the four largest retailers are losing market share as smaller companies gain more customers.

The four largest electricity companies - Contact, Meridian, Mighty River Power and Genesis - lost some market share in 2014, while medium-sized retailers gained 40,000 new customers, said authority chairman Brent Layton.

"Although large retailers have lost only a small percentage of their customers, competition from mid-sized retailers - and the entry of eight new retailers in the last 18 months - is putting them under greater competitive pressure, affecting their pricing decisions for 2015."

There were now 27 brands in the market and another seven were inquiring about entry. Energy prices fell by 0.6 per cent.

Layton expected electricity prices during the next year to be at the same levels as 2014, or to slightly decrease. While some regions will be hit with increases through rises in local network charges, other power bills will fall for the same reason.

"We anticipate the average outcome across New Zealand will be flat to declining prices in 2015."

Over the long term, distribution charges could be disrupted by new technology, such as small-scale solar generation and electric vehicles.

There were 4500 small-scale solar units installed by the end of last year, double that of the year before.

Under current pricing structures for distribution networks, households with their own source of generation, such as solar panels, reduce their offtake from the network and so pay lower distribution charges.

"But distribution costs are largely fixed costs, and so these costs are shifted to other households without the financial resources or opportunity to install their own capacity," Layton said.

Demand is growing again after several years in the doldrums. More demand for irrigation and the Christchurch rebuild helped fuel a 1.2 per cent lift in electricity demand last year and it was continuing into this year. That demand figure tallies with commentary from the big electricity companies except Contact which said it was still experiencing flat demand with little prospects for growth.

Temporary factors, such as weather conditions had a strong impact on demand in the short term but underlying demand was driven by GDP and price levels. The authority has also released details of research it commissioned in four countries relating to switching behaviour and perceptions of power companies.

The research showed New Zealand retailers are competing fiercely for customers compared with those in Australia, Texas and Alberta, Canada.

New Zealand consumers were the most likely to be approached by electricity retailers about switching - 69 per cent of consumers were approached at least once in a two-year period, compared with 47 per cent in Alberta, the next highest.

However, when asked if they would proactively approach retailers to switch, New Zealanders rated as the least likely of all four places, with only 35 per cent of respondents saying they would. This compares with 51 per cent of Texan consumers.

The results of the research were released as energy sector leaders meet in Auckland today for their annual conference.

Powering up

• GDP growth fuelled a 1.2% lift in electricity demand last year.

• Contact, Meridian, Mighty River Power and Genesis lost some market share.

• Medium-sized retailers gained 40,000 new customers.