Power costs on the rise for Kiwis

Renewable sources of energy can be expensive. Photo / Dean Purcell

New Zealand power consumers have dealt with some of the sharpest price rises in the world over the past 20 years.

Kiwi electricity tariffs are now average on a global scale but in 1990 they were the eighth-lowest.

Over the past 20 years, New Zealand's average annual power prices have increased more than 15c per kilowatt hour (kwh), from 9.2c per kwh in 1990 to 25.5 at the end of 2010. That's compared with an increase of less than 2c per kwh in Australia and about 3c per kwh in the United States.

New Zealanders pay substantially more for power than our neighbours. In 2010, Australians were paying 14.83c, while in New Zealand power was retailing for between 22.7c and 24.97c per kwh. The US price was at 16.04c but Britain's prices were similar to New Zealand's, at 27.58c.

Since that comparison was made, New Zealand prices have risen as high as 29.25c per kwh.

Basil Sharp, University of Auckland head of economics and the head of the New Zealand Energy Centre, said the increase in power prices was due to a growing economy.

"If you look at the historical relationship between consumption of energy and growth in GDP, when the economy is growing demand for electricity grows ... When the demand is increasing you pay more for it."

He said another element was that most of New Zealand's hydroelectricity had been developed and the next step would be other sources of generation, such as more expensive renewables. Australia had coal, which would seem cheap, barring carbon taxes.

But Sharp said people should be careful in making international comparisons. Government subsidies of US$51 billion ($63.5 billion) were being given to the electricity sector globally every year.

Although some countries' power was cheaper, taxpayers were still paying for it via subsidies. Sharp said: "Our electricity supply is by and large unsubsidised."

Richard Gordon, Genesis Energy's public affairs manager, said the comparison was meaningless.

"New Zealand has a very esoteric electricity system that is structurally different from most other countries - mostly renewable generation with some thermal fuelled mostly from local fuel supplies, no shared borders and no cross-border transmission, and a long narrow transmission system.

"New Zealand electricity prices are driven by the local environmental and market conditions."

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Former minister defends power sector changes

Januray 8th's editorial continued the mythology that an electricity "market" is bad for consumers ('A long wait for cheaper power').

According to this view, consumers received no benefit in lower power prices or choice of supplier. In the three years following the introduction of the retail electricity market in 1999, consumers did get lower prices (see graph) and could shop around for the best supplier.

What caused a sharp rise in prices in 2002-2003 were Labour government policies including a drive for renewable electricity generation, Maui gas ran out and had to be replaced, and the introduction of the Electricity Commission that imposed high costs on consumers.

Other factors didn't help. A run of "dry years" pushed up generation costs as New Zealand relies on water for around 70 per cent of its generation capacity.

With two-thirds of the electricity industry being owned by the government, the pressure of competition was at best weak, and at worst non-existent.

In 2009, the National government put in place a series of changes that saw the inexorable rise in prices stopped. The marketing campaign by the Electricity Authority last year saw consumers change suppliers in record numbers to get lower power prices, as they did immediately after the 1999 market was launched.

So the market does work. The partial float of power companies will see competition develop further.

- Max Bradford, Minister of Energy, 1996-1999