The Government has rejected major recommendations for the Crown to readjust its involvement in the energy sector, including to focus on thermal generation and divest shareholdings in the gentailers.
Instead, its main actions after a months-long review of the electricity market and amid rising anxiety by New Zealanders about power prices include writing to gentailers assuring them capital is available for investment, starting a procurement process for a new liquified gas facility, and asking for more information.
However, Octopus Energy chief customer officer Margaret Cooney told Ryan Bridge on Herald NOW the actions wouldn’t lead to major price changes for households and businesses.
“There just has not been enough investment in new generation to bring prices down”, Cooney said, adding growth of the electricity system would only happen through bringing in new entrants with incentives to drive the price down, and putting more capital into the market.
Labour’s energy spokeswoman Megan Woods told Ryan Bridge the Government had wasted an opportunity, instead offering “some tinkering around the edges with the status quo”.
“[They’re] not really seizing that moment and doing the things that will deliver lower cost energy to New Zealand households and businesses, and protect Kiwi jobs.”
Economic Growth Minister Nicola Willis confirmed this morning she’d written to the gentailers the Government has a stake in – Genesis, Mercury and Meridian – to stress to them the Crown is prepared to support capital funding requests for investments that support the country’s energy security.
“This is to ensure a perceived lack of access to Crown capital does not stand in the way of New Zealand’s energy security,” said Willis.
“The assurance is one of several measures the Government is taking to address the gaps in New Zealand’s energy system that are keeping prices high for consumers.”
She said the Government was committed to maintaining its legally mandated 51% stake in the companies and accepted it would need to participate in any equity raise required for major new investments.
“We are more than willing to do this, if the proposals stack-up,” said Willis.
It comes after a review announced by the Government last year into the electricity market, led by global consultancy firm Frontier Economics. That was prompted by the 2024 winter power crisis which saw energy prices soar amid record-low hydro lake levels, inadequate wind and sun, and depleting natural gas supply.
One of the Government’s main concerns has been around a lack of back-up generation that can be relied upon during dry years. While historically New Zealand has been able to use natural gas, the depleting supply has made this more expensive.
Announced on Wednesday, the Government will launch a procurement process for a Liquified Natural Gas (LNG) import facility. Last year, it moved to remove regulatory barriers to the construction of a LNG facility, though studies have found importing LNG could require costly investment in infrastructure.
Energy Minister Simon Watts said the Government was “stepping in to investment in energy security” through this procurement process, which will start next week and the results of which will be considered by Cabinet by the end of the year.
“By bolstering domestic gas supplies, LNG can help manage the impacts of dry years and keep the wider energy system up and running.”
The Electricity Authority will also be strengthened to make it a “more powerful decisive regulator”, with Watts saying it will be given a “sharper stick to crack down on bad behaviour and boost competition”.
“This will be bolstered by a more sophisticated risk monitoring role for Transpower with better forecasting of security of supply risks; new rules to ensure power companies deliver the back-up supply we need; and greater efficiency across New Zealand’s electricity distribution businesses to avoid unnecessary costs being passed on to consumers in their power bills.”
The Government will also ask the energy sector for more information. A formal “Request for Information” will be issued asking industry how the Government can work in partnership with it to kickstart new projects to boost supply.
“Leveraging government energy demand will help unlock new investment in energy generation across a range of technologies,” said Watts.
The 270-page Frontier Economics report that was delivered to ministers earlier this year was also released this morning. The Government had this peer reviewed and made several decisions on its recommendations based on this insight.
Frontier’s assessment of the market wasn’t pretty, warning without “bold action”, “irrevocable harm could be done to the New Zealand economy”. Dry-year risk would lead to “increased prices, loss of supply, and economic disruption that will drive industry out of New Zealand”, it said.
“We have identified that the core problem is one that has been caused by Government, and so it requires a solution by Government as the private sector has no means by which they can address this problem,” the report says.
“Timely and sufficient investment in substantial new long-duration dispatchable capacity is not occurring, in large part, due to the considerable risk imposed by Government policy volatility. At the stroke of a pen the value of an investment can be destroyed. This is a risk the market is unable to manage efficiently.”
Among the recommendations made is for the Government to refocus its involvement in the electricity sector to securing and selling themal capacity, ensuring the country has backup generation in case there are shortages from the likes of hydro.
To do this, the report recommended establishing a new entity with responsibility for securing and selling thermal fuel. Independent retailers, generators and large direct customers would have priority to this capacity, which the report says would widen competition.
“By taking primary responsibility for securing and selling dispatchable generation capacity, the Crown can act as guarantor of New Zealand’s energy security and reliability. Achieving energy security and reliability will provide a more stable investment environment for investors and consumers.”
The Government rejected this recommendation in favour of other actions, pointing to the peer reviews which it said were critical of this option.
Another of Frontier’s recommendations is around the divesture of the Government’s shareholding in the gentailers.
The report says that, other than in regard to flexible generation capacity, there are no major obstacles in New Zealand to investment in renewable assets.
“In general, the market design works well, provided there is enough capacity and energy, so we do not see a need for fundamental changes to the design of wholesale markets.
“However, we believe that majority Government ownership of the main gentailers is distorting market outcomes. This is primarily because Government ownership constrains the ability to invest in larger projects.
“This is because Government is unable to manage the budget implications of providing equity injections into large scale new investments – the gentailers can raise debt and they can apply retained earnings, but they struggle to obtain adequate equity injections.”
It said divesting would allow the gentailers “greater flexibility to raise capital, make larger investments and respond more dynamically to market demands”.
Funds generated from this could then be invested into ensuring “the proper functioning of the New Zealand electricity market” and projects the private sector cannot by itself manage.
In response, the Government said that shareholding ministers in Genesis, Meridian and Mercury had been clear the companies “should explore commercially sound opportunities for new generation, and perceived barriers should not impede consideration of such projects.”
“Asset sales are not being progressed.”
Other recommendations not supported include removing electricity from the Emissions Trading Scheme (ETS) and merging the Electricity Authority and Gas Industry Company.
It has looked unlikely recently that the Government would force a radical shake-up of the current market structure.
Watts told the Herald last week the changes would be “significant but surgical”. He also previously said changing the ownership of existing assets won’t solve the fundamental issue of ensuring firming generation is available.
While the review has been ongoing, there has been a significant lobbying effort by some industry players and business groups for bold action. The larger power companies have attempted to provide assurances they are taking steps to address cost pressures.
In August, Meridian, Mercury, Contact and Genesis agreed to have a strategic energy reserve at the Huntly Power Station to ensure back-up availability. An agreement was also reached in May between Meridian Energy and the Guardians of Lakes Manapōuri and Te Anau to boost hydro generation and deliver an additional 45GWh of energy from the Manapōuri Power Scheme.
Politically, energy is an issue of concern. Polling in recent months has shown rising worry among New Zealanders about their power bills, while energy price increases and supply were among the top issues of the country’s business leaders in the Mood of the Boardroom.
An Ipsos survey in August found inflation and the cost of living were New Zealanders’ most important issue. When Stats NZ revealed a 0.5% jump in the consumer price index (CPI) in the June quarter, it said a key driver of this was a rise in electricity prices, which had their largest quarterly increase in more than a decade.
Watts said he was “acutely aware of the cost-of-living pressures New Zealanders are experiencing right now”.
“I can assure you that the Government’s response to the independent review of electricity market performance will focus on targeting the root cause of the challenges New Zealand’s energy system is facing.”
Today’s announcement also comes against a backdrop of business closures, some of which have been blamed in part on high energy costs.
In May, the Herald revealed a survey found businesses worried about commercial retaliation from power companies for speaking out about energy issues.
That prompted the Commerce Commission to add a new whistleblower tool for the electricity industry, though it said there wasn’t enough evidence to warrant a formal investigation.
The fear of deindustrialisation has been raised by a number of interested parties, including associate Energy Minister Shane Jones and the Council of Trade Unions (CTU).
Jones has been vocal with his criticisms of the gentailers, while also calling for a sector shake-up, raising ideas ranging from the renationalisation of the gentailers to more technical regulatory change.
It’s a potential point of focus for NZ First’s election campaign next year, with Jones saying he didn’t want to be a politician who “didn’t do much of anything” to address structural issues.
In terms of actions already being taken to address energy supply issues, Prime Minister Christopher Luxon has pointed to fast-track consents and Resource Management Act (RMA) reform, arguing they would help get renewable energy infrastructure delivered quicker.
On Tuesday, the Herald revealed he had also written to Labour leader Chris Hipkins to seek bipartisan support for offshore gas exploration for the next decade.
While Labour has said it will reinstate the recently reversed ban, Luxon said it’s critical to have a secure supply of fuel to support New Zealand’s energy transition. Critics of the ban reversal, however, say there’s no certainty any gas will actually be found.
Elsewhere, the Electricity Authority in August also agreed to progress a new rule for gentailers to offer their generation at the same rate to all retailers and not offer themselves discounts.
In anticipation of today’s announcement, the CTU on Tuesday called on all political parties to bring the gentailers back into public ownership. That would involve, according to its plan, using the current dividends from government shares in the companies to purchase the remaining shares.
“The NZCTU proposes that [the] Government should use its dividends to progressively bring the gentailers back into full public ownership,” economist and policy director Craig Renney said.
“It should also use its power as a major shareholder to direct the gentailers to support the wider economy and network resiliency. Bringing on new generation and delivering the green energy transition need to be priorities.”
Jamie Ensor is a senior political reporter in the NZ Herald press gallery team based at Parliament. He was previously a TV reporter and digital producer in the Newshub press gallery office. He was a finalist this year for Political Journalist of the Year at the Voyager Media Awards.