An NZ Energy and Environment Business Week analysis of the 19 submissions made to the Electricity Commission’s call for commentary on “the big issues” in the electricity sector has found the two biggest issues for the big players in the industry are:transmission pricing anomalies stifling new investment and exacerbating the emergence of regional “monopolies” for retailers, and how to make the electricity market more truly competitive. The findings are likely to influence the EC’s briefing to incoming Ministers.

The only issue which finds widespread support across both producers and major users of electricity is the need to sort out rules for transmission pricing to allow renewables to go ahead in the South Island, and remove the current separation of retail prices between the North and South Islands. This is already a huge political issue, with Contact Energy taking heavy hits for raising tariffs up to 12% south of Haywards Hill substation, just north of Wellington. Other South Island retailers may be gaining Contact customers at the moment, but can they make them profitable when everyone agrees there is a real issue here, driven by transmission economics?

There is also general, but not totally coherent, concern expressed as to whether retail electricity is as competitive as it could or should be. The Reserve Bank observed electricity prices have increased on average 7.5% annually for the last five years, always with reasonable explanations, and the ETS will add further cost pressures. However Governor Alan Bollard says, “given … the impacts of the electricity sector on inflation and the wider economy, and consequently on monetary policy, we would like to see the regulatory and competitive structures operating such a ways as to minimise any price increases while still meeting NZ’s electricity demands.” The Domestic Energy Users Network called yet again for separation of retail and generation businesses.

Key submission points include: Fonterra: embedded co-generation is important for security of supply, and meets peak demand for seasonal dairy processing while largely avoiding grid constraints. Yet industrial heat and steam are not to be issued NZUs under the Emissions Trading Scheme. Co-gen is accordingly rendered less competitive. This should change, says our only internationally competitive multi-national enterprise; Mighty River Power: why does the Electricity Commission exist? How can companies plan to invest in new plant when the Minister of Energy can unilaterally alter the Grid Investment Test parameters and make huge changes to the economics of long-life, high capital expenditure assets; Energy Efficiency and Conservation Authority: more demand-side participation is clearly available and should be encouraged to bring on new wind investment; Commerce Commission: price; security; and the impact of smart metering and consequent potential for greater load management and retail competition.

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