Government’s electricity goals raise ‘significant challenge’, says business group

Wednesday, 29 November 2023

The Government’s coalition deal calls for regulations to avoid excessive power prices during what is expected to be a period of massive investment.

The Government’s ambition to double renewable electricity generation while avoiding the risk of power cuts and excessive prices sets a “significant challenge” for the industry’s regulator, says Major Electricity Users Group chairperson John Harbord.

The coalition agreement between the National Party and NZ First agrees that the Government will aim to double renewable electricity generation by 2050.

At the same time, it requires the Electricity Authority implement regulations to ensure security of supply and “avoid excessive prices”.

NZ First’s concerns over power prices were driven home by an additional commitment to “assess and respond to the impact that energy prices have on inflation including consumer-led institutional improvements”.

Harbord said he was very pleased to see a focus on electricity in the coalition deal, given it was “one of the absolute foundations of a productive economy”.

The Major Electricity Users Group represents businesses that consume large amounts of power, including Rio Tinto, NZ Steel, Fonterra and Amazon Web Services.

But Harbord said there was a balance to be struck between ensuring a reliable electricity supply and affordable pricing, given that the cost of the electricity infrastructure was passed on to consumers.

Consultant BCG estimated last year that $42 billion would need to be invested in electricity generation and distribution by 2030 to meet demand and ensure 98% of electricity was from renewables.

Harbord said there was “no escaping we've got the same trade-offs we've always had”.

“How we strike that balance between reliable supply and affordability is going to be one of the crucial issues on which we're looking to engage with the Government.”

The Electricity Authority (EA) had a significant challenge ahead of it, he said.

The Consumer Advocacy Council is calling for better information from power firms.

“There is no doubt in our mind that prices are higher than they should be, and it's difficult to see how the EA facilitates or encourages a multibillion-dollar investment into the sector that doesn't pass those costs on to consumers and drive prices even higher.”

Harbord forecast the Government would weigh some of the trade-offs in front of it differently to the previous government, suggesting the priority it attached to the proportion of electricity generated by renewables might be the one that was reduced.

But he said businesses and consumers would still want to see more renewable generation, as would New Zealand’s export customers.

“If you're buying milk powder from Fonterra in Europe, you're looking at what the emissions profile of that is, relative to other milk powders that you could be buying.”

The Electricity Networks Association (ENA), which represents lines companies, last year voiced concern about the EA’s capacity to deliver its work programme and a loss of its institutional knowledge, noting staff turnover at the regulator hit 39% in the year to June last year.

An authority spokesperson said it experienced a further 29% staff turnover in the year to June this year, when it employed 104 people.

The coalition agreement could smooth the path for electricity lines companies to increase investment in power generation, promising an investigation into the threshold above which they are currently prevented from investing.

The ENA said it supported the removal of those regulations as it would “provide additional flexibility for our members to invest in assets that they determine will best suit the needs of their customers and communities”.