Energy Minister warns power sector 'status quo' not good enough

Wednesday, 30 April 2025

Energy Minister Simon Watts has fired a warning shot across the bows of the power sector as the Government receives advice on a potential shake-up of the industry.

Speaking at a networking event hosted by generators and lines companies on Tuesday evening, Watts noted there had been price spikes that had caused some industrial users of electricity to close down.

“That is not a status quo that any of us should tolerate,” he said.

“If electricity prices remain high, New Zealanders will look at the sector and ask, ‘what have we been doing to deal with that underlying issue?’”

People wanted to see “tangible action”, he said.

The Electricity Authority (EA), an industry regulator, posted data on Tuesday that Margaret Cooney, chief operating officer of retailer Octopus Energy, said confirmed businesses and independent electricity retailers were paying about $200 a megawatt hour to secure electricity over the next few years, under longer-term contracts.

It was disconcerting that the EA appeared to “normalise” that pricing in its commentary, Cooney said.

“The scary thing is that’s about a $100 increase in wholesale prices since 2020. That's $800-plus a year on most households’ bills.

“If sufficient generation is being built then these prices should be tumbling, if not then the EA needs to unpick ‘why’.”

In 2020, the Ministry of Business, Innovation and Employment estimated the true cost of generating power from hydro, wind, solar as well as geothermal sources as all being less than $100/MWh.

EA chief executive Sarah Gillies said its commentary should not be read as endorsing current outcomes.

“Future wholesale prices are high, and we want to see more new electricity generation being built to support lower prices over the longer term,” she said.

Speaking to The Post after his address on Tuesday, Watts would not say whether $200/MWh was a long way from where futures prices needed to be.

But the cheaper energy prices were, the more efficient and productive the economy could be, he said.

“We believe that New Zealand should have abundant, affordable energy and we definitely think the status quo is not a position where energy prices are affordable for consumers.”

The Electricity Competition Taskforce, a joint initiative between the EA and the Commerce Commission, recommended in a draft report in February that the big four gentailers — Meridian, Mercury, Contact and Genesis — should be barred from giving preferential treatment to their retail arms in relation to hedge contracts.

The rule change is expected to improve competition in the retail arm of the power industry and potentially make it easier for independent generators to increase their market share of new solar and wind generation.

But Watts is soon set to consider a separate report from British consultant Frontier Economics into the electricity industry, which is expected to canvass additional structural reforms.

It is understood the Government has now seen at least a draft copy of some of the consultant’s findings.

Watts said announcements were “not too far away”.

The scope of the broader review was that “all options are on the table”, he said.

“There are a complex number of issues that underline where we're at, so it's important that we do a thorough review and make sure that kicks all the tyres.

“What is clear is that in terms of signalling from this Government to the market, we want to see a market-enabled energy sector,” he added.

The Government was “not at a point where we've got recommendations on the table, but we will be considering those in due course and we'll be moving at a degree of pace around that”, he said.

The chairperson of the Electricity Retailers Association (Eranz), Simon Watt — who shares a name very similar to the minister’s — defended the industry’s track record at the networking event, making passing reference to the devastating power outages this week in Spain and Portugal.

“You don't have to dig far into the international energy news, often the UK, but today Spain and Portugal to see and appreciate that New Zealanders enjoy predominantly renewable, safe, secure and unsubsidised electricity at prices which, in real terms, have barely risen in the past decade,” he said.

Eranz’s Watt appeared to return fire following a threat by NZ First deputy leader Shane Jones to potentially break ranks with the Government by endorsing a major overhaul of the electricity market ahead of the next election.

“I question whether critics of that market would prefer to see the current commercial investment replaced by government borrowing,” Watt said.

“Or do they expect global investors to beat a path to a small country at the bottom of the Earth, to park their capital in a sector beset with interminable regulatory uncertainty — perhaps a mere bargaining chip in a coalition negotiation?”

Industry leaders were set to flesh out their own thinking on the way forward by collaborating on “an energy transition framework” they established in 2022, he said.

“One of the first initiatives under the framework, which Eranz will co-ordinate, will be to develop an industry wide-narrative around the energy transition and what it means for New Zealanders.”

The goal would be to “communicate the sector's role in the transition and to provide transparency through metrics that we report against to show progress”, he said.