ComCom boss tips Government will intervene in power market

Thursday, 29 May 2025

Commerce Commission chairperson John Small says he’s sceptical “market mechanisms” will be enough.

The head of the country’s competition watchdog has made a damning assessment of the incentives on electricity generators, suggesting they aren’t building power stations quickly enough and forecasting that the Government would need to step in.

Speaking at an energy industry conference in Wellington, Commerce Commission chairperson John Small said one concept could see Government tender for new generation to meet its own demand, which he said would have the effect of increasing total supply and lowering power prices for others.

The electricity market would be in a “really tight spot over the next couple of years”, he said.

“To chuck another bomb in here; there's quite a strong incentive for the established generators to keep the market short,” Small said, echoing concerns previously voiced by some major power users.

“We've all heard of the ‘just in time’ inventory model. With electricity generation investment, it's the ‘almost too late’ model.”

Small said a “competitive market” would tend to under-provide the sort of insurance the country needed against climatic risk, by which made clear he was referring to what is usually referred to as the ‘dry-year’ risk affecting hydro generation.

“I am somewhat sceptical that we're going to be able to use market mechanisms to completely to solve this problem.”

Instead, “it may well end up in some kind of publicly arranged scheme to provide extra capacity”, he said.

Small’s comments came in the wake of annual modelling by national grid owner Transpower that suggests power firms could have too little capacity to meet demand for electricity in the winter of 2026, considering only their existing capacity and power plant developments that are set in stone.

A potentially significant report ordered by Energy Minister Simon Watts into the electricity sector is believed to have been completed last week.

Octopus Energy chief operating officer Margaret Cooney said she believed it was the first time generators had reached the “security margin limits” for the following year, which she suggested demonstrated the potential seriousness of the development.

Small’s critique also coincides with ministers getting their first chance to consider a report the Government ordered from British consultant Frontier Economics, which it is understood was given a wide brief to suggest reforms to the industry.

Sources said Frontier finalised its report on Friday. Energy Minister Simon Watts has been contacted for comment on whether and when it may be publicly released.

Small said he hoped Frontier had taken “a broad enough look at the whole sector and that it might be a catalyst for serious debate about what should happen next”.

The concept of the Government tendering for new power generation to meet its own demand for electricity might “sound radical” to the electricity industry, but had been used recently in the IT sector “in exactly this kind of way to reduce IT costs across the government sector”, he said.

Such a move could also make electricity more affordable for others, he said.

“It would be advancing new supply into the grid and taking government demand out of the spot market, and that will tend to depress prices, which is good thing for businesses and consumers in the economy.

“So I think there's something to be said for that”, he said.