Resistance to arguments for electricity sector reform aren’t making concerns go away

Thursday, 18 June 2026

Robert Allen is an independent regulatory and policy adviser and economist specialising in network regulation and competition policy.

OPINION: NZ First’s proposal to separate electricity retail from generation has pushed structural reform in the electricity sector back into the mainstream.

Competing visions for New Zealand’s energy market are gaining traction.

At the centre of the debate are the large, vertically integrated electricity companies – Contact Energy, Genesis Energy, Mercury NZ and Meridian Energy – which generate electricity while also selling it to consumers. These gentailers argue the current market structure is broadly competitive and functioning as intended.

Some argue these companies should be separated into generation and retail arms, encouraging investment, innovation and competition, much like in telecommunications.

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Critics argue it would be too difficult and risky. Then there’s the question around who would demand separation.

The Electricity Authority says it lacks the power to impose structural reform, leaving the matter squarely in Parliament’s hands.

So who is right? Would separation benefit Kiwi households and NZ Inc?

Let’s be frank: if competition were working effectively, structural reform would not be back on the table.

Splitting gentailers would separate a concentrated wholesale generation market from retail, making it easier for independent retailers to compete, similar to the Telecom-Chorus split, which separated ownership of the broadband network from the company selling services directly to customers.

Opponents of structural reform often argue that low switching rates are the issue, and that separating gentailers would do little to change consumer behaviour. While households can often save money by switching providers through tools such as Powerswitch and Billy, switching rates have declined in recent years.

That cannot be explained solely by consumer inertia. It also reflects weaker competitive pressure, as smaller retailers struggle to scale or survive.

In a competitive market, stronger price signals would drive more switching.

The number of retailers is also used to defend the status quo. On paper, New Zealand has more than 40 electricity retailers. In practice, only a small number operate at a meaningful scale, with many having fewer than 100, or even 10 customers. If most players lack the scale to challenge incumbents, the appearance of competition masks a more fragile reality.

Another argument is that the real constraint lies not in market structure but ownership. Because the Government remains a major shareholder in gentailers, companies face limits on their ability to raise capital and invest in new generation. The proposed solution is to allow greater private investment, including through KiwiSaver funds.

This speaks to a genuine future supply challenge, but not how the current vertically integrated model shapes pricing and competition today. If anything, it reinforces that there is no single silver bullet for the sector’s challenges.

The Electricity Authority’s recently announced non-discrimination rules - which are intended to stop gentailers favouring their own retail businesses at the expense of their competitors - may also prove significant.

There are questions about whether these go far enough to improve competition between gentailers and independent retailers, but if they prove effective they could reduce the need for more substantial structural reform.

There is also debate around where profits sit within the sector. While gentailers argue margins are concentrated in wholesale generation rather than retail, their disclosures raise a deeper issue: independent retailers may struggle to compete if vertically integrated firms can subsidise retail losses with wholesale profits. That raises broader questions about market power in the upstream wholesale market, where high prices persist.

This is where a second layer of reform emerges: horizontal break-up.

New Zealand has been here before. The dismantling of the former Electricity Corporation of New Zealand in the 1990s was intended to increase competition in generation by splitting assets across multiple companies. A similar logic could apply today by separating large generation portfolios to reduce wholesale concentration.

We are already seeing this principle emerge in other sectors. New Zealand First has proposed a horizontal break-up in groceries, arguing major brands should be separated to increase competition in a concentrated market. The underlying idea is the same: where market power is entrenched, structural intervention may be needed to reset competition.

This reframes the debate. Vertical separation focuses on protecting the retail market from generator market power. Horizontal break-up focuses on reducing generator market power itself. The question is which approach would be more effective.

What unites many arguments against reform is an attempt to shift the focus elsewhere – towards switching behaviour, retailer numbers, accounting treatment of profits, or ownership constraints. Each contains a partial truth, but none resolves whether the market structure is delivering effective competition.

Concerns around pricing, competition and market power in New Zealand’s electricity sector are not going away. The real question is not whether arguments against reform exist, but whether they outweigh the case for change, or simply reflect the interests of those comfortable with the status quo.