This report is intended to stimulate public discussion about the electricity sector. Reliable, affordable electricity is crucial to New Zealand’s economy and way of life. If for no other reason than this, the electricity sector warrants periodic examination. The last ministerial review in 2009 covered similar ground but did not examine certain questions that feature prominently in this review, notably the fairness of electricity prices, the voice of the consumer and advances in technology.
Electricity prices, and specifically the sharp rise in residential bills, prompted the Government to initiate this high level review. The central question we must answer is whether current arrangements ensure the electricity sector is efficient and offering fair prices today while still ensuring sufficient investment for tomorrow’s consumers – and simultaneously adapting to environmental and technological changes. There is nothing fundamentally new about this balancing act. But what constitutes ‘fair’ and ‘efficient’ entails examination of a variety of often complicated market structures and regulatory controls. Note that the terms of reference refer to fair and equitable prices, but we consider fair and equitable to mean largely the same thing and for simplicity’s sake have used only fair.
Furthermore, the challenges facing the sector are different to those confronting it in 2009. The need to ensure supply can meet demand (‘security of supply’) has not changed, but technological advances and innovative business models are new developments. They require the sector to adapt. Is that happening, and is it happening fast enough? Does the regulatory framework encourage it? These are questions for the review.
Another new element of this review is the transition to a low emissions future. Achieving net zero emissions will require far reaching changes to the way New Zealand meets its energy needs, including a substantial expansion of renewable electricity to reduce dependence on fossil fuels for transport and industrial energy needs. This work is for the Interim Climate Change Commission, not us, but we have been mindful of the impact of climate change on the sector, particularly electricity pricing.
This report forms part of the review’s first phase, which is to gather facts and consider industry and public submissions so as to bring into sharp focus any problems in the sector. In part two, we will develop solutions to those problems.