29 January 2014

Electricity Authority's false "analysis"

By Molly Melhuish, energy analyst

The Electricity Authority’s so-called analysis of electricity costs is based not on fact, but a simplified model. To prevent the price crashing to low levels, the model assumes demand rises every year. In fact, demand has fallen over the last five years.

The Authority asserts that residential prices were subsidised in the past. This is not based on the dictionary definition of subsidy – a payment from public funds to reduce prices. It is based on New Zealand’s regulation that allows electricity suppliers to maximise their profits at the expense of captive consumers.

The analysis says residential consumers are expensive to supply because they have higher peak demands. But regulation is suppressing initiatives that could reduce electricity demand – in particular, smart meter tariffs that would signal times when costs are high. Even ripple control of hot water, which controlled costs in the past, is now little used.

New Zealand’s electricity regulation is in denial – we’re not the only country where demand is falling.  Australia, UK, and some US states have demand falling in response to rising prices. Solar electricity is cheaper than new electricity supply, or soon will be.

Overseas there is widespread evidence that the industry faces a death spiral. As more consumers power down or switch off, prices to the remaining consumers have rise to meet the expectations of shareholders. New Zealand’s evidence is so scant and untrustworthy that the Authority’s work has to quote the Australian evidence.
Overseas, the electricity industry is transforming from the dinosaur large-scale supply model, to a mixed industry where consumers take initiative to reduce their power bills, using alternative energy sources whenever they are cheaper than electricity.

Unless the New Zealand industry faces the facts instead of hiding behind incorrect models, they will face the death spiral instead of transforming into a more efficient and affordable electricity system.

Ends

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