Review illustrates NZ’s positive electricity market

For immediate release

Media release: Annual electricity review illustrates New Zealand’s positive electricity market

3 March 2015

The Electricity Authority’s annual review of the electricity market shows electricity demand is back on the increase, the four largest retailers are losing market share and electricity prices are being held, while technological innovations are likely to require further changes to the structure of distribution prices.

The Authority’s research shows that GDP growth remains a key driver of long-term electricity demand. Temporary factors, such as weather conditions, have a strong impact on demand in the short-term but underlying demand is driven by GDP and price levels. In 2014 demand increased by 1.2 per cent and has continued to increase in early 2015.

The four largest electricity retailers lost market share in 2014, with medium-sized retailers gaining 40,000 new customers. Although large retailers have lost only a small percentage of their customers, competition from mid-sized retailers—and the entry of eight new retailers in the last eighteen months—is putting them under greater competitive pressure, affecting their pricing decisions for 2015.

Dr Layton says, “looking ahead to 2015, we expect electricity prices at the same levels as 2014, or to potentially slightly decrease. While some regions will see increases due to increases in local network charges, others will have decreases for the same reason. Some consumers will see increases and others decreases due to lines companies adjusting how they allocate their costs by, for example, rebalancing the fixed and variable cost components. However, we anticipate the average outcome across New Zealand will be flat to declining prices in 2015.”

The Authority’s market development focus in 2015 remains on promoting competition—particularly retail market competition—but more attention will need to go on issues around efficient prices for electricity.

Dr Layton says the Authority is preparing an issues paper on how distribution pricing is affecting the uptake of new technology such as small scale solar generation and electric vehicles. “At the end of 2014 we had around 4,500 small scale solar units installed in New Zealand—doubling 2013’s figures.”

“Under current pricing structures for distribution networks, households with their own source of generation, such as solar panels, reduce their offtake from the network and so pay lower distribution charges. But distribution costs are largely fixed costs, and so these costs are shifted to other households without the financial resources or opportunity to install their own capacity.

Dr Layton noted “New Zealand’s spot electricity prices typically have high variation due to our largely ‘run of river’ hydro based system. Prices in the middle of the night are generally considerably lower than during the day when consumption of electricity is high, making night-time charging of electric vehicles at low cost to the consumer and the economy a realistic prospect.”

“With 80% of New Zealand’s electricity generated from renewable sources, a figure that is likely to grow given recent investments in geothermal and wind generation, electric vehicles will reduce emissions in New Zealand significantly more than in countries with thermal based electricity systems.”

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