Greater competition expected in the electricity market

Greater competition expected in the electricity market with settlement and prudential security changes effective from today

24 March 2015

The Electricity Authority has implemented a new pro-competition initiative that will improve settlement and prudential security in the electricity market by making it significantly easier for new electricity retailers to enter the market and for existing retailers to grow their customer base.

Electricity Authority Chief Executive Carl Hansen explains, “The new arrangements have already increased competition—one retailer decided to enter the retail market following the decision in December 2013 to implement the new settlement and prudential regime. The new arrangements will further enhance an already highly-competitive market, with around 20 electricity companies and 30 retail brands, falling market shares for the four largest retailers, intense rivalry for customers, high levels of innovation and strong pressure on large retailers to set competitive prices for their existing customers.

“We are confident the new arrangements will further enhance competition by reducing the amount of capital that retailers need to hold in reserve to meet prudential requirements. Small and medium-sized retailers, in particular, will be able to compete for more customers with the same amount of capital they have now”.

The new settlement and prudential arrangements were recommended by the Wholesale Advisory Group and will enhance the financial security of the market. The changes will reduce the volatility of the amount of prudential securities required from traders and make it easier for them to predict their future prudential obligations. In addition, changes have been made to settlement requirements. Retailers buy from the spot market but they also sell to the spot market if they own generation. This income from generation now partially offsets purchase payments, freeing up capital for these retailers to invest in other areas, including serving additional customers.

The Authority works to promote competition in the electricity industry for the long-term benefit of consumers and one of the means by which it strives to do this is by reducing barriers to competition in the market.

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