Submitted on January 18, 2022

The frequency of blog posts fell off last year after October as we found ourselves in an early Christmas rush period.  We hope to be more consistent this year.  First up, our submission on the Electricity Authority’s wholesale market review.

By Greg Sise, 19th January 2022

Late last year, the Electricity Authority published its review of the wholesale electricity market over the period that the Pohokura gas field’s production has affected gas supply and price, i.e. since late 2018.

In our submission, we highlighted three areas that we felt the Authority covered relatively lightly.  First, the gas market is larger than the electricity market in energy terms, and significantly more concentrated with 75% of production controlled by just two players, with a looser regulatory regime.  Yet wholesale gas prices have a huge impact on electricity prices.  The implications of this in the transition to the net-zero economy are enormous, and we believe that improved regulation is required.

Second, the electricity market is vertically integrated to a very large extent, which means that the hedge market does not always serve smaller players well.  Yet the presence of a vibrant and growing sector of independent retailers is essential to drive innovation to the benefit of consumers.  We believe that one or two chnages in the OTC market, in particular, would go a long way to making the hedge market work better for independent retailers, and hence for consumers.

And third, rising carbon prices are making their presence felt in energy prices.  The signal this sends to consumers is obvious for fossil fuel purchasers, but when it comes to electricity the signals are mixed, or they will be until the market goes beyond 95% renewable.  We suggested that money collected through the Emissions Trading Scheme could be partly recycled back to electricity consumers in proportion to their electricity emissions, going some way to make the signals clearer.

Our submission is posted along with the other 33 submissions at the Authority’s wholesale market review page.