Why consumers are getting fed up with the electricity industry

We all know about the certainties in life – death and taxes. Well, there seems to be two certainties when it comes to electricity – price rises and the threat of winter power shortages. 

This year alone the announcements have been as regular as rain in an Auckland summer – Contact, Mercury, Genesis, have all signalled higher prices. Then just the other week Transpower reiterated worries about winter power supply. 

None of this will surprise consumers. It’s just business as usual for the big players in our electricity market. Except it is not.

We are in the midst of profound change. The climate crisis is here. So is a cost of living crisis. Consumers are being asked to both electrify and change the way they use electricity. Many households can’t afford electricity now – MBIE says that 110 thousand households couldn’t afford to heat their homes – that’s the size of every home in Lower Hutt and Wellington. We have no agreed decarbonisation plan and no national energy strategy.

My message to the industry at its annual Downstream conference on 5 March is we urgently need business as unusual. We have to transition to a low carbon economy and electricity is an essential service so it must be available, including being affordable for all. It should be anything but business as usual.

I believe the sector is nearing a crossroads with consumers. There are signs that it might be risking its social licence to operate. 

In recent years New Zealanders have largely been accepting of the industry’s view of the world and why prices have to rise to cover inflationary pressures and new generation to meet increasing demand and the transition to decarbonisation. 

Short term pain for long term gain is the refrain we hear from industry. Prices will stabilise or even fall as we transition, some say. 

We’ve heard that kind of promise before. In 1998 then Energy Minister Max Bradford said, “The Electricity Industry Reform Bill is important microeconomic legislation designed to give consumers choice and lower prices.” But choice has been constrained and prices have not reduced.

Time for a reality check then. Consumers cannot simply keep paying more. We need the electricity sector to be more innovative and rely less on increasing prices.

There are innovative projects like the Are Ake and Kāinga Ora energy-sharing pilot, the Jacksons Creek project, which will supply electricity to a subdivision of 12 rural lots in Porirua, and numerous energy efficiency schemes which lighten electricity load. But we need more. We need settings to incentivise innovation at scale and at pace.

The sector says it is mindful of the pressures on households and they have programmes for those struggling to pay. Consider Mercury’s interim report the other week talking about “strengthen(ing) the support we provide for customers in hardship.” I don’t doubt that sincerity. Yet in the same breath as patting itself on the back about that, it announced prices to increase for consumers and a whopping 22% rise in the full year dividend for shareholders.

This approach, which is not uncommon in the industry, leans heavily on a business as usual approach.

Part of the problem is market structure. Without getting into the technical aspects of pricing in the wholesale market – generators are perversely incentivised to delay investment in projects that would reduce prices and help us decarbonise. High priced thermal power which sets the price of generation during winter demand peaks, compounded by the lack of lake storage sits at the heart of it all. 

In its recent briefing to the new Energy Minister, MBIE said, “We are concerned that the wholesale market is not as competitive as it could be. The transition to more renewables and an associated increasing reliance on lake storage could lead to increases in market power that could raise prices for consumers.”

For consumers it all comes down to the need for an essential service, electricity, and trust in the sector to deliver it.

Our surveys show consumers are getting fed up. There are signs they are losing confidence in the electricity sector to look after their needs. Major storm events and the cost of living crisis are sharpening their focus on what matters to them, and that is the need for electricity to be affordable, reliable and sustainable, in that order. Most consumers, whether residential or small businesses, are not convinced the sector can do that for the future. 

Our sentiment survey last year found that just one in five New Zealanders are confident that the sector is delivering fair prices to consumers or that this will improve in the next five years. Around two out of three consumers were concerned that the electricity system was not resilient to extreme weather.

What is the tipping point at which the lack of social licence is such that the Government steps in and regulates or fundamentally changes the market structure? It would be a mistake to think that increasing numbers of Kiwi are going to remain silent while their electricity becomes progressively unaffordable or that any government, whatever the flavour, could withstand that pressure.

The current system is challenged to be able to deliver for the coming decades. We need a decarbonisation plan that consumers help develop, more innovation and a market that truly incentivises competition and decarbonisation. We need business as unusual.