Business NZ has published a report by Sapere on the Labour/Greens power policy, which is effectively to destroy competition among generators and have the Government set wholesale prices.
The primary driver for lower wholesale electricity prices under the alternative proposals is that a single buyer would compensate generators for fixed costs at a fair return on historic costs, and pay for the operating costs of the generation plant. These purchasing arrangements are unlikely to lead to lower wholesale electricity costs in the short-term and would lead to higher costs over time.
Of course costs would rise once the Government is setting the price. The Government will be a monopoly buyer and seller and will treat power prices as a way to effectively increase tax revenue for spending promises. Plus add on their proposed ETS changes and power prices will be rising faster than ever.
It is not clear how the proposals would result in more retail competition. If all retailers are able to access a comparable homogeneous product from NZ Power, then the emphasis for retailing would shift from service innovation and differentiation in managing price and volume risk, to achieving economics of scale. Price and volume risk would sit with NZ Power. Smaller new entrant retailers, and retailers wishing to provide niche services to customers, would suffer from having to spread fixed costs over a small customer base. The result would be consolidation to fewer, larger, retailers and less innovation. This is perhaps why no country has managed to implement retail competition under a single-buyer wholesale model.
This is key. The Labour and Greens policy would not just destroy competition with generators, but also reduce competition with retailers. We have a hugely competitive retail market with hundreds of thousands of households swapping companies to get better deals.
My body corporate has just signed up to do an all of premises deal with a small nice power retailer. That retailer would probably be out of business if Labour and Greens get in – and the significant savings we are looking to make will be gone.Tags: power prices