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Experts warn that electricity prices will hit consumers hard.
photo: 123 RF
There are warnings that it would take just two months for households to feel the impact of high wholesale prices.
As RNZ has previously reported, wholesale electricity prices have doubled in the past three weeks, partly because New Zealand’s lakes are only about 47 per cent full at this time of year.
Some major users say the surge in electricity prices is threatening their survival, while the two Lumber mill says it’s considering closing.
Electric Kiwi stopped accepting new customers last month because of high prices.
Working with Morning Report Thursday, Deputy Energy Secretary Shane Jones accused big power companies of profiteering.
Jones said the government was seeking advice on potential regulatory interventions and that the Crown had a number of options.
Independent retailers are concerned that retailers have too much market power because they generate electricity and sell it to the retail sector.
Paul Fuge, manager of electricity price comparison website Powerswitch, said residential electricity prices had not yet been affected, but it was only a matter of time.
“This is because most retailers are ‘hedged’, meaning they have previously bought enough electricity on the wholesale market when prices were lower to meet the current needs of their residential customers.
“In response to the current high prices in the wholesale market, some retailers’ choice is to exit the market or be less willing to accept new customers rather than raising prices immediately.
“However, this situation cannot continue forever. If wholesale prices continue to remain elevated, retailers will come under increasing pressure to increase residential prices.
“It’s difficult to say when exactly this will happen as we don’t know the actual level of hedging for each retailer due to commercial sensitivities, but we believe this residential price increase is likely to start to appear in about two or three months and continue into early next year as retailers’ existing hedges are gradually exhausted and they then need to buy more in the wholesale market at higher prices.”
Electric Kiwi chief executive Luke Blincoe said residential electricity prices would increase.
Luke Blincoe from Electric Kiwi.
photo: RNZ/Nikki Mandow
“It’s not a possibility, they absolutely will. They’ve been rising for a while and this is just a slow-motion train wreck.
“New Zealand is in this situation because market forces have suppressed new construction… It’s good that politicians are now waking up to this problem and it will affect New Zealand as a whole. In fact, this is just the beginning.”
He said retail price increases could reach double digits.
“At the end of the day, just like the snake eats the pig, something has to flow out… every dollar spent in the wholesale market is ultimately absorbed by the consumer.”
Data from the Ministry of Business, Innovation and Employment shows that as of March, residential electricity prices increased by 6.4%, compared with an increase of 4.4% last year, 2.2% the year before, and 8.7% in March 2021.
Fogg said consumers believe that ineffective competition is causing prices to rise faster than they should.
“In fact, residential electricity prices are currently about 35% higher than when the retail electricity market first emerged.
“While prices have certainly increased at a slower rate than inflation over the past five years, this is largely due to regulatory restrictions on the wiring portion of the bill – while the energy portion has actually increased over this period.
“MBIE price monitoring data shows that unit prices for electricity have fallen by about 5 per cent (in real terms) over the 2020-2024 period. However, this is due to a 16 per cent fall in the line component price … while the energy component price has actually increased by 3 per cent.”
Blinko said New Zealand had been aware of its over-reliance on natural gas since 2018.
But he said more attention needed to be paid to why approved power generation projects had not yet been built.
Gentry, he said, were incentivized to hold off on new construction to keep prices higher.
“We need to develop renewable energy at a very fast pace. It will take us several years to catch up, but we keep putting it off.”
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