Study Finds Excess Profits By Big Electricity Generators

A report by the University of Auckland Business School has revealed that power generators made an extra $5.4 billion on profits from 2010 to 2016 over and above what they would have if the wholesale electricity market was truly competitive.

Senior Lecturer in Energy Economics at the Business School, author of the report, said "market power rents" – the excess profits that generators are able to make – are "substantial" – totalling $5.4 billion over seven years or 36 per cent of revenue, which is similar to or higher than those found by Stanford economist Professor Frank Wolak, in his report to the Commerce Commission, in 2009.

Poletti told the NZ Herald "We should redesign the electricity market so that the profits are less and people pay less for electricity".

The prevailing view in New Zealand is that excess profits are needed to recover investment costs in generator plants, "one that we haven't seen expressed by regulators in other electricity markets", the report says.

"The hydro plants were built and paid for by taxpayers years ago – they don't need to make any extra money to cover building costs, and maintenance costs are very low at around $5-10 per megawatt hour, compared to the average market wholesale price for hydropower of $70," Poletti said.

Brendan Winitana, SEANZ Chairman says: “Kiwi households are paying the cost of an outdated and inefficient electricity market and the growing costs of distribution need to be checked.

“Although we have 41 electricity retailers we do not have a competitive electricity market. Access to other technology that provides energy independence at a lower cost is competition.

“Regulation to open access to distribution networks and allow new technologies and new business models to compete is paramount to helping lower grid operating costs and enabling lower priced electricity to all New Zealanders.

“We look forward to the coming conversation, signalled by the report today, on regulation that will ensure the smooth uptake of emerging technologies.

“The value of solar, batteries, and home energy management systems to the grid is yet to be acknowledged by the incumbent industry and this review needs to undertake to measure their contribution to improvements in building system resilience, avoided costs of transmission and distribution, emissions reductions, and demand management, as other countries and jurisdictions do.

“A truly competitive market will enable the benefits of mini and micro-grids with embedded generation and storage and market mechanisms such as peer-to-peer trading, to benefit all electricity consumers.


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