Home » Business » Energy Minister Megan Woods to consider regulator’s powers amid calls for structural reform of electricity sector
Energy Minister Megan Woods to consider regulator’s powers amid calls for structural reform of electricity sector
December 22, 2020
Energy Minister Megan Woods will examine whether the electricity regulator needs new tools after a major investigation found a lack of competition in the wholesale electricity market led to prices being higher than they shouldhave been in late 2019.
Although the report deliberately stopped short of blaming any company, the complainants that led to the investigation said the regulator had effectively pointed the finger at Meridian Energy, which spilled more water than necessary at Benmore, raising prices for the entire market.
On Tuesday morning the Electricity Authority released its final report into a complaint by a group of small electricity companies, which concluded that an undesirable trading situation (UTS) had occurred in late 2019.
It is the first such finding by the regulator in almost a decade and could see the regulator pick apart and reset pricing in the wholesale electricity market during the period of the UTS. The EA estimated the impact of the UTS on the spot market was $70 million.
The report blamed a “confluence of factors” influencing the electricity market in late 2019 which it said were “unusual and unpredictable”, ranging from severe rainfall, operational changes and the need for North Island generators needing to conserve fuel ahead of scheduled shutdowns of key infrastructure.
But the EA said the market did not respond in the way that was expected and the prolonged period of high prices may have threatened confidence in the market.
“What we didn’t see is a normal market response – lower electricity spot prices driven by lower offers from those generators spilling excess water,” EA chief executive James Stevenson-Wallace said in a statement.
“There was a lack of competitive pressure which meant prices remained relatively high despite an abundant supply of water and no increased demand during the period. Water was wasted when it could have been used to generate power.”
Tuesday’s report did not apportion blame. A paper will be released in February outlining the response to the UTS finding, while separately the EA is investigating whether the trading standards expected of wholesale electricity participants have been breached.
Luke Blincoe, chief executive of Electric Kiwi said the EA’s report said one of the factors the EA said was behind the higher than expected prices was the trading behaviour of Meridian, which generates most of its electricity in the lower South Island. “I don’t know who else is responsible for that,” Blincoe said.
Blincoe welcomed the fact that the EA had referenced a lack of competition in the South Island, with Genesis describing itself as a “price taker”.
“There’s a really clear indication there that the action that’s required is structural,” Blincoe said.
“The real fix needs to come with the break-up of Meridian.”
Blincoe said the EA’s wording appeared to be an attempt to not “pollute” its separate investigation into market behaviour, which could see Meridian handed a “punitive” fine if expected behaviours were breached.
In a statement Meridian said it was disappointed with the finding and would take time to look at the detail of the report. Commentators have speculated the company, 51 per cent owned by the Crown, may challenge the EA’s findings in court.
Shares in the company were up 2per cent at 1pm , at $6.64, valuing the company at just over $17 billion.
The Green party has said the Government should look at market making requirements to ensure fair pricing of renewable electricity and if that was not enough, discuss structural separation of the electricity generators from the buy-side of the wholesale electricity market.
In a statement, Woods said her priority was to ensure that New Zealanders “reap the benefit of the cheapest electricity we produce; renewable energy.
She added: “I will work with the EA to make certain we have all the tools that are required so situations like this do not occur in the future.”