Shane Jones, an Associate Energy Minister, has threatened a “Soviet” intervention in energy markets, which he argued incentivises corporate profits over energy security and affordability.
The senior coalition minister made the comments during and after a speech at the Local Government New Zealand conference in Wellington on Thursday.
While his speech was primarily focused on the regional investment fund, he went off topic to comment on high wholesale electricity prices.
“Just a final thing on the question of energy: I’m not going to back down,” he said.
“You and I, as New Zealanders, have ended up acquiescing and tolerating an energy system that is making our economy poorer. If we are not careful, it is going to hollow out parts of provincial NZ, because it's no longer internationally competitive to run businesses or invest here with the current trajectory of power prices.”
His comment was met with applause from an audience consisting mostly of councillors and mayors from around the country.
In a Q&A session following his speech, Jones was asked whether the regional investment fund could support businesses forced to close due to high energy costs.
He said it was not possible to use the fund for that purpose, but added that Cabinet was seeking advice on how to assist those firms and was preparing a policy to address energy prices.
Energy Minister Simeon Brown was likely to make an announcement within the next few days, showing that the government was being “very vigorous" in reducing the cost of energy.
Jones said his preference was to fix the systemic problems which were driving the unaffordable prices.
“It's not lost on me that we are on a trajectory like Mount Everest, up and up and up. But sadly, there has been a historical unwillingness to change the rules and regulations [of energy markets],” he said.
The rules allowed generating retail companies, or gentailers, to profit from scarcity and didn’t give priority to energy security or energy affordability.
“It gives priority to corporate profit. And, I don't care if you think that I sound like a Soviet saying that; I don't like that system, if it's driving New Zealanders into hardship,” he said, to further applause.
Jones said energy companies had had a long time to prepare for a dry winter: “In my view they are buggering up rural New Zealand”.
Green solution
Scott Willis, the Green Party’s energy spokesperson, said Jones was correct that the structure of the energy market was not incentivising sufficient new development.
He has drafted a Member’s Bill which would force big electricity companies’ to operate their generation and retail businesses separately, to prevent cross-subsidisation.
“Since [Minister Jones] is making such promising noises, here's an opportunity for him to prove that he's willing to take action,” he said.
“My bill isn't going to solve everything overnight, but it is going to be a key part in bringing the energy system into the 21st century for cheaper, cleaner, smarter electricity”.
A common criticism of the electricity market is that gentailers are incentivised to limit supply in order to keep wholesale prices relatively high.
Extra profits made from generating electricity could plausibly be used to subsidise any losses incurred by the retail arm.
The Commerce Commission said, in an internal memo, that the market structure makes this behaviour possible, although it didn’t investigate whether it was actually happening.
Advocates for the gentailers say the market has delivered well for consumers overall and making changes to its structure could upset supply investments which are underway.
Willis said separating retail and generation would help to incentivise retailers which are innovating with distributed energy systems, such as solar panels and demand response technologies in private homes.
The proposal could also drive more large-scale investment in renewable energy, as it would encourage all retailers to support new entrants capable of offering lower wholesale prices.
Members’ bills are drawn at random for debate in Parliament or can be introduced if supported by 62 non-executive MPs.
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