Power price warning for households as major users feel the crunch

By Susan Edmunds of RNZ

Households could feel the impact of high wholesale prices in as little as two months’ time.

As RNZ reported earlier, wholesale power prices have doubled in the past three weeks, in part because of New Zealand’s hydro lakes storage, which is at about 47% of what it would normally be at this time of year.

Some major users say soaring power prices are putting their viability at risk and two timber mills say they are considering closing.

Electric Kiwi last month stopped taking new customers because of the high prices.

Speaking to RNZ’s Morning Report on Thursday, associate Energy Minister Shane Jones accused the big power companies of profiteering.

Jones said advice was being sought on potential regulatory interventions and the Crown had options.

Independent retailers have raised concerns the gentailers have too much market power because they generate the power and sell it to their retail arms.

Paul Fuge, manager of power price comparison website Powerswitch, said there had not been an impact on residential power prices yet but it was only a matter of time.

“This is because most retailers are ‘hedged’, meaning they previously purchased enough electricity on the wholesale market when prices were lower, to meet the current needs of their residential customers,” Fuge said.

“In response to the current high wholesale market prices, some retailers have responded by withdrawing from the market, or being less willing to take on new customers, rather than immediately putting up their prices.

“However, this can’t last forever. If high wholesale prices continue, there will be ever-increasing pressure building on retailers to increase their residential prices.

“Due to commercial sensitivity, we can’t know how hedged each retailer actually is, so it’s hard for us to tell exactly when, but we believe this residential price could increasingly start happening in around two or three months’ time and into early next year as retailers existing hedges progressively run out, and they then need to purchase more on the wholesale market at higher rates.”

Electric Kiwi chief executive Luke Blincoe said residential prices would rise.

Luke Blincoe, chief executive of Electric Kiwi.

“There’s no might about it, they absolutely will. They’ve been going up for a while, this is just a slow-motion train wreck,” Blincoe said.

“New Zealand has walked into this situation by allowing this market power to suppress new build... It’s great that politicians are now awake to the issue, it’s going to affect all of New Zealand. We are only at the start of this really.”

He said retail price increases could run into double-digit percentages.

“At the end of the day, it’s like a snake eating a pig, it has to flow through and come out... every single dollar of the wholesale market is ultimately absorbed by consumer.”

Ministry of Business, Innovation and Employment data shows residential power prices rose 6.4% in the year to March, after a 4.4% increase last year, 2.2% the year before and 8.7% in the March 2021 year.

Fuge said the consumer’s view was the ineffective competition had made prices increase more quickly than they otherwise would have.

“In real terms, residential prices today are around 35% higher than they were at the advent of the electricity retail market.

“While it is true that over the last five years prices have increased at a rate lower than inflation, this is primarily due to the regulatory constraints on the lines component of the bill – the energy component actually increased in this period.

“MBIE price monitoring data shows the unit price [real] of electricity in the period 2020-2024 reduced by around 5%. However, this was due to a 16% reduction in the lines component... The energy component actually increased by 3%.”

Blincoe said New Zealand had been aware of its over-reliance on gas since 2018.

But he said more attention needed to be paid to why generation projects which had been consented had not been built.

The gentailers were incentivised to defer new building to keep prices higher, he said.

“An extremely rapid build of renewables is what is required. We’ve got years to catch up on and we’ve been deferring it.”