Spot prices — usually a signal of things to come — are still double what they were this time last year. Many in business including the Employers & Manufacturers Association believe the crisis is far from over — particularly for businesses still facing costs 30 per cent higher than they were just months ago.
NIWA predictions that spring rainfall could be below average, with the likelihood of a dry summer and another cold, dry winter next year, are focusing many business managers on their risk management practices.
But risk occurs also at the national level.
Treasury estimates the current crisis has already cost the economy $200 million.
Pressure will go on the Government to conduct a review of the electricity market to try and avoid the risk of another recurrence of the crisis in the near future.
Officials estimate the present power shortage will shave $225 million off the economy if target savings of 10 per cent are achieved, but see only short-lived economic damage.
They say lower power output and a switch from hydro to thermal generation are already having a direct impact on the economy. There will also be indirect effects from higher power prices, a potential drop in business and consumer confidence and a fall in production.
“On the whole we estimate that these developments could plausibly reduce GDP by around 0.2 percentage points.”
They stress that these are initial estimates and the situation could worsen if rain does not fall over coming months. But there are also other issues to consider.
Mr Bradford wanted a mismatch between generators and retailers, but rationalisation is fast putting paid to that scenario.
If most of the vertically-integrated generator/retailers now have a broad balance between the amount they generate and the amount they need to satisfy their customers, how much contestable juice is left to trade through the market? Is it enough for a viable wholesale market — and if not, what should be done about it?
But the fundamental issue that will trouble politicians is security of supply.
In 1992, ECNZ had a responsibility to keep the lights on. But now a trio of baby ECNZs have been spawned responsibility has gone. Price signals have worked for alert consumers, but others have been locked in and unable to switch retailers at will.
At the end of the day the market is a device for allocating resources. When resources are scare prices rise and demand is dampened.
When the opposite occurs, the balance flows back to the business consumer, particularly the larger players.
Swings and roundabouts can play havoc with businesses with deficient risk management processes. They can do just the same for politicians.
Power to the People Supplement
