What’s needed now is to zero-in on the areas that can deliver the biggest bang for buck, and where progress can be made most quickly, and then get on with it.
Our message to the Government is that there is no better place to start than the energy sector.
It doesn’t take a prize-winning economist to understand that energy is a critical enabler of growth. When we are able to access an abundance of energy at stable, affordable prices, it is good news for the economy: greater output; greater employment; greater productivity (as high-value, energy-intensive sectors like tech are able to play a bigger role); and greater resilience. Industry and households flourish.
This is why nations such as the UK and US are turning to the energy sector to drive growth, and revive faltering economies. Though we may not follow the same policy mix (the UK is ramping up nuclear energy; the US is doubling down on fossil fuels), the underlying message is the same: energy is key to growth and prosperity.
For too long in New Zealand energy has not been an enabler of growth, but a major constraint on it.
Ineffective market structures, weak competition, and inadequate supply have flowed through into volatile and often unaffordable prices for consumers.
Last year’s energy crisis provided a stark insight into the economic impact of our broken energy system.
With wholesale prices soaring from around $150/MWh in February to upwards of $800/MWh in August, three major North Island mills shut their doors permanently and many more forced to dial back output to a bare minimum, just to make it through. Far from driving increased output, our energy sector is driving a process of de-industrialisation. If we are to be a globally competitive economy, those are outcomes we cannot afford.
Between the June and September quarters, the contribution to GDP of the manufacturing industry alone fell by $140 million.
For all that 2024 was bad, the damage was done well before.
It has been more than 25 years since the last major reform of the electricity sector and market structures are now well past being fit for purpose. Over the past five to six years, energy costs have roughly doubled, and all indications are that they will keep climbing.
Unless we can address the sector’s problems, we will continue to lurch from crisis to crisis, and businesses will continue to go to the wall. Further, we will fail to realise the full benefits of any other changes the Government makes to re-energise the economy.
In December last year, the Auckland Business Chamber joined the Northern Infrastructure Forum in hosting a gathering of close to 60 energy sector leaders, to discuss the challenges facing energy in the Upper North Island and – critically – to identify solutions.
On the back of that discussion, we have developed a 10-point Energy Action Plan, which we will launch in Auckland today.
The actions are designed to give policy-makers a set of tools that they can start to deploy now to turn the sector around – tools that will make a meaningful impact on the contribution that energy makes to the economy, and to the lives of New Zealanders.
What’s in the action plan?
We’re calling for greater sector leadership through a single regulatory body (replacing the three existing regulators), a long-term national strategy, and steps to secure cross-party support for the energy programme.
We want the Government to run the ruler over the vertically integrated generator-retailer model, and actively explore separation of generation and retail functions. This is crucial if we are to enable an efficient and effective market and increased competition.
The plan also calls for a blueprint for the expansion of geothermal energy, development of long-term contracts, greater use of demand response tools, and steps to free up the planning and consenting framework around electricity distribution. Individually and together, these will encourage new generation and/or improve sector resilience.
Finally, the plan highlights the need for a Warrant of Fitness for the energy sector, based on periodic, independent reviews of sector performance. This will help give confidence to market participants and the general public that the sector is functioning as it should.
Today’s launch is the start of a concerted, ongoing campaign to fix the energy sector.
Together with a host of independent retailers and generators, plus network companies and major energy users, we will engage closely with decision-makers on the contents of the Action Plan, monitor their progress against it, and hold them to account.
