Kiyota.
I'm Chelsea Daniels and this is the Front Page, a daily podcast presented by the New Zealand Herald.
New Zealand's energy sector is broken. That's according to an open letter calling for the government to do more to keep our power prices down. Soaring power costs is always a concern, but we now live in a country where for some it's a privilege.
To have power.
We've heard too many stories about businesses closing due to rising costs of just keeping the lights on and everyday kiwis are struggling as well. Tens of thousands of households are cut off from basic essential services just because they can't.
Afford to pay their bills.
So what can we actually do to keep prices down over winter? Can we ever get them to stay down permanently? Today on the front page, as part of The Herald's Power to the People campaign, we speak to the manager of Consumer and Z's Power Switch, Paul fuge. So Consumer and Z was part of this open letter calling for reforms in the energy sector.
Why is the sector broken?
That's a really big question bottom line, as we haven't seen enough investment in generation. We have seen some, but not enough and really because there's some structural issues in the market that have not been addressed. The current market structure basically centivizes just in time investment and being a little bit late rather a little bit early. That's because scarcity is rewarded in terms of high prices and seat
of high profits for gent tailors. And one of the things we've observed in the market is that the price of electricity has been decoupled from the cost of actually reducing it, So the cost of eltricity, you know, the foward prices of electricity are currently well above the long run cost of building new power stations and happened since twenty nineteen. And that's a good sign that the market isn't delivering those sort of outcomes that you'd expect from a competitive market.
Are Gen Taylor's meant to give a shit about how much we pay? Like, legally do they have to? Can they hold on to their profits and not build new generators because they're getting away with us spending loads with.
No requirement on them. It's a free market that they're no requirement to build new generation Gen Taylor's, well, you know, and according to this tent's put in front of them so they've got a judiciary requirement to deliver maximize shareholder return, right, and that's what they're required to do, and so they will make those decisions and make those investments according to those rules. So what we would say is, if you don't like the outcomes, don't blame the players, change the
rules of the game. If this was a game of rugby and you didn't like how the game was being played, or change the rules, you wouldn't blame individual players for the way they're playing because they're just trying to play to the rules as they are required to do. So I think it's not helpful to just simply beat up retailers or gentailers is as kind of villains. They are just doing what they are required to do and according to what the incent is put in front of them.
So we would say change those incentives.
Right, So what should we change those incentives too?
So we think there's to be some changes to the market. So, firstly, we think markets are good for consumers. A thriving competitive market will provide consumers with choice, innovation, and help keep a lot on prices. So those are outcomes we're not seeing from this market. So obviously the market isn't delivering according to what it was intended, so we would say change the change the rules of that market. So one of the things we would say is you need to
levelize the playing field. What we observe is some of the independent generators that this is the pure retailers and who are quite innovative, have higher customer service levels and tend to have lower prices, have really struggled to get a foothold in this market. And we've excess in the
market condensed somewhat more recently. And in fact, if you look at the market concentration, the top four generators and their subsidiaries over an eighty six percent of the market share, and that's the same as it was ten years ago, which is quite remarkable, and that's not again, not a great sign that this is a market that's working well for consumers. To mean, these new innovative retailers have really
struggled to gain a foothold. Even retailers that have been really successful overseas like Octopus Energy, have really struggled to come into the New Zealand market. And primary it's because they're struggling to compete with the gent tailors because they can't procure electricity or what they say is on equal terms as the people they're competing again, so that's quite a major structural flaw in the market. So that's something that the government should be looking at with urgency.
How bad are prices at the moment and how have they gotten real bad over the last year.
Yeah, so we've seen a little bit about ten to eleven percent increase from the same time last year on average across the country. That varies significantly. You know, the price of eltricity is a funny thing. There's no price eltricity in New Zealand. There's literally thousands and thousands of prices. So but on average across the country we've seen an eleven percent increase from last last year. So that's not great.
You know. As a result Alida survey, thirty six percent of consumers have lost faith in the outlacity market or that it's delivering delivering positive outcomes for them. That's not a great a great sign when you know close to forty percent of people just don't think it's working.
To know this from me, we can no longer maintain regional robustness unless we have affordable energy, not just for mums and dads, but for employers and employees, I've championed this issue. I've endeavored to get out in front of this issue because it's haunted key. We sport too long and we need to put the underlying security, the underlying well being of all New Zealanders ahead of the short term gent Taylor corporate riddle profits.
What can be done to make sure that those smaller players can get into the game? And can you explain it to me as if I am, I don't know, like a five year old child or something. So Gen Taylor's are the ones producing and selling, whereas you've got other companies who are what trying to get a good wholesale price and then sell it onto us.
That's correct. So retailers basically procure eltricity on the ectricity market, and they're sort of basically heating themselves. So they're they're basically buying on the wholesale market like other products, and intelling on the retail market. So they have to procure enough atris in the wholesale market to cover their cover
they customers needs both now and into the future. The problem in New Zealanders, they're buying an electricity from the very people they're competing against, okay, and you can imagine that the disadvantages that they're in the resks that puts you under and also the skull diggory that could go on, because the temptation for a gent tailor will be to sell to its own retail arm at more favorable rates or in more favorable conditions than these independents who are
trying to compete with them. So we make that a legal flaw. Well, what would say there is just have greater separation between the retail and generation functions so that the independence can compete on the same terms as these larger, larger retailers. And that's that's the fundamental flaw in thew in this market.
Right. So if I was a gent tailor and I was creating my energy and then selling it to people, I can sell it to my mate for two dollars, but all.
Of these guys over here has to have to pay three dollars. Basically they're working off a mates rates system.
That's the suspicion, and that's what independent retailers say, and that's you know, there's I'd say, there's some evidence for that. And so what you what you can do is is your your retail arm then operate at a loss or to break even point, and but you more than make up for it on your generation arm. And that's not a luxury. That's that's available to independents who just we're just living and dying basically on the retail part of it.
And so obviously they can't compete. And it's it's more complex because these innovative retailers are sort of looking for different types of hedges that they're they're offering more time of use products, So it's not just the rates, it's also the time of the day that they're trying to buy. Buy by elbxiosity as well.
How about a world where we just can we create more energy?
Well, well that's what's neat fundamentally, what's what's driving you know, the high energy prices is scarcity. So there's a lack of energy and also there's there's the risks to it is that there's there's a fear that there will be
a lack of energy in the future. So New Zealand's ultracity system is as fantastic thing, highly renewable though, so we we really are at the vagaries of weather and so when it doesn't rain, don't get enough snow, the price of octricity can can get higher because of not energy in the system, and so we need to have almost like an over capacity to accommodate those dry years.
And the current sort of system doesn't really allow for an over supply of electricity because powerstations are expensive to run and you don't want to have a power station if you're missed in one sitting sitting there there idle. So that's a real flaw in the system, is that, you know, this is just the physical nature of New Zealand system doesn't lend itself easily for the current market structure. And as a result, we've sort of lurched from energy
crisis to energy crisis. I mean, we've had like, you know,
three energy crisis since twenty twenty. So it's sort of not a great way to run an economy because because truly is so essential to not just households, the health and well being of households, but also for the functioning of the New Zealand economy, right, and that's what this is the problem now is prices become become elevated for so long that's actually affecting the economy because there's businesses now that are sort of curtailing production or shutting down completely.
And that's what's really got the intention of I think of this government is it's sort of becoming a risk to the New Zealand economy.
Now, why hasn't anything been done about this? Is it just too hard?
Yeah? I think it's just been that they've kicked for touch. You know, successive governments you know, have tinkered around the edges with this, but no one's been prepared to make the consequential reforms or changes that are needed to sort of arrest this. So, you know, we've given it a good go. It's been twenty five years since we've put the retail market in and we've had several crisis in
that time. The writing's been on the wall for a while now that things have gone up a a ry, Like I said, since twenty nineteen, the prices have been above the cost of production. So, you know, as the open that has sort of said the type of tinkering is over when consequential reform and change in this market to sort of get it working as it was intended to be working.
So what can the government do tomorrow to help us all out it was.
A few things, like some simple things that would really help consumers. I mean, we've talked about the level of playing field, but some of the basic things that we haven't got right in New Zealand is something we've been saying for decades basically is just for a start, make power bills so people can understand them. It sounds but try to say it, but you know, one five people don't even bother opening their power bill. People are just
bamboozled by their power balls. People might be surprised to know that US is quite unique and that our powerbles a unstandardized at all. What's on a powerbill, what information is shown, and how it's shown, it varies between retailers. Now it's a real flaw because people just can't understand their own power bill and own power usage and even knowing if that's normal and that what that does is create vision and epathy and mistrust and people have become
disengaged from this market. And when you've got a market where people disengage from it, it's never going to function properly. So it's such a simple, easy life cost, non controversial thing to do right is just make poweraballs easy to
understand eltricity is sort of analogous to petrol. So when you think about how they show petrol prices, you can drive down the road in your car and through through a random town, look at the wind screen of your car and look at the petrols the silent petrol station, and you know that's a good or bad price. But if you think in the petrol, it's complex, it's dangerous, difficult, supply, complex,
supply chains, et cetera. So similar to electricity. So how come they can show the price of petrol in a way that everyone can understand it in an instant ultricity prices people are just completely bamboozled by it. And also access to data, so we invested in using a big
success story in ultricity smart meters over a decade. Now you know we're over ninety percent penetration and smart meter roll out and these offer huge potential for consumers, but we've locked that data away and so we run power switch for example, So we struggle to help consumers as much as as we could if we were able to access that data, and other people as well access that data.
So it's a real own goal. The smart mat of thing is that we've invested in this this amazing technology, but we haven't unlocked the potential benefits to consumers from that because we just haven't enabled access to that data and that's been an ongoing thing for more than a decade, and that's that's a real problem, but also it's a real frustration and something that would be that would that would really help consumers that it sort of hasn't been enabled for such a long time.
And I suppose if making bills easier to read, because I put my hand up, I'm one of those people who go, is, oh, sixty.
Dollars last month, the ninety dollars this month?
Okay, But I suppose if you understood how and why it works, you have better options when it comes to perhaps switching companies as well. Should people be doing that more?
And should we are?
We not doing it enough?
Well exactly, And that's that was what would drive change as well, if I consumers basically started changing on mass, and that's what we're trying to get happening with our Powersweap service. So we've had some success in that. We've seen massive upswing and site usage over this year. So in June we saw the largest number of Initiato switches ever on the site and it was more than double
the previous highest months, which is astonishing. We've put an investment in an AI bill reader now, as I talked that before that people find bills confusing, So we've built this tool that can read any power bill in New Zealand, all the different variations, and take that information and feed it into our calculator and give people really fast, faster, more accurate comparisons that are more compelling. So people are up with their bill are twice as likely to change
providers that those don't. This is the real game changer because the issue we had is, like I said, getting the data into the model, and it's been difficult because a we don't have access to the smartmet of data, but b because people can't read their powerble able to enter their own data. We can do that for them now with the AI bill reader. So this is the first the first thing we're doing, and then we're going to build some additional tools AI tools basically to help
people with their power build more. One of the things you said is like is my powerball normal? So just tell people through the AI bill reader, you know, is what they're paying sort of normal for their household circumstances. Is it more than their neighbors? How much could they save if they change that sort of thing? What if they change their behavior, what if they change their appliances. So this is the first step and what could be quite a revolution in retail. So we're really excited about
it and what we're finding. People on the site are really excited as well because it's been such a high uptake of that tool. But in general, people can save between four and five hundred by changing provider. Look who aren't aware of that? Just how much money they can save by changing plan or provider a year, That's right, So that's a significant part of your bill. That's about the level at which people will change providers. So we have seen people respond to that. We'd like to see more.
Our companies are making huge profits.
They can reduce their prices.
Well, so again I ask you, what will you do to come hard on these big companies. Well, we'd have an electricity market review happening, which samm Brown is kicking off,
and we'll look into that and we'll monitor that. But I just say to you also need those companies to be profitable because they have to go make big investments and actually new renewable energy facilities and production facilities in order to be able to make sure that we double the amount of renewables we're going to get in the next few years, as well as we have to work really hard to find a new supply of gas and make sure that we've got gas in the market too.
A review into the energy sector was announced in November last year.
What are we are at an end of July?
Now?
What do you hope that reveals?
And are just are we moving quickly enough?
Here? Know we're not, And hence the open letters that we've we've been tinkering for too long. Some of the stuff we've seen coming out is they're not bad things in themselves, but I liken it too. You know, some of these the initiatives that are coming out from the ultru See Authority, for example, sort of they're not consequential enough for the for the for the crisis we find ourselves, and so I likened it to saying they're consulting on you know, the color of the kitchen cabinets when the
house is on fire. It's just's what it feels like. So it's nice that they're they're asking the kitchen cabin it should be it's not a bad thing, but what we would say is the house is on fire, you should probably be looking at their first. And so some of these initiatives around increasing soule of iyeback making retailers of the time and use crisis. These are good things. There's no doubt that that we wouldn't say they're bad, but they're not the things that they should be focusing on.
Because we've got people who are going cold, they're turning off the water cylinders, you know, you know, living seeing people say then your homes because it's too expensive. You know that that's that's that's the real crisis. Rather than sort of rewarding people who are fortunate enough to bet, you know, for flip solar systems among those people, you know, helping them shouldn't be a priority.
Thanks for joining us, Paul, No problem.
That's it for this episode of The Front Page. You can read more about today's stories and extensive news coverage at enzherld dot co dot MZ. The Front Page is produced by Ethan Sills and Richard Martin, who is also our editor.
I'm Chelsea Daniels.
Subscribe to the Front Page on iHeartRadio or wherever you get your podcasts, and tune in tomorrow for another look behind the headlines.