Reforming New Zealand’s electricity market is critical for ensuring our economic security.
More Kiwis are moving permanently to Australia. Photo / 123rf
Last month, gentailer CEOs complained that New Zealand’s energy transition is stalling because consumers aren’t electrifying. But the real roadblock is that wholesale electricity prices have doubled since 2020. On top of that, our energy security is a mess. In 2024, a hydro shortage left our single backup at Huntly with literally a few days’ worth of coal.
There has been much talk by gentailers about a renewables boom. Gentailers might be building as fast as their shareholders allow them but it’s not fast enough. The Electricity Authority’s pipeline data shows loads of projects earmarked for construction – enough to bring on around 100TWh (terawatt-hours) of capacity, once complete (that would represent close to a three-fold increase in total renewable generation, compared to today).
But when it comes to the projects that are actually committed to be built, the anticipated new capacity is much lower – more like 5TWh. When you consider that the same pipeline shows that demand from new data centres alone would consume over 9TWh of electricity a year, it’s clear we are going to fall well short of where we need to be.
The frustrating reality is that gentailers will often sit on consented projects rather than develop them to keep supply down and prices high.
While this all sounds grim, dealing with the crisis presents New Zealand with an amazing opportunity to transform the economy. Transpower estimates a $31 billion-plus uplift to GDP by 2035 if we can get the electricity market in order and add 20TWh of supply – that’s to say, four times what is committed at the moment.
There’s no shortage of independent firms out there champing at the bit to invest in electricity generation, but they face insurmountable barriers. With the fast-track legislation in place, consenting is not the issue, and in fact many projects have had consents for years. The issue is market structure: the contracts required to get projects built are largely dependent on gentailers, which prefer not to contract with new generators as that would reduce prices and their profits.
There are small-scale levers we can pull to help work around these issues. The OECD recently suggested, for instance, utilisation of government contracts to help get independent generation projects off the ground. This approach is used in other markets already and, if you ask me, is a no-brainer.
But ultimately, addressing New Zealand’s energy crisis will require bolder reform; action that deals with the structure of the market, and, specifically, the vertically integrated gentailer model.
This isn’t about villainising electricity companies – they’re simply responding rationally to the incentives provided by a flawed framework. Rather, it’s about structurally separating power generation from retail to unlock the fierce competition and abundant supply our economy needs.
Splitting four gentailers into eight standalone companies is more likely to stimulate the stock exchange. Photo / Getty Images
New Zealand already has a highly successful blueprint for this exact intervention. The structural separation of Telecom broke a defensive monopoly, defied intense industry pushback, and delivered massive gains in service and pricing for everyday Kiwis. There is no logical reason the same bold response cannot work for energy.
Cautious politicians often warn that reshaping the sector will chill the NZX and harm mum and dad investors, but sacrificing the entire real economy to protect one corner of it is a poor trade-off. In truth, splitting four gentailers into eight standalone, dynamic companies is more likely to stimulate the stock exchange.
I’d also challenge those who defend the status quo on the basis of what they see as adherence to free-market principles. The current electricity market is far from “free”; it is an artificial construct born of legacy regulation and taxpayer-funded hydro assets.
We cannot let the fear of reform paralyse us from fixing a system that is failing to deliver. We are sitting on a goldmine of renewable resources – natural advantages that can be our ultimate global competitive edge, driving down costs and powering a high-growth economy.
The time for timidity is over; it’s time to reform, rebuild, and power up New Zealand.
Simon Bridges is a former Minister of Energy and Resources and leader of the National Party.
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