web analytics

Ideology causes power price spike

Written By: - Date published: 7:16 am, December 18th, 2010 - 26 comments
Categories: energy - Tags: , ,

Gerry Brownlee was warned his electricity reforms would increase power prices, not lower them as intended. He ignored the advice.

Wholesale power prices have spiked from $50 to $300 per MWH. Exporters have cut production as a result. Residential prices are next.

Brownlee’s Electricity Authority’s first job is to investigate why its own creation has caused a power price spike.

With power up and petrol breaking $2 a litre, energy is a handbrake on this supposed economic recovery. The price of oil is beyond New Zealand’s control, but the electricity price shock is entirely a result of National’s outdated neoliberal ideology.

26 comments on “Ideology causes power price spike”

  1. I think these reforms have little to do with ideology, and much to do with the fact that the power companies kept mismanaging their hydro-generation causing power-shortages in the middle of winter and denting the previous government’s popularity, and Brownlee doesn’t want that to happen under his watch.

    • Draco T Bastard 1.1

      The “more competition” mantra is pure ideology. Power is a natural monopoly and should be state owned so that their isn’t any competition to drive up prices.

      • Tigger 1.1.1

        Agreed DTB and Marty – more of the ‘choice’ crap that doesn’t work or doesn’t matter in certain areas – such as power. How about this NZ – state owned power that’s job is to produce power at zero cost to the taxpayer (ie. it must be fully self supporting and pay for its running costs, investment, infrastructure etc) and deliver costs as low as possible to the consumer. The only problem with this for the right is that no one is making a buck off someone…

        • jcuknz 1.1.1.1

          ‘Choice’ is not crap but has to be exercised with thought and care and not artificially created where it doesn’t really exist or can exist … that is what exercising choice is all about if you think about it 🙂
          edit–I may have fallen into the trap of selecting two words to comment on rather than the whole sentence .. sorry Trigger 🙁

      • Vicky32 1.1.2

        Absolutely right, DTB!
        Deb

  2. the fact is, dry years will happen, you can’t eliminate the cost associated with that risk.

    What I’m hearing from people who are actually in the electricity trading sector is that this pushes up price because its a clumsy attempt to punish hydro dependent generators for events beyond their control and they’re effectively adding an expensive layer of insurance to their pricing.

    And Brownlee’s stupid division of the Waitaki dams between Genesis and Meridian will actually make optimal water use more difficult and even encourage Genesis to bypass Meridian’s dams, wasting water.

    The idea that you can have cost-saving competition in electricity is pure ideology.

  3. the fact is, dry years will happen, you can’t eliminate the cost associated with that risk.

    No, but you can incentivise the power companies to manage the risks responsibly. This seems like a fairly left-wing policy to me.

    • ghostwhowalksnz 3.1

      The first thing Contact energy did when privatised was to sell off the Gas turbines it had at Stratford, a power station located at a choke point in the distribution system.
      Its called market power, no pun intended, any you see it in petrol giants owning the tanks in independent service stations( early NZ petrol stations had competing brands next to each other).
      This time with the power generators they probably had ‘scheduled maintenance’ to create an advanatge for them

    • lprent 3.2

      …seems like a fairly left-wing policy to me.

      So? This is a left-wing site – thanks for the compliment to Marty

      The existing right wing policy already meant to have strong incentives in it – those of the market. According to the ideological idiots on the right that should provide all of the incentives required. But that also must explain why we have kept having these perverse ‘market’ problems with limited capacity to cover the ‘exceptions’.

      Of course there is that perverse market dynamic that is present for effective natural monopolies running under market condition. The supply goes down thereby increasing prices, and therefore the profit. Why would they take that profit and invest it into increasing supply to cover the exceptions? It would cut their ability to make those profits in the future. The costs to the people buying the power don’t matter to them because where are they going to go to….

      The power generation system in NZ shows all of the standard market behaviors of natural monopolies. So I’d say that the ideological drive towards pushing the generation system into the market has clearly failed.

      That means you should either regulate their pricing and business practices or bring them under state control.

      • NickS 3.2.1

        Too hot to break this down, but another possibly way of getting across the concept of natural monopolies could be to use ecology and evolution stuff to do with niche space and how in certain environments the biomass of photosynthetic organisms becomes found primarily in only one or two species due to local conditions. Such as homogeneity of the terrain matrix (soil chemistry, moisture), local climates (temp ranges, microclimates), sunlight intensity.

        There’s also some thermodynamics stuff as well, but the thesis idea is that monopolies in terms of biomass occur as emergent functions and represent a stable valley point. Governed by energy availability + temperature ranges + soil moisture, and less governed by soil chemistry in term of nutrient availability. Per examples of tropical jungles and reef ecosystems, where energy input (and soil moisture in terms of jungles) allows for massive biological diversity in the face of low levels of essential mineral nutrients.

        So leaping over to power generation, it’s not hard to see the above can be used to think of analogous processes, say for example in a city, power distribution and generation opportunities at the micro level (wind, solar, heat recovery) become very dense, but at low levels. While power generation and distribution at the macro level is restricted. Though I’d really need to flesh this out to really see if it works, but the basic idea is that power generation & distribution at macro levels, due to limiting factors, has a stable valley in monopolies. i.e. over time power gen+distro companies will naturally drop into monopolies due to fitness costs of competition or diverge into niche power generation/distro areas.

        Bork. It’s already hit 32 C here in christchurch, and me without any money to spare for some cider…

      • Swampy 3.2.2

        How do you stop price rises forced by the Government asking for bigger dividends?

        Cullen got over a billion dollars of special dividends from Meridian, used to finance 2005 and 2008 campaign promises.

    • Bored 3.3

      Answer to how you can incentivise power companies to manage risks responsibly? By not leaving it to companies at all. A properly run supply electricity department worked very well for NZ for most of the last century. It was never SOEd / made into companies because it was not efficient, or effective, and proved a very good risk manaager. The current structure is wholy an ideological construct, and it does not work as well. Time to revert.

  4. RedLogix 4

    And Gerry’s solution this morning? Is to sell Whirinaki!!! Like that will help somehow.

    Ah the powers of the magical market.

    PS. This last Thursday the spot market price was actually around $450/MWhr for a good part of the day. For many users a short 30min peak or two at that price is not too bad, you can often re-schedule around it. But when it holds at these kinds of high prices for many hours….

    • Roger 4.1

      “Ah the powers of the magical market.”

      That really is the ideological theory behind this move. If we allow the market to determine electricity output we will always have short supply because backup stations (like Whirinaki) have to recover both fixed and marginal costs during the few times that they operate a full capacity. Gerry’s decision will see either rolling blackouts or as Crosby Textor would prefer, electricity conservation campaigns targeted at residential users to keep the spot price down for businesses.

  5. Bored 5

    I have always thought that the whole market concept to the generation of electricity in NZ to be a load of old bollocks to ideologically please some whilst allowing others (usually the same people) to suck at the trough at the expense of others (the rest of us).

    I have heard absolutely nothing to convince me that the whole supply is not most effectively and efficiently run, distributed and sold on a cost plus model in which the capital costs, and opex are known, with supply managed across th whole grid to meet demand. What more can an artificial market add?

  6. Dan 6

    Bradford, Brownlee… they are interchangeable. Remember the promises of Bradford. They should have taken the omen from Muldoon who opened the TEPB Ruahihi power scheme near Tauranga and it collapsed the next day. Power is a natural monopoly, as others have said, and Labour would win back a lot of votes by renationalising the service. The efficiencies are not there in the private sector. Once again it has been a case of privatising the profits, but blaming climatic events, whatever, for the poor record of new infrastructure.

    • Swampy 6.1

      Power is not a natural monopoly as there is not a single point of supply. The state already owns the majority of generation in NZ

      • Dan 6.1.1

        Sorry Swampy, I disagree on your definition of a natural monopoly. From Wikipedia, the following: A natural monopoly arises where the largest supplier in an industry, often the first supplier in a market, has an overwhelming cost advantage over other actual and potential competitors. This tends to be the case in industries where capital costs predominate, creating economies of scale that are large in relation to the size of the market, and hence high barriers to entry; examples include public utilities such as water services and electricity. It is very expensive to build transmission networks (water/gas pipelines, electricity and telephone lines); therefore, it is unlikely that a potential competitor would be willing to make the capital investment needed to even enter the monopolist’s market.
        Thanks for your steer on ownership. I guess its the notion of profits from Genesis, Meridian, etc going to shareholders instead of new infrastructure that bugs me.

  7. KJT 7

    Entirely predictable. As is the inefficiency of many other private and publically owned entities run under the managerial cult.

  8. stevo 8

    While anything that Gerry touches generally turns to pus… what we are seeing now is the effect of very low levels in Manapouri and Te Anau, which supplies Tewai, and under the contract to supply that glutton for gigawatts with guaranteed cheap power, it means that Benmore and the other Meridian Waitaki generators are called on to supply Tewai with energy that would otherwise be destined for the rest of the country (even though Pukaki and Tekapo are more than 50% above minimum and there is spare capacity in the cook straight cable), hence the price spikes…thanks Max.

    Without Tewai point (how many jobs there?),with some serious cables to the North Island, electric cars and cheap energy would be available to everyone, particularly the manufacturing exporters and dammit, those irrigated farms.

    But cheap energy, that thing that built NZ, where did it go?….. FCUK you Max…FCUK you.

  9. Swampy 9

    Power pricing is under pressure because of the high likelihood of an energy crisis this year.

  10. Smoko Joe 10

    Hang on a mo – how many of you “right-on” readers of The Standard think the emissions trading scheme is a good idea, that peak oil and the rise of energy prices will bring about technoloogical transformation to a clean energy future? Yep, pretty much all of you.

    At the same time, through this thread is an endless expectation that power prices should somehow be kept lower than their real cost of production. Crap. The reason power prices are rising over the long term – forget the gyrations and oddities of short term wholesale prices – is that wind, hydro, geothermal and new gas (and coal once carbon is priced properly), and particularly solar and tidal power, all cost more than current generation sources. From an environmental perspective, that’s actually positive, surely. Cars didn’t get smaller and more fuel-efficient because someone thought that would be a nice thing to do. Rather, the price of fuel went up and so people bent their minds to using less fuel better. That’s a good thing, isn’t it? What am I missing?

Links to post

Recent Comments

Recent Posts

  • New Zealand a world leader – in unaffordable housing
    The National Government has made New Zealand a world leader – in unaffordable housing, Labour’s Housing spokesperson Phil Twyford says. “The latest International Monetary Fund report shows New Zealand had the world’s second fastest growth in house prices at the… ...
    41 mins ago
  • New Zealand a world leader – in unaffordable housing
    The National Government has made New Zealand a world leader – in unaffordable housing, Labour’s Housing spokesperson Phil Twyford says. “The latest International Monetary Fund report shows New Zealand had the world’s second fastest growth in house prices at the… ...
    41 mins ago
  • Hospital meals making you sick
    I don’t know about you but I felt a bit sick watching Health Minister Jonathon Coleman eat supposed Dunedin hospital food last week.  Dunedin people have tolerated a crumbling hospital, lower access to services, longer waiting times and gross food… ...
    GreensBy Metiria Turei
    2 hours ago
  • Hospital meals making you sick
    I don’t know about you but I felt a bit sick watching Health Minister Jonathon Coleman eat supposed Dunedin hospital food last week.  Dunedin people have tolerated a crumbling hospital, lower access to services, longer waiting times and gross food… ...
    GreensBy Metiria Turei
    2 hours ago
  • Key needs to stop shifting and come clean
    John Key’s position on his lawyer’s offshore trusts lobbying has changed yet again with the Prime Minister admitting he told Todd McClay that Ken Whitney had approached him, says Labour’s Finance spokesperson Grant Robertson. “Yet again information has to be… ...
    4 hours ago
  • Key needs to stop shifting and come clean
    John Key’s position on his lawyer’s offshore trusts lobbying has changed yet again with the Prime Minister admitting he told Todd McClay that Ken Whitney had approached him, says Labour’s Finance spokesperson Grant Robertson. “Yet again information has to be… ...
    4 hours ago
  • Revolutionary art in Palmerston North
    Last night I was a judge at the May Day Cup, an annual theatrical event which celebrates International Workers Day. The event was organised by stalwart unionist Dion Martin and included a range of performers competing for the Cup. This year… ...
    GreensBy Catherine Delahunty
    1 day ago
  • Revolutionary art in Palmerston North
    Last night I was a judge at the May Day Cup, an annual theatrical event which celebrates International Workers Day. The event was organised by stalwart unionist Dion Martin and included a range of performers competing for the Cup. This year… ...
    GreensBy Catherine Delahunty
    1 day ago
  • Andrew Little visits Zaatari refugee camp
    Leader of the Opposition, Andrew Little, has visited the largest Syrian refugee camp in the world, Zaatari in Jordan, a day after seeing New Zealand troops at Camp Taji in Iraq. Mr Little spent several hours in the camp, meeting… ...
    2 days ago
  • Com Com’s Z Energy decision anti-competitive
    The Commerce Commission’s decision to allow Z Energy to buy Caltex can only undermine the competition in the fuel industry that is needed to ensure New Zealanders pay the lowest price for petrol, Labour’s Consumer Affairs spokesperson David Shearer says.… ...
    2 days ago
  • Com Com’s Z Energy decision anti-competitive
    The Commerce Commission’s decision to allow Z Energy to buy Caltex can only undermine the competition in the fuel industry that is needed to ensure New Zealanders pay the lowest price for petrol, Labour’s Consumer Affairs spokesperson David Shearer says.… ...
    2 days ago
  • OAG raps Govt over the knuckles on HNZ contracts
    The Government has been rapped over the knuckles by the Auditor General over its failure to properly manage $2.3m of contracts and conflicts of interest in relation to a merchant banker advising them on the state house sell-off, says Labour’s… ...
    3 days ago
  • OAG raps Govt over the knuckles on HNZ contracts
    The Government has been rapped over the knuckles by the Auditor General over its failure to properly manage $2.3m of contracts and conflicts of interest in relation to a merchant banker advising them on the state house sell-off, says Labour’s… ...
    3 days ago
  • Brownlee must step in as EQC spin exposed
    Gerry Brownlee needs to step in after EQC’s desperate spin in the wake of yesterday’s landmark settlement has been exposed by its own documents, says Labour’s Canterbury spokesperson Megan Woods. “Yesterday’s settlement showed that thousands of homes may not have… ...
    3 days ago
  • Brownlee must step in as EQC spin exposed
    Gerry Brownlee needs to step in after EQC’s desperate spin in the wake of yesterday’s landmark settlement has been exposed by its own documents, says Labour’s Canterbury spokesperson Megan Woods. “Yesterday’s settlement showed that thousands of homes may not have… ...
    3 days ago
  • OIO must explain Argentine pollution prosecutions
    The Overseas Investment Office (OIO)has questions to answer about how it safeguarded our sensitive land by allowing foreign investors with criminal prosecutions to purchase Onetai Station in Taranaki, says Labour’s Land Information spokesperson David Cunliffe.   “Rafael and Federico Grozovsky… ...
    3 days ago
  • Aussie banks in NZ should ban lending to offshore buyers
    ASB, Westpac and ANZ must confirm whether or not they will continue to fund the over-heated property market by lending to non-resident offshore home buyers, Labour’s Housing spokesperson Phil Twyford says. “This issue has arisen because their parent banks have… ...
    3 days ago
  • Aussie banks in NZ should ban lending to offshore buyers
    ASB, Westpac and ANZ must confirm whether or not they will continue to fund the over-heated property market by lending to non-resident offshore home buyers, Labour’s Housing spokesperson Phil Twyford says. “This issue has arisen because their parent banks have… ...
    3 days ago
  • Murray McCully needs to come clean over Tokelau ferry debacle
    Foreign Minister Murray McCully needs to come clean on why a New Zealand aid-funded vessel intended to service the Tokelau Islands is delayed, over budget and failed its sea trials, Labour’s Foreign Affairs spokesperson David Shearer says. “The new ship… ...
    3 days ago
  • Full independent inquiry needed to save New Zealand’s reputation
    Revelations that John Key's personal lawyer and trust advisor led a lobbying campaign to shut down a review of New Zealand's foreign trust regime makes the case for a full scale independent inquiry a matter of urgency, Labour's Finance spokesperson… ...
    3 days ago
  • Full independent inquiry needed to save New Zealand’s reputation
    Revelations that John Key's personal lawyer and trust advisor led a lobbying campaign to shut down a review of New Zealand's foreign trust regime makes the case for a full scale independent inquiry a matter of urgency, Labour's Finance spokesperson… ...
    3 days ago
  • Andrew Little visits NZ troops in Iraq and refugees in Jordan
    Opposition Leader Andrew Little has visited New Zealand troops at Camp Taji, Iraq. Mr Little also met with Iraqi Defence Minister Khaled Al-Obedih and senior military officials from the Coalition forces in Iraq. He now heads to Jordan to see… ...
    4 days ago
  • Workplace death toll still too high
    It’s a damning indictment on the Government that as workers gather to remember their lost workmates on Worker’s Memorial Day, New Zealand’s workplace death toll is still far too high, Labour’s Workplace Relations and Safety spokesperson Iain Lees-Galloway says. “At… ...
    4 days ago
  • Workplace death toll still too high
    It’s a damning indictment on the Government that as workers gather to remember their lost workmates on Worker’s Memorial Day, New Zealand’s workplace death toll is still far too high, Labour’s Workplace Relations and Safety spokesperson Iain Lees-Galloway says. “At… ...
    4 days ago
  • Minister must come clean on implications of landmark settlement
    Gerry Brownlee has urgent and serious questions to answer in the wake of today’s landmark EQC settlement, which potentially has major implications for thousands of Cantabrians, says Labour’s Canterbury spokesperson Megan Woods. ...
    4 days ago
  • Mossack Fonseca links to OIO approvals must be investigated
    The Minister for Land Information must investigate and disclose how many applications to the Overseas Investment Office (OIO) have links to Mossack Fonseca, says Labour’s Land Information spokesperson David Cunliffe. “Labour can now reveal the OIO approved an application from… ...
    4 days ago
  • Mossack Fonseca links to OIO approvals must be investigated
    The Minister for Land Information must investigate and disclose how many applications to the Overseas Investment Office (OIO) have links to Mossack Fonseca, says Labour’s Land Information spokesperson David Cunliffe. “Labour can now reveal the OIO approved an application from… ...
    4 days ago
  • Govt complacency leaves RB no room to cut
    The Government has put the economy in a holding pattern, leaving the Reserve Bank Governor with little room to manoeuvre as he tries to balance a rampant housing market with non-existent inflation, says Labour’s Finance spokesperson Grant Robertson. “Graeme Wheeler… ...
    4 days ago
  • Govt complacency leaves RB no room to cut
    The Government has put the economy in a holding pattern, leaving the Reserve Bank Governor with little room to manoeuvre as he tries to balance a rampant housing market with non-existent inflation, says Labour’s Finance spokesperson Grant Robertson. “Graeme Wheeler… ...
    4 days ago
  • Dam not out of doldrums yet
    Ruataniwha Dam promoters Hawke’s Bay Regional Investment Company (HBRIC) still has hurdles to clear and a lot of work to do before ratepayers and taxpayers will have confidence in the scheme, says Labour’s MP for Ikaroa-Rāwhiti Meka Whaitiri.“We need sustainable… ...
    4 days ago
  • New study shows Smith’s insulation fails Kiwi kids
    A new Otago University study shows Nick Smith’s inadequate insulation standards will see hundreds of children unnecessarily hospitalised for housing-related illnesses every year, Labour’s Housing spokesperson Phil Twyford says. ...
    5 days ago
  • Government out of touch on foreign trusts
    John Key’s poor handling of the foreign trusts issue is starkly revealed in a poll today which shows the majority of Kiwis are worried about the country being a tax haven and almost half think the issue has been badly… ...
    5 days ago
  • Government out of touch on foreign trusts
    John Key’s poor handling of the foreign trusts issue is starkly revealed in a poll today which shows the majority of Kiwis are worried about the country being a tax haven and almost half think the issue has been badly… ...
    5 days ago
  • Biggest trade deficit for 7 years a warning for Govt
    The biggest trade deficit for seven years shows the Government can’t be so complacent about the economy and must take action to diversify and encourage exports, says Labour’s Finance spokesperson Grant Robertson. “The biggest driver has been the fall in… ...
    5 days ago
  • Biggest trade deficit for 7 years a warning for Govt
    The biggest trade deficit for seven years shows the Government can’t be so complacent about the economy and must take action to diversify and encourage exports, says Labour’s Finance spokesperson Grant Robertson. “The biggest driver has been the fall in… ...
    5 days ago
  • Government’s record on climate change under fire
      The Royal Society’s latest report on climate change has made it clear that it believes the Government’s current approach to climate change is inadequate, says Labour’s spokesperson on Climate Change Megan Woods.  “The report, ‘Transition to a low-carbon economy… ...
    5 days ago
  • Government’s record on climate change under fire
      The Royal Society’s latest report on climate change has made it clear that it believes the Government’s current approach to climate change is inadequate, says Labour’s spokesperson on Climate Change Megan Woods.  “The report, ‘Transition to a low-carbon economy… ...
    5 days ago
  • Mainfreight director agrees with Labour on rail funding
    Richard Prebble – in the past accused of ruining rail and now a director of Mainfreight – agrees with Labour that secure funding for KiwiRail is the best way to minimise congestion in our major cities, says Labour’s SOEs spokesperson… ...
    5 days ago
  • Mainfreight director agrees with Labour on rail funding
    Richard Prebble – in the past accused of ruining rail and now a director of Mainfreight – agrees with Labour that secure funding for KiwiRail is the best way to minimise congestion in our major cities, says Labour’s SOEs spokesperson… ...
    5 days ago
  • Government to Reserve Bank – Rock or Hard Place?
    The Government’s complacency on the housing crisis and the economy has put the Reserve Bank Governor in a no-win position as he contemplates the OCR tomorrow, says Labour’s Finance spokesperson Grant Robertson. “Graeme Wheeler is stuck between a rock and… ...
    5 days ago
  • Government to Reserve Bank – Rock or Hard Place?
    The Government’s complacency on the housing crisis and the economy has put the Reserve Bank Governor in a no-win position as he contemplates the OCR tomorrow, says Labour’s Finance spokesperson Grant Robertson. “Graeme Wheeler is stuck between a rock and… ...
    5 days ago
  • John Key’s land tax could push up rents
    A land tax proposed by John Key as the answer to the housing crisis could push up rents and risks having no effect on skyrocketing prices, Labour’s Housing spokesperson Phil Twyford says. “The Government needs to explain why the thousands… ...
    6 days ago
  • Government should ban foreign speculators
    The Prime Minister’s musings about a land tax on non-resident buyers is just more tinkering, and the Government should just ban foreign speculators as the Australian Government has done, says Labour’s Housing spokesperson Phil Twyford. “This is classic John Key.… ...
    6 days ago
  • Government must protect Pharmac as promised
    John Key must tell New Zealanders that he will not bow to pressure from wealthy drug companies or their US negotiators and put Kiwi lives at risk, Labour’s Health spokesperson Annette King says.   “News reports today have the drug… ...
    6 days ago
  • Action not words, needed on housing speculation
    John Key should be taking action to crack down on speculation in our overheated housing market, instead of random musings on land tax, Labour Housing spokesperson Phil Twyford said.  "John Key suggested today on TVNZ's Q and A programme that… ...
    1 week ago
  • Tertiary education cost rising 7x faster than inflation
    New figures show the cost of tertiary education is rising seven times faster than inflation, putting post-school education out of the reach of many, Opposition Leader Andrew Little says.  “Figures release this week show how much more students or their… ...
    1 week ago
  • Buying Lotto is not an arts funding strategy
    The Government must rethink the way the arts are funded after falling Lotto sales has left the sector with declining resources and increasingly vulnerable, Labour’s Arts, Culture and Heritage spokesperson Jacinda Ardern says.  “Our arts sector is in a sorry… ...
    1 week ago
  • Parents hit in pocket by Government under-funding
    Parents and families are left forking out more and more for their kids’ education as a direct result of Government under-funding, Labour’s Education spokesperson Chris Hipkins says.  “The latest data shows that the cost to families of primary and secondary… ...
    1 week ago
  • Scientists ‘gasping for oxygen’ under National
     Steven Joyce's claims to be creating a science and innovation hub in New Zealand are a sham based on PR fluff, says Labour's Science and Innovation Spokesperson David Cunliffe.  “A damning critique of the science funding model by the New… ...
    1 week ago
  • Scientists ‘gasping for oxygen’ under National
     Steven Joyce's claims to be creating a science and innovation hub in New Zealand are a sham based on PR fluff, says Labour's Science and Innovation Spokesperson David Cunliffe.  “A damning critique of the science funding model by the New… ...
    1 week ago

Public service advertisements by The Standard

Current CO2 level in the atmosphere