web analytics
The Standard

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 The price of oil is beyond New Zealand’s control, but the electricity price shock is entirely a result of National’s outdated neoliberal ideology.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

  • Government fees will hit charities hard
    National’s decision to ignore the concerns of charities will see the voluntary sector face hundreds of thousands of dollars in new costs if the Policing (Cost Recovery) Amendment Bill passes, says Labour's Community and Voluntary Sector spokesperson Poto Williams. “National’s… ...
    18 hours ago
  • Four out of ten for Simon’s Bridges
    The Transport Authority’s decision to fund only four of the 10 bridges promised in National’s shameless Northland by-election bribe is a huge embarrassment for Transport Minister Simon Bridges, Labour’s Transport spokesperson Phil Twyford says. “After one by-election poll showed they… ...
    19 hours ago
  • Falling consents adding to Auckland housing woes
    Falling numbers of building consents being issued in Auckland will add to the city’s housing shortfall and fuel skyrocketing house prices, Labour’s Housing spokesperson Phil Twyford “The Productivity Commission found there was a shortfall of around 32,000 houses by the… ...
    20 hours ago
  • So Mr English, do you have a plan?
    DIpping confidence about jobs, wages and shrinking exports are highlighting the lack of a plan from the government to diversify the economy and build sustainable growth, Grant Robertson  Labour’s Finance Spokesperson said. " Data released over the last week… ...
    23 hours ago
  • Serious risks to tenants and assets in sell-off
    Overseas evidence shows there are serious risks around the Government's plan to sell off state houses to social housing providers, Opposition Leader Andrew Little says. “In the Netherlands – where community housing providers supply the majority of social housing –… ...
    1 day ago
  • Land of milk and money
    Kiwi families are paying over the top prices for their milk and someone is creaming off big profits, says Labour’s Consumer Affairs spokesperson David Shearer. “In 2011 the Government told us high New Zealand milk prices were a natural result… ...
    3 days ago
  • MoBIE largesse doesn’t stop with TVs and hair-straighteners
    The number of MoBIE staff earning more than $150,000 has risen 23 per cent in just a year, Labour’s Economic Development Spokesperson David Clark says. Documents obtained from the Ministry of Business, Innovation and Employment show there are now nearly… ...
    3 days ago
  • English wants to flog state houses to Aussies
    Bill English’s admission that he would sell hundreds of New Zealand’s state houses to the Australians is the latest lurch in the Government’s stumbling, half-baked housing policy, Labour’s housing spokesperson Phil Twyford says. “Bill English should face reality and admit his… ...
    4 days ago
  • Exports continue to fall as Government fails to diversify
    The Government quickly needs a plan to diversify our economy after new figures show that exports are continuing to fall due to the collapse in dairy exports, Labour's Finance Spokesperson Grant Robertson says. “Dairy exports fell 28 per cent compared… ...
    5 days ago
  • Government inaction leads to blurring of roles
    The Treasury wouldn’t have had to warn the Reserve Bank to stick to its core functions if the Government had taken prompt and substantial measures to rein in skyrocketing Auckland house prices, Labour’s Finance spokesperson Grant Robertson says. “The problems… ...
    5 days ago
  • Courthouse closures hitting regions
    The Government’s decision to shut down up to eight regional courthouses, some supposedly only temporarily for seismic reasons, looks unlikely to be reversed, Labour’s Justice spokesperson Jacinda Ardern says.“The move has hit these regions hard, but appears to be a… ...
    5 days ago
  • A Victory for Te Tiriti o Waitangi
    This week my partner, who has a number of professions, was doing an archaeological assessment for a District Council. He showed me the new rules around archaeologists which require them to demonstrate “sufficient skill and competency in relation to Māori… ...
    GreensBy Catherine Delahunty MP
    5 days ago
  • Tough bar set for Ruataniwha dam
     Today’s final decision by the Tukituki Catchment Board of Inquiry is good news for the river and the environment, says Labour’s Water spokesperson Meka Whaitiri. “Setting a strict level of dissolved nitrogen in the catchment’s waters will ensure that the… ...
    6 days ago
  • Minister for Women and National missing the mark – part two
    The Minister for Women was in front of the select committee yesterday answering questions about her plans for women. Some useful context is that we used to have a Pay and Employment Equity Unit within the then Department of Labour… ...
    GreensBy Jan Logie MP
    6 days ago
  • Lavish penthouse spend confirms culture of extravagance
    At the same time thousands of New Zealanders are being locked out of the property market, the Government is spending up on a lavish New York penthouse for its diplomats, Labour’s Foreign Affairs spokesperson David Shearer says. News that taxpayers… ...
    6 days ago
  • Māori Television exodus cause for concern
    The shock departure of yet another leading journalist from the Native Affairs team raises further concern the Board and Chief Executive are dissatisfied with the team’s editorial content, says Labour’s Māori Development spokesperson Nanaia Mahuta. “Annabelle Lee is an experienced… ...
    6 days ago
  • Million-plus car owners to pay too much ACC
    More than a million car owners will pay higher ACC motor vehicle registration than necessary from July, Labour’s ACC spokesperson Sue Moroney says. “During a select committee hearing this morning it was revealed that car owners would have been charged… ...
    6 days ago
  • Bill will restore democracy to local councils
    A new Labour Member’s Bill will restore democracy to local authorities and stop amalgamations being forced on councils. Napier MP Stuart Nash’s Local Government Act 2002 (Greater Local Democracy) Bill will be debated by Parliament after being pulled from the… ...
    6 days ago
  • Minister for Women again misses the mark – part one
    Yesterday I asked the Minister for Women about the government’s poor performance on it’s own target of appointing women to 45% of state board positions. I challenged why she’d put out a media release celebrating progress this year when the… ...
    GreensBy Jan Logie MP
    6 days ago
  • Banks enter Dragon’s Den in pitch for Government’s mental health experi...
    Overseas banks and their preferred providers were asked to pitch their ideas for bankrolling the Government’s social bonds scheme to a Dragon’s Den-style panel, Labour’s Health spokesperson Annette King says. Dragon’s Den was a reality television series where prospective ‘entrepreneurs’… ...
    7 days ago
  • Global Mode bullying won’t stop people accessing content
    It’s disappointing that strong-arm tactics from powerful media companies have meant Global Mode will not get its day in court. Today a settlement was reached terminating the Global Mode service, developed in New Zealand by ByPass Network Services and used… ...
    GreensBy Gareth Hughes MP
    7 days ago
  • More questions – why was the Former National Party President involved wit...
    Today in Parliament Murray  McCully said the reason Michelle Boag was involved in 2011 in the Saudi farm scandal was in her capacity as a member of the New Zealand Middle East Business Council. The problem with that answer is… ...
    7 days ago
  • Minister must explain Maori TV interference
    Te Ururoa Flavell must explain why he told Maori TV staff all complaints about the CEO must come to him – months before he became the Minister responsible for the broadcaster, Labour’s Broadcasting Spokesperson Clare Curran says. “Sources have told… ...
    7 days ago
  • KiwiSaver takes a hammering after the end of kick-start
    National seems hell bent on destroying New Zealand’s saving culture given today’s news that there has been a drop in new enrolments for KiwiSaver, says Labour’s Finance spokesperson Grant Robertson.  “New enrolments for the ANZ Investments KiwiSaver scheme have plunged… ...
    7 days ago
  • Straight answers needed on CYF role
    The Government needs to explain the role that Child, Youth and Family plays in cases where there is evidence that family violence was flagged as a concern, Labour’s Children’s spokesperson Jacinda Arden says. “The fact that CYF is refusing to… ...
    7 days ago
  • Prime Minister confuses his political interests with NZ’s interest
    The Prime Minister’s statement in Parliament yesterday that a Minister who paid a facilitation payment to unlock a free trade agreement would retain his confidence is an abhorrent development in the Saudi sheep scandal, Opposition leader Andrew Little says.  ...
    7 days ago
  • #raisethequota
    Last Saturday was World Refugee Day. I was privileged to spend most of my day with the amazing refugee communities in Auckland. Their stories have been inspiring and reflect the ‘can-do’ Kiwi spirit, even though they come from all different… ...
    GreensBy Denise Roche MP
    1 week ago
  • Dairy conversions causing more pollution than ever, report shows
    The Parliamentary Commissioner for the Environment (PCE) released two reports on freshwater quality and management last Friday. The water quality report shows that dairy conversions are hurting water quality and says that despite great efforts with fencing and planting, large… ...
    GreensBy Catherine Delahunty MP
    1 week ago
  • Employers want urgent action on health and safety
    Moves by National to water down health and safety reforms have been slammed by employers – the very group the Government claims is pushing for change, says Labour’s spokesperson for Labour Relations Iain Lees-Galloway. “The Employers and Manufacturers’ Association has… ...
    1 week ago
  • Labour calls on all parties to end coat-tailing
    Labour MP Iain Lees-Galloway is encouraging all parties to support his Bill to end the coat-tailing provision when it is debated in Parliament this week.  “New Zealanders have sent MPs a clear message. An opinion poll found more than 70… ...
    1 week ago
  • Government social sector reforms
    I’ve written previously about the major shake-up that is happening in the provision of government and community services. Yesterday, the Minister of Social Development spoke publically about what these reforms are likely to look like within MSD. There are major… ...
    GreensBy Jan Logie MP
    1 week ago
  • PM must explain Saudi sheep scandal backflips
    John Key’s explanations of the Saudi sheep scandal continue to be riddled with inconsistencies and irreconcilable backflips, Labour’s Trade Spokesperson David Parker says. “Either he has been misled by his Minister Murray McCully or the Prime Minister is deliberately obfuscating… ...
    1 week ago
  • Independent investigation needed into claims scientists gagged
    Steven Joyce must launch an independent investigation into claims that scientists are being gagged, says Labour’s Science and Innovation spokesperson David Cunliffe. “When 40 percent of scientists say they are being gagged and can’t speak out on issues of public… ...
    1 week ago
  • Swamp kauri mining and exports should stop
    Seeing swamp kauri mining for the first time this week was a shock. Dark peaty soil had been stripped of its plant cover and giant excavators were digging into wet, swampy soil to unearth logs that had been buried for… ...
    GreensBy Eugenie Sage MP
    1 week ago
  • MSD going down wasteful spending track
    The Ministry of Social Development is paying big salaries and forking out hundreds of thousands of dollars on management courses while at the same time looking to hand some services over to a multinational outsourcing company with an appalling track… ...
    1 week ago
  • South Auckland housing meeting highlights stark realities
    The stark realities of life for South Aucklanders in substandard Housing New Zealand and private rental homes were fully exposed at a South Auckland housing meeting today, Labour’s MP for Manukau East Jenny Salesa says. “Local people generously shared their… ...
    2 weeks ago
  • The Pope, the scientists, and the diplomats: getting there on the climate ...
    The Pope’s Encyclical on the climate: ‘On Care for Our Common Home’, has finally been released. Evoking St Francis before him, the Pope reminds us that “our common home is like a sister with whom we share our life, and… ...
    GreensBy Kennedy Graham MP
    2 weeks ago
  • Green Party supports Gifted Kids Awareness Week 2015
    Providing high quality teaching that caters to the specific needs of every child is an enormous challenge, but there is no investment more rewarding for society. Gifted Awareness Week gives us a chance to think about how diverse the needs… ...
    GreensBy Catherine Delahunty MP
    2 weeks ago
  • Truck sellers still getting away with rip-offs
    The Government has admitted its brand new lending rules are already inadequate, says Labour’s Consumer Affairs Spokesman David Shearer. “Gaping holes in the Responsible Lending Code – which came into effect this month -- mean the vulnerable will not be… ...
    2 weeks ago
  • Government Screws the Lid Down On Raw Milk Access
    The Government’s raw milk policy announced yesterday will make it more difficult for many consumers to access the quality product of their choice, and may even be setting up the raw milk sector to fail. The Government, in its paranoia… ...
    GreensBy Steffan Browning MP
    2 weeks ago
  • Operation Desert Storm
    Blaming Saudi sand storms for the deaths of 70 per cent of Kiwi lambs born on a model farm meant to showcase New Zealand agricultural expertise is another part of the ludicrous attempt to disguise buying the cooperation of a… ...
    2 weeks ago
  • Minister, your expensive slip is showing
    A Minister's comments at a press conference in Dunedin today show just how easily costs can blow out at the Southern DHB, Labour's Acting Health spokesman David Clark says. "Fresh from criticising everyone from members of the Board that his… ...
    2 weeks ago
  • Bridges of Northland on backburner
    Transport Minister Simon Bridges today admitted no progress has been made towards his Northland by-election bribe of 10 new bridges and could only say they would be funded sometime in the next six years, Labour's transport spokesperson Phil Twyford says.… ...
    2 weeks ago
  • MP lets down Cook Island community
    The Cook Island community has been let down by National List MP Alfred Ngaro’s decision not to support a proposal that would have removed a restrictive residency requirement, Labour says. An amendment to the Social Assistance (Portability to Cook Islands,… ...
    2 weeks ago
  • Time for a moratorium on all live sheep exports
    The events of the last two weeks have highlighted how weak our regulations around live exports are, particularly in relation to live sheep exports. We urgently need a moratorium on live sheep exports until they’ve been significantly strengthened. We have… ...
    GreensBy Mojo Mathers MP
    2 weeks ago
  • Weak growth highlights lack of economic plan
    Today’s weak growth figures are less than half of what was forecast in last month’s Budget and signal rough weather ahead, Labour’s Finance spokesman Grant Robertson says. “GDP figures showing the economy grew just 0.2% in the first three months… ...
    2 weeks ago
  • Māori TV editorial interference scandal deepens
    The Maori Development Minister has misled a select committee and appears to have broken the law through editorial interference in Māori Television, Labour’s Broadcasting spokesperson Clare Curran said today. Labour has released emails between Te Ururoa Flavell’s press secretary and… ...
    2 weeks ago
  • Minister must act on energy CEOs salaries
    Energy Minister Simon Bridges must send a message to the Boards of the nation’s power companies that astronomical CEO salaries are not appropriate, Labour’s Energy spokesperson Stuart Nash says.  “The CEOs are earning from $ 2.1 million to $1.3 million… ...
    2 weeks ago
  • Black Caps backs South Dunedin flood recovery
     People dealing with the aftermath of the Dunedin floods will be supported by the boost from Black Caps skipper Brendon McCullum and coach Mike Hesson who have put their weight behind the Dunedin Flood Appeal in a  video released this… ...
    2 weeks ago
  • Continued pressure at heart of sacking
    News that the Government has appointed a Commissioner to replace the Southern District Health Board is hardly a surprise given the mounting pressure it has been under to do more with a lot less, says Labour’s Acting Health spokesperson David… ...
    2 weeks ago

Public service advertisements by The Standard

Current CO2 level in the atmosphere