Energy Minister Simeon Brown Photo: RNZ / REECE BAKER
The government has told the Electricity Authority to get more competitive as it tries to curb soaring electricity prices of late.
It's outlined its expectations in a Government Policy Statement, which the authority must now adhere to as it works to fix the market.
"The GPS outlines our expectation that the Electricity Authority will drive a more competitive, fuel agnostic, electricity sector that works in the long-term interests of consumers and avoid excessive prices," Energy Minister Simeon Brown said in a statement.
The GPS stated the Electricity Authority has an obligation to promote competition, and as part of that, the EA must ensure "market arrangements facilitate this competition, including in relation to flexible supply".
The directive also outlined the government's role in helping to generate more renewable energy by enabling private investment in energy generation.
Brown says New Zealand will see greater electrification of transport and process heat in coming years, and that will "shift demand from imported fuels towards domestically produced electricity, and see more distributed electricity generation brought online to bolster regional resilience".
"The government has a goal of doubling renewable electricity generation to meet the increase in demand, and has committed to policy decisions that would "enable more private investment in generation".
The GPS stated meeting that increased demand will require investment running into many tens of billions of dollars.
"This investment must be efficient to deliver a reliable electricity supply at lowest possible cost to consumers."
It also points to technology advances which are making it easier to "provide generation, energy storage or demand response services".
"It is important that our system promotes innovation across the system for the benefit of consumers.
"This innovation and investment efficiency is best achieved by a diversity of parties competing to bring to market solutions that meet consumer demand."
He also stated the government's role was to "ensure clear and consistent regulatory settings, reflected in market rules with robust compliance monitoring and enforcement, that enable an efficient market anchored by accurate price signals, and effective risk management tools and competition."
Brown claimed previous government interventions pushed prices up and had a chilling effect on investment.
"The GPS confirms the role for government is to ensure the market settings are right, to enable the private sector to invest and consumers to take advantage of innovations," Brown said.
He added the GPS provides certainty about the government's role in the sector, and that certainty will help create stable investment, driving affordability through the security of supply.
On the security of supply, the GPS stated individual wholesale market participants were responsible for managing their own supply risks.
"Neither the government nor the Electricity Authority nor the System Operator will step in to insulate wholesale market participants from risk or to protect them from their failure to manage their own energy supply risks.
"To do so would only increase the risk of shortage. Such interventions can cause a vicious circle because they can undermine incentives on market participants to manage their own risks properly, chilling hedging and new investment leading to increased scarcity, more periods of high prices and reduced security."
The "electrification of the economy," will require "significant investment in strengthening transmission and distribution networks", the GPS said.
"It is critical that this investment is economically efficient, which means (among other things) that it reflects demand and optimises new capacity in a manner that avoids unnecessary cost increases for consumers, while ensuring network reliability."
And the government would like to see "better periodic public information" in regards to spot price volatility. This is to improve understanding on why that volaitility is occuring.
"Broadening understanding is important for public confidence in the system."