Dr Michael John Schmidt: A critique of the NZ electricity administration

Why is the energy status of New Zealand so opaque to the point that we have businesses closing for lack of electricity? The reason is simple: the electricity market is convoluted and in dramatic need of an overhaul.

New Zealand’s most significant energy generation companies, including their roles, government ownership and approximate annual electricity production, are:

1. Meridian Energy: The largest renewable energy generator in New Zealand, focusing on hydropower and wind. It produces approximately 40 per cent of the country’s renewable electricity, which equates to around 10,500 GWh annually. Meridian is 51 per cent government-owned and operates as both a generator and retailer but does not act as a wholesaler or distributor.
2. Genesis Energy: Engages in a mix of thermal and renewable generation, including Huntly Power Station. It produces about 22 per cent of New Zealand’s electricity, approximately 6,000 GWh annually. Genesis is 51 per cent government-owned and operates as a generator, retailer and wholesaler.
3. Contact Energy: A private company specialising in geothermal and hydropower that contributes about 13 per cent of the country’s electricity, or around 3,500 GWh annually. Contact operates as a generator and retailer but does not typically engage in wholesale or distribution activities.
4. Mercury NZ: Focuses on geothermal and hydropower and generates around 15 per cent of New Zealand’s electricity, approximately 4,000 GWh annually. Mercury is 51 per cent government-owned and operates as both a generator and retailer, without engaging in wholesale or distribution activities.
5. Trustpower: Primarily a private company with a focus on hydro generation and produces roughly 10 per cent of the country’s electricity, about 2,700 GWh annually. After merging with Mercury for retail operations, Trustpower functions as a generator, retailer and wholesaler.

Additional significant energy generators are:

6. Nova Energy: A Tauranga-based company subsidiary involved in both generation and retailing. It produces a smaller share of New Zealand’s electricity, around 1,000 GWh annually, and operates as both a generator and retailer.

7. The New Zealand Energy Group: Engages in various forms of generation, including renewables, with a modest contribution to the national electricity supply. It generates approximately 800 GWh annually and operates primarily as a generator.

8. MainPower: Primarily a distribution network operator with some hydro-based generation capacity. It serves the North Canterbury region and contributes about 400 GWh annually to the national electricity supply.

9. Waipā Networks: Focuses mainly on distribution but also has some hydro-generation capacity. Its overall contribution to national electricity generation is approximately 200 GWh annually.

Scattered throughout these companies are the abilities to generate, distribute, wholesale and retail. The situation is complex and in need of a ‘cleaning up’.

One would hope the Electricity Authority (EA) would be all over this. The EA, an independent crown entity, is responsible for regulating and overseeing the electricity market with a mandate to ensure the electricity market operates efficiently, transparently and in a manner that promotes competition and benefits consumers.

It’s primary duties are:

1. Market Oversight: Monitoring the electricity market to ensure that it functions fairly and efficiently.
2. Regulation and Compliance: Developing and enforcing regulations and codes that govern the electricity sector.
3. Consumer Protection: Working to ensure that electricity prices are fair and that consumers have access to reliable and affordable electricity.
4. Market Development: Implementing and promoting initiatives to improve the electricity market.
5. Reporting and Analysis: Providing reports and analysis on the state of the electricity market, including performance metrics, pricing trends and market developments.

The Electricity Authority operates independently from the government but is accountable to the Minister of Energy and Resources. The evidence suggests they also need a shake-up.

Between the generators and energy distributors, we have Transpower, which has two functional organisations:

1. Transpower New Zealand Limited (Transpower): State-owned and responsible for operating and managing the electricity transmission network across NZ.
2. Transpower New Zealand Limited (as system operator): This part of the organisation focuses on the real-time operation of the electricity grid, ensuring that supply and demand are balanced and that the grid remains stable and secure.

The CEO of Transpower, Alison Andrew, was interviewed recently about the power outages. The interviewer seemed confused about who is responsible for predicting NZ’s energy requirements – and so are we! Suffice to say, it is not Transpower – they are basically responsible for making sure “energy packets” (calculated and sold every half hour on an ‘energy market exchange’) get from A to B.

The responsibility for long-term electricity demand forecasting primarily falls to the EA, but they are not alone – two other entities are also involved:

1. Electricity Generators and Retailers: These entities produce their own forecasts to plan their generation and retail strategies, using historical data, market trends and other factors to predict future demand.

MBIE (Ministry of Business, Innovation and Employment): MBIE may also be involved in broader energy policy and forecasting, providing insights and data to support long-term planning in the energy sector. MBIE’s role involves setting the strategic direction for NZ’s energy sector, providing data and analysis for forecasting, and ensuring that policies and regulations support long-term energy needs and sustainability. The evidence suggests they are underperforming.

Allegedly, these organisations work together to create a comprehensive view of future electricity demand.

However, my primary objective is to clarify the root causes of the current energy shortage.

It is unjust to place most of the blame on energy generators and retailers when two state-owned entities have played a significant role in this issue.

While the government has limited power over the policies of energy generators, it fully controls the constitution, accountability and performance of both the EA and the MBIE. They should be reviewing these two organisations.

Dr Michael John Schmidt left NZ after completing postgraduate studies at Otago University (BSc, MSc) in molecular biology, virology, and immunology to work in research on human genetics in Australia. Returning to NZ has worked in business development for biotech and pharmacy retail companies and became a member of the NZ Institute of Directors. This article was first published HERE