We could take some comfort from a government which listened to the demands of business even while ignoring the needs of domestic electricity consumers. But we don't even have that. We have a government which is completely blind to the needs of productive capital, and has an ear only for the monopolistic rent-seeking capitalists epitomized by the electricity sector which is well on track to destroying the New Zealand economy. This is what makes government collusion with the electricity sector so astonishing. It is not about serving the best interests of a capitalist economy, let alone the general public interest. It is about preserving the right of a privileged elite to become rich without taking any risks or doing any real work. That is just as unsustainable as fossil fuels, or more so, because the day of reckoning will come much sooner for New Zealand's rent-seeking economy.
Most important in my view is to separate a growing shortage of reliable electricity generation capacity from structural market problems. Electricity was much less costly when the system was run by ECNZ, when NZ was a global leader in heavy electrical engineering innovation, before the fake game of Monopoly market was ever introduced (copying the British approach, but in a tiny country). The promised cost reductions were in fact the opposite.
With regards reliable generation itself, relatively low yield wind and solar requires fossil fuel backup and complex, costly grid interfacing. So we are pretty much forced to not only frequently run fossil fuel backup but also to supplement the so called renewables with Huntley coal fired generation. There is no easy answer to this problem, certainly not more renewables. Setting aside nuclear phobia, small modular fission reactors would have been ideal (other nations are moving this way) if not for the problem of waste disposal, which is effectively a show stopper in the seismically active shaky isles. Consequently we are stuck with fossil fueled generation one way or another until nuclear fusion becomes a practical reality (goodbye Paris). So let's hope our Wellington fusion startup makes good progress.
As for Simon Watts. His performance is proving to be less than desirable, e.g. permitting political activism content in local government code of conduct, failure to relax methane emissions targets in line with modified IPCC guidelines and clearly now failure to substantially restructure the electricity market to be fair and efficient.
Bryce's analysis makes sense. It’s fair to say the current problems stem from market structure — and the government’s response just reinforces that structure. The bet they are making is that incremental fixes, stronger monitoring, and government backstopping LNG will be enough. The risk is that these moves don’t address the fundamental structural weaknesses, meaning high prices, insecurity, and lagging resilience could (and most likely will) persist.
Here is basically what the pre-existing structure is:
• Gentailer dominance: A few large, vertically integrated generator-retailers (Genesis, Meridian, Mercury, Contact) dominate both supply and retail. This concentration limits competition, makes investment timing strategic (eg. drive up dividends so economic to drive share holder returns) rather than system-driven (responding to demand, delivering the eco-system security the wider economy needs), and it creates concentrated pricing power.
• Fragmented networks: 29 separate distribution businesses (EDBs) result in duplication and uneven capability, making it harder to achieve efficiency, standardisation, and investment scale. So again security and resilience issues with sub-par investment approaches.
• Market-only security model: The NZ electricity market is built on a “energy-only” model — investors are expected to build generation purely on the basis of spot/hedge revenues. But because dry-year backup is rarely used, the market underprovides firming capacity (no one wants to invest in a plant that might run only once every few years).
Together, these structural features lead to high wholesale prices, fragile resilience to dry years, and slow uptake of innovation (like batteries or demand response).
So the governments response to this is in essence more of the same.
• No change in ownership or structure: The government has chosen not to sell or restructure the gentailers, nor to consolidate networks, and nor to create a central backup agency. This preserves the same concentration and fragmentation issues that Frontier highlighted.
• Reliance on incentives and transparency: Instead of structural reform, the response leans on the Electricity Authority having stronger monitoring powers, more data being published, and gentailers being “encouraged” to invest — all within the same market framework. That invsetment has not happened to date.
• Targeted interventions on the sides: The LNG terminal, higher cap for EDB-owned generation, and consumer data reforms are important, but they are bolt-ons, not shifts in how investment decisions are fundamentally made. So they will only help at the margins.
• Climate-policy consistency: Retaining the ETS is positive for decarbonisation, but it also ensures backup generation remains costly in dry years — reinforcing the system’s insecurity if new firming isn’t built fast enough.
That same-same response underlies this is a liberalised, energy-only market with light-touch monopoly regulation:
• Government sets rules and plugs obvious gaps (data, LNG as a stopgap).
• Regulators (EA, Commerce Commission) are tasked with “tightening up” oversight, but not restructuring.
This reflects a clear choice: to double down on the existing market model rather than redesign it. And they are presuming (or hoping or pretending - depending on how you view these things) that chnage and improvement will occur.
Great analysis Bryce. It's hard to know whether to believe the stance of ardent Trump admirer, drill-baby-drill Shane Jones on the gentailers. He and NZ First are unreliable as are National and Act. Let's hope we don't get sucked in again by them when it's time to vote.
I cannot agree with anything Bryce has written here because none of it bears any relationship to the facts or our electricity market. For a start, the best joke is Bryce's (and that of other lefty chatteratii) view that the lack of separation of generation from retailing is fundamental to our electricity pricing and supply 'problem'. He is proposing a neoliberal template solution for a problem for which it is patently not the answer. It's so ironic that lefties are doing this, presumably having struck a truce with neoliberalism in this one instance?
A really important fact is that all five of the independent Electricity Authority board, real experts by their website CVs and all appointed by a Labour Government, consider this argument seriously and point out they feel what we have brings us 'pros' more than 'cons'. Second, the four experts who commented, mostly adversely, on the Frontier Economics report do begin by emphasising that "most importantly, we agree with Frontier’s assessment that the New Zealand
market is overall well-designed. We also agree that it appears to be reasonably competitive, except perhaps under stressed conditions."
Third, all informed analysis points out that last year, and a couple of years ago, we have suffered from 'dry year risk' that has driven up forward derivative prices, embedding longer period costs. In 2025, the unexpected sharp fall-off in gas availability, known in summer 2024/5, caused forward electricity prices to rise strongly. Over the ten years to March 2025, we have had no overall demand increase for electricity - it has been flat that long. The 2019/20 threat to leave by the smelter took three years to resolve, and had it not been, we would have had an 8% increase in the available electricity in the market (the other 4/5% could not have been shipped north to be useful). In these circumstances, having a tight market now is understandable - the big gentailers got all the permits needed to invest and when the smelter agreement was reached, pressed the button. Renewables investment is going in heavily now. And it was already out of sight - Mercury has been implementing a program to replace its 50 year old generators to obtain 9% more output from newer equipment in the same dams - $750 million, not finished yet but started years ago.
One key needed simply to get forward derivative electricity prices down is supply security evidence, and the agreement to use Huntly and coal by the 'big four' is an effort to do that. As Ron Segal has recognised, you can have all the solar and wind investment you want but when the sun is not shining (80% of the time on average) and the wind not much blowing (well over 60% of the time), it's only fossil fuels that will keep our computers going.'
The reference by Bryce to MBIE saying solar and wind are the cheapest generation sources illustrates general ignorance about this measure. This is true, on a stand alone single project assessment. But it is not true of the costs they bring to their incorporation in a national electricity grid, where their intermittency brings high back-up costs into play. In the UK, US and Australia (South Australia especially), the more they have incorporated solar and wind, the higher their average grid electricity costs have gone. South Australia's electricity is more expensive than any other state and it is dominated by electricity and wind. And you'd have to have your media head in the sand not to know what phenomenal electricity price rises have occurred in the UK in the last five years especially - 'renewables' of course. It's been grossly mismanaged there.
Here, we will have more solar and perhaps wind, assessed on its economic merits and in conjunction with batteries which will enable 'buy low/sell high' strategies linked to solar to knock the tops off market scarcity signals. They will never get the country through several dark, windless winter days - we need the combined cycle gas generators and Rankine units chewing coal. And more geothermal in the next two decades, a real win for us.
It's a shame our newspapers won't print explanations of all this (I've tried and I know others who are experienced power engineers have too) but the MSM prefer the myth of cheap renewables and fear the truth here.
If you really want to know how it all works, it would not take a total of more than 8 hours on the Internet where explanations of how all this works are easily available. I think that's more use than bloviating on a blog about 'market structure' from a position of ignorance.
Mini survey below:
Captured?Yes/No. Corrupt? Yes/No. Colluding? Yes/No.
Mmmm, ok, let’s see. That’s a yes….another yes, and boom, it’s a trifecta.
We could take some comfort from a government which listened to the demands of business even while ignoring the needs of domestic electricity consumers. But we don't even have that. We have a government which is completely blind to the needs of productive capital, and has an ear only for the monopolistic rent-seeking capitalists epitomized by the electricity sector which is well on track to destroying the New Zealand economy. This is what makes government collusion with the electricity sector so astonishing. It is not about serving the best interests of a capitalist economy, let alone the general public interest. It is about preserving the right of a privileged elite to become rich without taking any risks or doing any real work. That is just as unsustainable as fossil fuels, or more so, because the day of reckoning will come much sooner for New Zealand's rent-seeking economy.
Most important in my view is to separate a growing shortage of reliable electricity generation capacity from structural market problems. Electricity was much less costly when the system was run by ECNZ, when NZ was a global leader in heavy electrical engineering innovation, before the fake game of Monopoly market was ever introduced (copying the British approach, but in a tiny country). The promised cost reductions were in fact the opposite.
With regards reliable generation itself, relatively low yield wind and solar requires fossil fuel backup and complex, costly grid interfacing. So we are pretty much forced to not only frequently run fossil fuel backup but also to supplement the so called renewables with Huntley coal fired generation. There is no easy answer to this problem, certainly not more renewables. Setting aside nuclear phobia, small modular fission reactors would have been ideal (other nations are moving this way) if not for the problem of waste disposal, which is effectively a show stopper in the seismically active shaky isles. Consequently we are stuck with fossil fueled generation one way or another until nuclear fusion becomes a practical reality (goodbye Paris). So let's hope our Wellington fusion startup makes good progress.
As for Simon Watts. His performance is proving to be less than desirable, e.g. permitting political activism content in local government code of conduct, failure to relax methane emissions targets in line with modified IPCC guidelines and clearly now failure to substantially restructure the electricity market to be fair and efficient.
Bryce's analysis makes sense. It’s fair to say the current problems stem from market structure — and the government’s response just reinforces that structure. The bet they are making is that incremental fixes, stronger monitoring, and government backstopping LNG will be enough. The risk is that these moves don’t address the fundamental structural weaknesses, meaning high prices, insecurity, and lagging resilience could (and most likely will) persist.
Here is basically what the pre-existing structure is:
• Gentailer dominance: A few large, vertically integrated generator-retailers (Genesis, Meridian, Mercury, Contact) dominate both supply and retail. This concentration limits competition, makes investment timing strategic (eg. drive up dividends so economic to drive share holder returns) rather than system-driven (responding to demand, delivering the eco-system security the wider economy needs), and it creates concentrated pricing power.
• Fragmented networks: 29 separate distribution businesses (EDBs) result in duplication and uneven capability, making it harder to achieve efficiency, standardisation, and investment scale. So again security and resilience issues with sub-par investment approaches.
• Market-only security model: The NZ electricity market is built on a “energy-only” model — investors are expected to build generation purely on the basis of spot/hedge revenues. But because dry-year backup is rarely used, the market underprovides firming capacity (no one wants to invest in a plant that might run only once every few years).
Together, these structural features lead to high wholesale prices, fragile resilience to dry years, and slow uptake of innovation (like batteries or demand response).
So the governments response to this is in essence more of the same.
• No change in ownership or structure: The government has chosen not to sell or restructure the gentailers, nor to consolidate networks, and nor to create a central backup agency. This preserves the same concentration and fragmentation issues that Frontier highlighted.
• Reliance on incentives and transparency: Instead of structural reform, the response leans on the Electricity Authority having stronger monitoring powers, more data being published, and gentailers being “encouraged” to invest — all within the same market framework. That invsetment has not happened to date.
• Targeted interventions on the sides: The LNG terminal, higher cap for EDB-owned generation, and consumer data reforms are important, but they are bolt-ons, not shifts in how investment decisions are fundamentally made. So they will only help at the margins.
• Climate-policy consistency: Retaining the ETS is positive for decarbonisation, but it also ensures backup generation remains costly in dry years — reinforcing the system’s insecurity if new firming isn’t built fast enough.
That same-same response underlies this is a liberalised, energy-only market with light-touch monopoly regulation:
• Government sets rules and plugs obvious gaps (data, LNG as a stopgap).
• Private actors (gentailers, networks) remain dominant investors.
• Regulators (EA, Commerce Commission) are tasked with “tightening up” oversight, but not restructuring.
This reflects a clear choice: to double down on the existing market model rather than redesign it. And they are presuming (or hoping or pretending - depending on how you view these things) that chnage and improvement will occur.
Great analysis Bryce. It's hard to know whether to believe the stance of ardent Trump admirer, drill-baby-drill Shane Jones on the gentailers. He and NZ First are unreliable as are National and Act. Let's hope we don't get sucked in again by them when it's time to vote.
I cannot agree with anything Bryce has written here because none of it bears any relationship to the facts or our electricity market. For a start, the best joke is Bryce's (and that of other lefty chatteratii) view that the lack of separation of generation from retailing is fundamental to our electricity pricing and supply 'problem'. He is proposing a neoliberal template solution for a problem for which it is patently not the answer. It's so ironic that lefties are doing this, presumably having struck a truce with neoliberalism in this one instance?
A really important fact is that all five of the independent Electricity Authority board, real experts by their website CVs and all appointed by a Labour Government, consider this argument seriously and point out they feel what we have brings us 'pros' more than 'cons'. Second, the four experts who commented, mostly adversely, on the Frontier Economics report do begin by emphasising that "most importantly, we agree with Frontier’s assessment that the New Zealand
market is overall well-designed. We also agree that it appears to be reasonably competitive, except perhaps under stressed conditions."
Third, all informed analysis points out that last year, and a couple of years ago, we have suffered from 'dry year risk' that has driven up forward derivative prices, embedding longer period costs. In 2025, the unexpected sharp fall-off in gas availability, known in summer 2024/5, caused forward electricity prices to rise strongly. Over the ten years to March 2025, we have had no overall demand increase for electricity - it has been flat that long. The 2019/20 threat to leave by the smelter took three years to resolve, and had it not been, we would have had an 8% increase in the available electricity in the market (the other 4/5% could not have been shipped north to be useful). In these circumstances, having a tight market now is understandable - the big gentailers got all the permits needed to invest and when the smelter agreement was reached, pressed the button. Renewables investment is going in heavily now. And it was already out of sight - Mercury has been implementing a program to replace its 50 year old generators to obtain 9% more output from newer equipment in the same dams - $750 million, not finished yet but started years ago.
One key needed simply to get forward derivative electricity prices down is supply security evidence, and the agreement to use Huntly and coal by the 'big four' is an effort to do that. As Ron Segal has recognised, you can have all the solar and wind investment you want but when the sun is not shining (80% of the time on average) and the wind not much blowing (well over 60% of the time), it's only fossil fuels that will keep our computers going.'
The reference by Bryce to MBIE saying solar and wind are the cheapest generation sources illustrates general ignorance about this measure. This is true, on a stand alone single project assessment. But it is not true of the costs they bring to their incorporation in a national electricity grid, where their intermittency brings high back-up costs into play. In the UK, US and Australia (South Australia especially), the more they have incorporated solar and wind, the higher their average grid electricity costs have gone. South Australia's electricity is more expensive than any other state and it is dominated by electricity and wind. And you'd have to have your media head in the sand not to know what phenomenal electricity price rises have occurred in the UK in the last five years especially - 'renewables' of course. It's been grossly mismanaged there.
Here, we will have more solar and perhaps wind, assessed on its economic merits and in conjunction with batteries which will enable 'buy low/sell high' strategies linked to solar to knock the tops off market scarcity signals. They will never get the country through several dark, windless winter days - we need the combined cycle gas generators and Rankine units chewing coal. And more geothermal in the next two decades, a real win for us.
It's a shame our newspapers won't print explanations of all this (I've tried and I know others who are experienced power engineers have too) but the MSM prefer the myth of cheap renewables and fear the truth here.
If you really want to know how it all works, it would not take a total of more than 8 hours on the Internet where explanations of how all this works are easily available. I think that's more use than bloviating on a blog about 'market structure' from a position of ignorance.