Power gentailer Mercury says it isn’t abusing its market power, pointing out it supplies products to independent retailers including Electric Kiwi.
On Wednesday, Electric Kiwi said it lodged a complaint under the Commerce Act about power generator-retailers such as Mercury, claiming the “big four” of Mercury, Genesis, Contact and Meridian were using their market dominance to squeeze out competitors.
The four hold about 85% of the market.
Mercury chief financial officer William Meek said the company “refutes” Electric Kiwi’s claims, and said it supplied products to a range of power retailers including Electric Kiwi.
Electric Kiwi said access to hedged wholesale products from generators allowed independent retailers to cover variations in electricity usage across the day.
“A lack of access to peak products (that cover mornings and evening peaks), as well as huge escalations in wholesale costs, are driving independent retailers out of the market,” Electric Kiwi chief executive officer Luke Blincoe said.
Meek said the market was highly competitive.
He said NZ’s electricity market had enabled “massive” investment of capital in renewable generation, while keeping residential electricity price increases lower than inflation.
Meridian said it hadn't seen the complaint so couldn't comment. Genesis and Contact, the other so-called gentailers have not responded to requests for comment.
The Commerce Commission says it's reviewing the information Electric Kiwi supplied.
Electric Kiwi also took aim at industry regulator the Electricity Authority, claiming it had failed to act on competition problems in the sector.
Chief executive Sarah Gillies said its review into competition in the wholesale market “did not draw any definitive conclusions on the exercise of market power”.
A review of competition in the wholesale market was completed in October 2021 due to sustained high electricity prices.
The review found there was some evidence generators may have exercised market power, however, “evidence was lacking for structural interventions to address market power”.
Gillies said the Authority "actively and transparently" monitored the exercise of market power in the spot market and reported this analysis weekly.
She said it referred matters to the competition watchdog Commerce Commission where appropriate, and it was appropriate complaints about misuse of market power were dealt with by the Commission.
“The Authority is constructively working with smaller retailers to update them on our plans to improve how we monitor the retail market so we build a better evidence base to make decisions in the future.”
Gillies said it was “exploring better information sharing processes and obligations with the Commerce Commission on any information the Authority collects that may raise concerns about anti-competitive practices, including collusion or misuse of market power”.
“Additionally, we will consider options to strengthen wholesale market competition if new information arises on the exercise of market power or impediments to competitive entry, as part of our monitoring or other activities and investigations.”
What’s behind power prices
The Authority found elevated power prices over the review period did not always match underlying supply and demand conditions, and high electricity prices reflected gas supply uncertainty and other market conditions.
It identified one “clear and pressing issue”.
Large wholesale supply contracts at prices “that might be inefficient” had the potential to distort the market, it said. It amended the Electricity Industry Participation Code 2010 to prohibit “Materially Large Contracts” unless certain conditions were met, required disclosure of such contracts, and provided a voluntary clearance process.
It said the pipeline of new renewable generation was thin, but it warned transitioning to 100% renewable electricity generation may increase market power of some generators during extended periods of cold weather with little wind and sun.
“More and faster investment in generation and focus on monitoring and enforcement is currently the best strategy to promote competition in the wholesale electricity market.”
Meek said Mercury had completed construction of NZ’s largest wind farm at Turitea near Palmerston North and had begun commissioning a windfarm near Gore.
Combined these windfarms were worth well over $500 million, Meek said.
“We are also expecting to commit up to $1 billion over the next financial year in new renewable generation for New Zealand.”
Meek said renewable investment was ahead of where it needed to be, and a independent report confirmed there was more than twice the renewables than is needed by 2030 in the pipeline.
8 Comments
In a nutshell, markets don't work because they always end up with a few big players monopolizing, and inevitably colluding - even if informally. Bradford made a mess of a public good.
But...
Competition and prices aren't the big problem. The bigger issue is that the infrastructure is fossil-energy dependent - and for the foreseeable future, that won't change. This renders 'renewable' really: 'rebuildable', and that requires the fossil resource. The same can be said for the 'incomes' of those 'paying' (blurred by the stages of removal that we 'earn' out proxy at).
Lets see:
2015, WEL put lines charges up 2c. Meridian sends letter out, 'WEL is bad! Look what they've done! Price up 4c!.
2018?, WEL drop lines charges 2c. Meridian sends letter out, 'Look at WEL! Aren't we [Meridian] good? Price drop 2c'.
Net result, price up 2c.
When guard dogs are actually rabbits "The review found there was some evidence generators may have exercised market power, however, “evidence was lacking for structural interventions to address market power”.
That rely on snails for defence "She said it referred matters to the competition watchdog Commerce Commission where appropriate"
The barriers to entry into grid supply are naturally high, and at full recovery they present a hurdle that only these large corporates can afford.
ABSURD.
The Oligopoly gentailers are extracting excess profits and milking customers.
4 companies with 85% market share just like the banks.
It takes 6 to 7 market players with equal market share to have near perfect competition. We are so far from that it’s a joke.
We either need to severely deal to them or the government take 51%+ in all of them and change their company constitutions to that they aim to provide a system optimal outcome for NZ Inc.
The Government already has exactly 51% shareholdings of Genesis, Meridian and Mercury. It was 100% until the Key Government sold off 49%.
I amazes me that the politicians haven't had a go at the power companies for lifting customer prices during a cost of living crises whilst they're making bumper profits. The only reason I can see why they don't is they get 51% of those pumper profits.
What bumper profits? If you can read through the faux-outrage in this stuff article, you discover:
"Financial records show the “big four” companies, which provide power to about 85% of the market, made a combined net profit after tax of $520m in the 12 months to June 30. That was down 66% on combined profit of more than $1.5b the year before."
https://www.stuff.co.nz/business/132841291/big-four-power-companies-ear…
Electric Kiwi is relying on the ignorance of the Ministers and the media/ public to make all the noise about what is effectively how the industry should support their poor business model.
Very little power is traded on the spot market – typically <10%. It is the residuals or inbalance which is priced. Most is done by long term supply contracts or hedges. Why hasn’t Electric Kiwi used these? – if no-one will supply at the price EK wants to pay what does that say? I want a new car for $10k and no-one will sell me one. Is it the suppliers’ refusing to drop their price or my expectations which are at fault?
The market now has become bimodal pricing. When it is less than $30, there is a surplus of wind and water. The other point is >$200 when there’s no wind and they need to fire up the thermals. The carbon charges are raising the price of those. Work it out – Huntly needs about 110t/h coal to generate 250MW (less efficient at lower MW) and 8 hours of burn to start generating. Even then, if it isn’t going to run for enough time to recover costs, thermals won’t bid in. They aren’t a charity, but they will insure their customers requirements are met.
For those proponents of the unreliables, wind farms and solar won’t pay their way unless they are subsidised – they will have to sell their power very cheap which won’t pay their capital cost back. Australian power is so expensive (47c a unit in SA) because of the infrastructure to support solar. They constrain wind and solar off with negative pricing. And most of their power still has to be generated by coal to keep the lights on. Look at why wind isn’t being built overseas, even though the spot price offered is a lot higher than here. And you still need to build backup. .
And don’t give the rubbish about storage can smooth out the unpredictability or the unreliables. Even if Onslow and all the transmission infrastructure can be built for $16B (it can’t), how much is it going to have to make on arbitrage to pay that back? And if it wants to buy power, what stations can supply it at a low price? There is insignificant spill.
As was posted on a previous thread, the energy component of the average consumer’s power bill has decreased (allowing for inflation) since about 2015 according to MBIE figures. Those are the facts.
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