Taxpayers would pay the tab on a majority of any electricity price reductions, while renationalising the sector entirely could cost $20 billion

Lowering electricity prices by $1 could come with a 57 cent fiscal cost to the Government and taxpayers, according to analysis by investment firm Forsyth Barr.

Equity analysts Andrew Harvey-Green and Hugh Lockwood said politicians faced a limited incentive to bring down prices as the sector was a strong source of government revenue.

The Crown likely received $1.5 billion in cash from the electricity sector in the 2025 financial year from dividends, corporate tax, and GST from residential consumers.

“While reducing electricity prices is undoubtedly a desirable goal, it is not zero-cost for the government. We estimate that for every dollar reduction in electricity prices, the Government loses 57c of cash income—9c in GST, 28c in income tax, and 20c in dividends,” the analysts wrote. 

If wholesale electricity prices fell $10/MWh, enough to reduce the average retail bill by 3%, the Government’s revenue would fall by $200 million and its assets might lose some capital value. 

“Policies targeting electricity prices are not a free hit for the politicians,” they said.

“In essence, taxpayers end up paying for nearly 60% of any reduction in electricity prices—there is a wealth transfer from taxpayers and investors to electricity users. While there is a high overlap of the two groups, they are not exactly the same.”

As always, direct fiscal costs are much easier to calculate than indirect economic benefits. In theory, lower electricity prices could boost industrial profit margins, lower the price of goods and services, and/or generally support economic growth.

That could lead to a higher overall tax revenue, although the outcome is uncertain.

Forsyth Barr’s estimates appeared in a research note on the political risks facing NZX-listed electricity companies in next year’s election. The firm cut their valuation of these stocks by between 2.2% and 4.5% on the risk of reforms. 

“Similar to 2013 and 2014, we have implemented a valuation discount to account for the risk of a negative electricity policy being implemented post-2026,” Harvey-Green and Lockwood said. 

Nationalise it for $20 billion

While political parties haven’t announced their 2026 energy policies, various suggestions have been floated. The most radical idea is a full re-nationalisation of the sector, which Forsyth Barr believes is unlikely due to its $20 billion capital cost. 

“Shane Jones appears to want to recreate the Electricity Corporation of NZ (ECNZ), which likely means dismantling the wholesale electricity market as well as the Government acquiring the generation assets of the four largest generators.”

“Renationalisation should not scare investors, so long as the Government is willing to pay market value for the businesses,” the analysts wrote. 

The Council of Trade Unions, which is aligned with the Labour Party, has also suggested using dividends to gradually buy back ownership of electricity companies.

Labour itself is more likely to include the NZX-listed firms in its Future Fund proposal, using the dividends to support financing for public-interest commercial investments.

On the other side of the political spectrum, the Act Party wants to sell the Crown’s 51% stake in Meridian, Mercury, and Genesis to reduce the borrowing needed for public infrastructure. 

While that would help the Government meet its fiscal targets, the financial effect would be roughly neutral — though, in theory, better capital allocation could have wider economic benefits.

Policy implications

Another possible policy is forcing electricity firms to split up their retail and generation businesses. This may help to make the market fairer for independent retailers but wouldn’t be guaranteed to lower costs for households.

Forsyth Barr said it would increase costs for the sector and would make it harder for the big firms to shelter mass-market customers from price spikes, as they have done over the past couple of years. 

The end result might be higher electricity prices for household consumers, although these extra costs could be offset by more innovation and competition in the market. 

Harvey-Green and Lockwood said this reform wouldn’t be materially negative for sector valuations, as long as firms were able to recoup costs through price increases.

Direct government investment in renewable energy is another policy option. This would increase the chance of oversupply and likely cause NZX-listed firms to defer some of their own investments. 

It was a similar story with subsidies for household solar panels. This would likely displace some grid-scale solar farm investments, shifting costs, risks and benefits away from the private sector.

While none of these proposals are crippling for the electricity sector, none are beneficial, prompting the small downgrade in Forsyth Barr’s valuations. 

Is he for real? 

The analysts said it was hard to assess how serious New Zealand First deputy leader Shane Jones was about his policy proposals. 

“We have heard two schools of thought on this—if you believe the passion with which Shane Jones speaks on the topic, then there is a strong chance it is a bottom line.”

“The alternative school of thought is that he is possibly using electricity as an issue to garner sufficient votes to be re-elected, but that there is limited intention to follow through.”

Either way, it was more likely to happen if NZ First formed a coalition with Labour, and much less likely on the political right.  

“Shane Jones appears to have lost confidence in the market, whereas National and ACT appear to have not,” they said. 

Harvey-Green and Lockwood said numerous studies of the electricity market (one every three years since 2000) had found there was nothing fundamentally wrong, but the sheer number of studies showed there is an “inherent level of dissatisfaction”.

“In our view, politicians like to promise the impossible: reduce electricity prices while increasing security of supply and lowering carbon emissions,” they said.

“The energy trilemma is called a trilemma for a reason. A focus on one of the aspects usually comes at the detriment of at least one of the other aspects.”