John MacDonald: Here's one solution to the power price problem

I’ve been reading a report the OECD released this morning, and it’s occurred to me that, if we want our businesses to survive, there is a very simple thing we could or should be doing to help.  

When I say we, I’m meaning the government upfront. But, for this to happen, I think we’d all pretty much have to agree to it as well.  

That’s because it would mean giving businesses a better deal on something that all of us have to pay for —whether we own a business or not— and that’s electricity.  

So this report I’m talking about is the OECD’s 2024 economic outlook. There was one earlier in the year and Volume 2 came out at 5 o’clock this morning.  

It assesses how things are in all of its member countries and one of the key messages that comes through loud and clear is that, if we want to see better economic times here in New Zealand, we need to do something about the electricity market.  

You’ll remember how earlier in the year some manufacturing plants shut their doors when wholesale electricity prices went up so much that they were seven times higher than what they’d been 12 months earlier.  

This report seems to focus on futures electricity prices – or “forward prices” as they’re also known. Which is when electricity users can sign-up for a set price for their electricity for a certain period of time.  

The idea being that big businesses especially know what their power bills are going to be, and they don’t get surprised or caught out by “spot prices” - which are the prices charged for electricity that vary from hour to hour.  

So the futures market is a bit like fixing your home mortgage instead of having it on a floating rate.  

Interestingly, this OECD report talks about futures electricity prices being a problem but my recollection of the manufacturing closures this year is that they were forced by spot price increases.  

Either way, the OECD says electricity prices are a significant problem – which is why I think all businesses, big and small, should get government subsidies for their electricity bills.  

In fact, one of the headlines in the report —in bold— says it is essential to tackle high electricity prices.  

Here’s a direct quote, and bear in mind that these comments are specific to New Zealand. The report says: “High futures electricity prices for industry will exacerbate productivity problems by weakening business investment, especially in the green and digital transitions, as electricity is a core input for both.” 

“The electricity regulators and the government have launched reviews of the electricity market. Despite previous reforms to improve competition, electricity futures prices are high and above the threshold considered sustainable for the economy in the long run.”  

The OECD report also says: “These reviews should re-examine separating the generation and retail operations of large electricity companies to boost competition in the futures market and provide industry with more hedging options.”  

For me, what it says there about separating the power generation and power selling arms of the big power companies is a no-brainer. And Associate Energy Minister Shane Jones has already been making noises about that.  

But can you imagine how long that is going to take? Which is why I think that, in the more immediate term, we should all be subsidising businesses for what they pay in power.  

We should be doing that because businesses are vital for the economy. We should be doing it because businesses keep our smaller communities, especially, alive. When small-town businesses go, so do the people.  

And not just for the big outfits, we should be subsidising the power costs for every business. More than 90% of all businesses in New Zealand are small-to-medium enterprises.  

Now I know the

Episode Transcript

Speaker 1 (00:06):
You're listening to the Canterbury Morning's Podcast with John McDonald
from News Talk ZB.

Speaker 2 (00:12):
I guess what I've been doing this morning, eh, I've
been reading a report the OECD released four hours ago,
and it's occurred to me that if we want our
businesses to survive, there is a very simple thing we
could or should be doing to help. When I say we,
i'm me and the government upfront. But for this to

(00:34):
happen I think we'd all pretty much have to agree
to it as well. That's because it would mean giving
businesses a better deal on something that all of us
have to pay for, whether we own a business or not.
What do you reckon that is? It's electricity. So this
report I'm talking about is the OECD's twenty twenty four

(00:56):
Economic Outlook. There was one earlier in the year, and
this one I've been reading this morning as volume two.
It came out at five o'clock this morning. It assesses
how things are in all of its member countries, and
one of the key messages that comes through loud and
clear in relation to its observations and assessment of things

(01:19):
in New Zealand, it says, if we want to see
better economic times, here, we need to do something about
the electricity market. Now, you remember how earlier in the
year some manufacturing plants shut their doors. This is when
the wholesale electricity prices they went up so much, so

(01:39):
much they were seven times higher than what they'd been
twelve months earlier. This report seems to focus on futures
electricity prices, or forward prices as they're also known in
the power game, but either way, whatever you call it,
this is when electricity users, of course, can sign up
for a set price for their electricity for a certain

(02:00):
period of time. The idea being that big businesses, especially,
they know what their power bills going to be, and
they don't get surprised or caught out by spot prices,
which are the ones that can vary from out ower.
So I suppose you could say the future's market is
a bit like fixing your home mortgage instead of having
it on a floating rate, so you know what you're

(02:21):
going to be paying. Interestingly, this oe c D report
talks about futures electricity prices being a problem, but my
recollection of the manufacturing closures earlier this year is that
they were forced by spot price increases. Either way, I
don't think it matters either way. Thee oe c D
says electricity prices are a significant problem, which is why

(02:45):
I think all businesses big and small should get government
subsidies for their electricity bills. One of the headlines in
the report that this is I can't emphasize enough how
much the oe c D is emphasizing how much of
a problem power prices are in New Zealand, because one
of the headlines in bold says it is essential to

(03:06):
tackle high electricity prices in New Zealand. Hes a couple
of direct quotes, and bear in mind that these comments
are specific to New Zealand. So the report says, quote
high electricity prices for industry will exacerbate productivity problems by
weakening business investment, especially in the green and digital transitions,
as electricity's core for both. It says the electricity regulators

(03:29):
and the government have launched reviews of the electricity market.
It says, despite previous reforms to improve competition, electricity prices
are high and above the threshold considered sustainable for the
economy in the long run. Above the threshold considered sustainable
for the economy in the long run WEC the report

(03:51):
says these reviews should re examine separating the generation and
retail operations of large electricity companies to boost competition, especially
in the futures market, and provide industry with more hedging options.
End of quote. Now for me, what it says they're
about separating the power generation and the power selling arms
of the big power companies. It's a no brainer. And

(04:14):
Associate Energy Minister Change Jones, there's already been making noises
about that, AHT. But can you imagine how long that
would take, especially when you consider that the power prices
are above This is what the oecd SA says. Power
prices are above the threshold considered sustainable for the economy

(04:38):
in the long run. So we need to do something quicker,
something sooner. Which is why I think that in the
more immediate term, what we should be doing in New
Zealand is subsidizing businesses for what they pay and power.
We should be doing that because businesses are vital for
the economy. We should be doing that because businesses keep
our smaller communities, especially alive. You know, when small town

(04:59):
businesses go, the people go, don't they And I'm not
saying this should just be for the big outfits. I'm
saying we should be subsidizing the power costs for every business.
I mean, more than ninety percent of all businesses in
New Zealand are small to medium enterprises, which means what
they've got no more than fifty staff. So I'm saying
subsidized electricity for every business in the country. Now, I

(05:23):
know that the way the tax system works, businesses already
get subsidized power in some respects and not being able
to claim back the GST. But I don't think that
goes far enough, and it's not going far enough. And
I know that business is all about the free market
and making a go of things on your own. But
when you've got the OECD saying today that power prices
have been and will continue to be an impediment to

(05:44):
economic growth in this country, and we've got to listen
to that. I'm listening to it. I hope you're listening
to it. More importantly, we have to do something about it,
which is why I would be more than happy for
all businesses in New Zealand to have cheaper power bills
ASAAP through electricity subsidies.

Speaker 1 (06:04):
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