With the release of the Zero Carbon Bill, Flick CEO Steve O’Connor worries that our zero carbon ambitions will be impeded by an electricity market that’s not working as it should.
Right now, we’re sandwiched between two pieces of policy work that have the potential to shape fundamental outcomes in the electricity industry: the recently-announced Climate Change Response (Zero Carbon) Amendment Bill and the final recommendations of the Electricity Price Review panel.
The first piece, the Zero Carbon Bill, will do the job of formalising what so many of us know needs to happen with urgency: setting a clear target of a net zero carbon economy by 2050. It also requires the government to get stuck into some of the policy heavy lifting needed for climate change adaptation and mitigation.
The second, the Electricity Price Review final report, doesn’t come with quite the same anticipation as the Zero Carbon Bill, and understandably so. I remember characterising the launch of the Price Review last November as “why would I give a flying electron?” moment in a similar editorial at the time.
But, for electricity users (so all of us), these two pieces of potential policy work in tandem in fundamental ways. The two pieces of policy provide an important moment to consider how a stable, secure supply of power and the fair pricing of that power can either help us streak ahead on our sustainability ambitions and smart energy outcomes, or hinder us in significant ways.
You’ll hear a lot of talk about certainty from the private sector when it comes to the carbon conversation: that certainty is needed around ‘investment signals’ and policy settings and incremental targets. Which it is. The sense of urgency is powerful and clarity of intention is one way of getting everybody on board more quickly and – most importantly – in a way that is actually meaningful.
We’re arguing for certainty in the electricity market too. Though the nitty gritty of electricity regulation isn’t as appealing to a general audience as the fight for our species’ survival. We get that – it’s complicated and full of jargon. But in our corner of the jigsaw puzzle, it has the ability to make profound change.
The industry is still grappling with the fallout of last October, where the wholesale electricity prices and outcomes became nearly impenetrable to all but those who were the very closest to establishing them. It had analysts confounded and saw the closure of independent retailer, Payless Energy, which had been serving customers for more than seven years.
Take the major electricity users for example (think Ravensdown Fertiliser, Lion, NZ Steel, Fonterra and Refinery NZ). They purchase directly from the wholesale market and paid tens of millions of dollars over and above what they had budgeted for electricity during spring last year.
Their representative group, MEUG, indicated to the Ministry of Business, Innovation and Employment in December 2018 that their confidence in the market operations had been “undermined” and that tinkering around the edges won’t cut it. The Chair of MEUG went on to note in April that: “Ultimately electrification has to be more affordable than it currently is to incentivise larger scale use and thereby substantively reduce industrial process heat emissions…If government wants to drive electrification it needs market settings and behaviours that deliver a lower spot [wholesale] price than the market is currently delivering.”
Their concern is significant. It is absolutely critical to the zero carbon mission that these big companies get going on their transition to electricity to start making a serious difference to our national carbon balance sheet. If they’re not confident in the wholesale electricity market, a position shared by Flick and all the other independent retailers, that transition is on much shakier ground.
Then there’s the rest of us, just wanting to keep the lights on and get on with our daily lives. If uncertainty continues, it will almost certainly be less economic for general consumers to get off coal and gas and onto electricity as well. This will put pressure on those already under the most stress.
The Electricity Price Review has made it clear that some of our most vulnerable communities are already unable to afford power without resorting to debt. Our transition to zero carbon won’t be a ‘just’ one if we don’t have the certainty required to ensure equitable access to ‘green’ energy.
The first step in addressing this uncertainty is better regulation of behaviour in the wholesale electricity market. That’s because the wholesale market is like the headwaters of a river – if things aren’t right upstream, the flow on effect can impact the whole system. A well-functioning wholesale market is critical to effective competition and therefore critical to consumer outcomes. By getting the expectations and obligations of all the market participants locked into legislation and then policed effectively by the Electricity Authority, we can create the certainty we need to empower consumers and prepare ourselves for a cohesive and successful transition to net zero.
This content was created in paid partnership with the Flick. Learn more about our partnerships here.
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