Understanding the key priorities for the New Zealand electricity industry

David Reeve and Stephen Batstone were asked by Mercury Energy to consider the broader electricity industry and the issues facing it as simply as we could. This was a challenge because the industry is complex. The authors landed on two reports – one a graphical representation of the industry and the issues, and an addendum that adds detail to the graphics.

We put together a list of issues that we think of as the symptoms of market issues, with assistance from Mercury and Christine Southey. From there the authors assessed what the root causes of those symptoms are for a heat map of issues, for example a lot of issues are symptomatic of a wholesale electricity market under stress. Studio Unlimited, a creative design studio, helped us put together a set of graphics that we think captures the industry as simply as possible while highlighting the complexity of the challenges. The addendum expands on the graphics and provides links to a number of papers we suggest people read to explore all the issues further.

We were also asked to distil the issues down to the key ones that really matter. Based on our previous work on security of supply, distributed energy resources, and flexibility, we conclude that security of supply (including the gas market) is the predominant cause of market stress, with the attendant impact on prices, and an urgent area of focus. We also conclude that the efficient coordination and pricing of smart technology, distribution networks and retail markets is essential to avoid wasting billions of dollars on networks and demand side technology. A separate issue, we think, is how we encourage the consumer to participate because consumer participation and trust are critical to the future of the industry.

However, overall, we conclude that there are some hard questions that must be asked and answered. Politics has, undoubtedly, both directly and indirectly affected price formation in the wholesale electricity market. The reality is that this temptation will always be there. Therefore, what design changes do we need to best insulate the market (and particularly security of supply) from political whim. There are also critical design questions about wholesale, retail and network challenges; however, we believe New Zealand could lead the world again in developing solutions to these.

Above all, though, the Government and public need accountability not only for the timely delivery of necessary solutions but also for the quality of the outcomes.

Addendum to main summary report: Understanding the key priorities for the New Zealand electricity industry – February 2025