Economic Analysis of the Electricity Authority’s Proposed Level Playing Field Measures

Genesis Energy asked Sapere to undertake an economic analysis to critically assess the Electricity Authority’s (the Authority) Level Playing Field measures: Options Paper, released on 27 February 2025.

The Authority is seeking feedback on proposals to address perceived competition risks in New Zealand’s electricity market, particularly around the availability of peak hedge contracts. These concerns stem from the concentration of flexible generation among four vertically integrated generator-retailers (gentailers). The Authority argues that vertical integration limits competition, but it offers no clear evidence to support this.

The Authority acknowledges that the evidence it does have points to scarcity of peak hedges being driven more by underlying fuel and capacity constraints—especially in flexible generation—than by anti-competitive conduct. No single gentailer has sufficient market power to foreclose competitors, and flexible generation is already shared across multiple players.

The Authority’s proposed interventions, including mandated hedge offerings on “even-handed” terms and a shift from price-based to quantity-based allocation of scarce capacity, may undermine market efficiency. These changes have the potential to increase regulatory uncertainty, discourage investment, and overlook the benefits of vertical integration i.e. it helps manage risk and incentivises new generation.

Rather than addressing the root cause—physical scarcity—the proposals risk distorting the market and harming consumers. A better approach would support investment in flexible generation and enhance transparency without dismantling established risk management frameworks.

The report was written by Toby Stevenson and Kieran Murray.

More information can be found on the Authority’s website – Level playing field measures.