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Why is our electricity so expensive?

31 July 2017

Electricity is essential to our way of life.

Here in New Zealand we are fortunate enough to have a fairly high level of our electricity generation performed by way of renewables. I'm talking about hydro and geothermal.

Harnessing the power of the sun or the earth itself seems like a pretty benign way of generating energy and it has the advantage of not filling our air with noxious greenhouse gases or pollution.

There should be another huge benefit -- our power here in NZ should be cheap.

Although the construction of huge hydro schemes is incredibly expensive, our dams were bought, built and paid for generations ago and thus the only ongoing expense is one of maintenance.

So why the hell is NZ's electricity so damned expensive?

A look at this data complied by the MBIE shows that Kiwis are paying a hefty 28.12 cents per KWH (all components factored in) as of 2016.

Of course you can shop around and get a good deal on the actual electricity -- but once you factor in the fees for transmission lines etc, we're paying nearly 30c a unit for our power.

It's interesting to note that this is an almost 100% increase over the past 13 years!

How does that work?

Given that the dams producing so much of our power are still the same dams we had 13 years ago and the geothermal plants are the same geothermal plants... why on earth has the price of power doubled?

Weren't we supposed to be seeing lower prices (hello Max Bradford?) with the deregulation of the power industry a few decades ago?

I should point out that last time I raised the issue of Max Bradfords lies to the public on this matter, he threatened to sue me for defamation -- even going so far as to have his lawyer send me a letter containing that threat. I did invite him to proceed with the action but for some reason he thought better of it.

But back to the present.

If you live in the USA, where it seems that perhaps they really do have competition in the power market, as opposed to NZ's oligopoly, the pricing is much, much different.

Although some states (such as New England) are paying through the nose for their power (a huge US$0.20 per unit), others who live in states such as Washington or Louisiana get their electricity for less than 10 cents per KWH.

At current forex rates, that's NZ$0.27 to NZ$0.13 per unit.

Now remember that most of the USA's power comes from good old fashioned coal -- with a smattering of nuclear thrown in for good measure. Both coal and nuclear plants require regular replenishing with expensive fuel -- our hydro and geothermal plants do not.

So again I ask... why the hell is electricity so damned expensive here?

Even the rules of supply and demand have been corrupted by the NZ power oligopoly.

In recent years we've started using far more energy-efficient forms of lighting, heating and appliances -- to the extent that our actual power consumption (the "demand") is dropping. In a normal market, a reduced demand would see a reduction in cost also -- yet here in NZ, the price continues to climb.

Given that electricity is so essential to business and the enjoyment of life, why are we being so strongly taxed on this key piece of infrastructure? That's right, taxed!

Since most of the power generators are SOEs, they are collecting as much cash as they can and giving large chunks of it to government by way of dividends. This money-grab, orchestrated by price-fixing, is therefore simply a tax.

Let's also look at the UK. According to this site, The folk back in old blighty are paying about 12 pence per unit plus an annual fixed fee of around a hundred quid. At today's forex rates that's 21 NZ cents per unit and NZ$175 per annum fixed-fee.

As with the USA, the bulk of the UK's energy generation is from fossil fuels so their operating costs are way, way higher than ours -- but their per-unit cost is lower.

I think it's time the government of NZ fessed up to the "cash cow" attitude they're taking to the supply of energy in this country and factored in the impact of this massive tax on our economy and the standard of living that the poorest NZers can attain.

Let's also hope they've factored in the effect of increasingly cheap renewables that can be installed "off grid" by homeowners and businesses. How will government replace the huge dividends they currently collect from electricity generation once increasing numbers go "off grid"? Will there be an annual tax on PVAs and wind generators perhaps?

What do readers think? Is our energy penalty tax hurting the poorest NZers whilst potentially compromising the profitability of those industries which use large amounts of power and aren't called Rio Tinto?

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