NZIER report sees only small NZ Power benefits

A report by the New Zealand Institute of Economic Research (NZIER) on the Labour/Green proposal for a single state-owned electricity buyer has found it would increase private consumption spending by 0.1%, but leave real national disposable income unchanged. It would also encourage extra consumption and increase carbon emissions by as much as 0.5%.

The NZIER report is the second commissioned by Business NZ. It published an analysis of competition in the electricity industry earlier in the month from Sapere Research Group.

NZIER used its ESSAM General Equilibrium Model to analyse two scenarios under the Labour/Green NZ Power plan. The first scenario saw a 13% lowering of residential power prices, paid for by transferring profits from the companies to consumers. This was then offset by higher income taxes as the model assumed any Government would have to adjust for the lower dividends and corporate taxes coming from the electricity companies.

A second scenario saw the 13% drop in power prices extended to industrial and commercial power consumers, including the Tiwai Pt smelter.

"The modelling results indicate that if investment in electricity generation is not deterred by the new industry structure there are very small macroeconomic gains from the simulated lower electricity prices - between zero and 0.1%," NZIER said.

"Much of the potential gain to residential consumers is lost to higher personal taxes," it said.

"The lower electricity prices lead to an increase in electricity demand of about 3.1%, met primarily met from thermal (gas-fired) generation. It is assumed that the appropriate investment in additional generation capacity is forthcoming, although it is acknowledged that this may not be the case if investment in generation is seen as riskier under the NZ Power proposals than under the status quo," NZIER said.

The report was prepared for NZIER by Adolf Stroombergen.

Business NZ said the analysis showed the NZ Power proposal would not be worth pursuing. It said the net gain in household spending would be only about NZ$120 a year per household, given any power savings would be offset by NZ$250 a year in extra taxes.

"Meanwhile, the wider costs including the removal of market-based efficiencies from the economy, weakened investment, and lower security of supply could greatly outweigh this benefit," Business NZ said.

Reaction

Green Energy Spokesman Gareth Hughes said NZIER's analysis was flawed, but even then showed NZ$220 million a year in benefits.

"The Green Party believes the report significantly under-estimates the gains NZ Power will bring," Hughes said.

“Current high and rising power prices act as a stealth tax on the economy holding back Kiwi businesses, something Business New Zealand should join us in fighting,” he said.

Hughes rejected the NZIER conclusion that NZ Power would increase demand and increase greenhouse emissions.

"In reality, electricity demand is falling due to improved energy efficiency and NZ Power will have an inherent interest in promoting low-cost energy efficiency measures," he said, adding there was nearly 3,500 MW of consented renewable power plants waiting to be built and the analysis had not taken into account growth in solar power.

“Rather than attack NZ power with weak, inaccurate, and politically-motivated arguments to defend the big power companies, Business NZ should advocate for the bulk of their business membership, who will do better out of cheaper electricity."