Need to ensure vibrant electricity market

The Electricity Authority’s proposed conclusion that an undesirable trading situation (UTS) took place on 26 March, sends a clear signal to the market about expectations of appropriate trading behaviour, says BusinessNZ Chief Executive Phil O’Reilly.

“The Electricity Authority is an independent body, designed for making fair decisions in instances of this nature. It has produced a lengthy report on the investigation into this incident, and the proposed decision to reset prices is a finely balanced judgement based around participants’ expectations about prices.

“The fact that the Authority is inviting submissions on its proposed decision is welcomed by BusinessNZ.

“The key issue now is what this means for NZ Inc. The proposed decision should provide significant comfort to those businesses caught by the events on 26 March. It should also be reassuring to those who may have perceived the New Zealand electricity market to be so inherently risky that they wouldn’t want to participate in it.

“We hope that it doesn’t have an unintended effect of deterring investors in new generation, or unnecessarily hastening the retirement of existing capacity. Likewise, electricity customers buying from the wholesale market should not get complacent. Risk management is still of crucial importance.

“Focus now needs to be paid to ensuring a vibrant, competitive electricity market exists and that businesses can have confidence in its operation.

“BusinessNZ welcomes the fact that the Electricity Authority has reforms underway to improve performance in both the spot and hedge markets in order to increase competition in the electricity industry. This increase in competition should serve to drive out the risk of excessive prices.“