The restructuring of the electricity sector in New Zealand, 1986-2002: whither energy sustainability?

Abstract

The attempts of successive New Zealand governments, driven by neoclassical economics ideology, to commodify electricity and create competitive markets for its allocation, have produced mixed results. This thesis has examined these outcomes within the context of energy sustainability, based on the premise that a more proactive approach to regulation may be more suitable. The quest for sustainability in the sector has been elusive. The segmented management arrangements which were introduced in the 1980s have exposed the trade-offs that are inherent in sustainability in general, and electricity in particular, but the chosen regulatory arrangements have done little to resolve them. New Zealand enjoys a relative abundance of hydro resources, but the last fifteen years has seen a steady growth in large-scale non-renewable sources. Small scale emerging renewables remain disadvantaged, primarily because they have not been supported by proactive energy policies. While the economic management of the sector has evolved fairly rapidly, environmental management has been largely restricted to rubber-stamping new thermal plants. The most proactive responses have ironically come from the Energy Efficiency and Conservation Authority, an entity which until recently had no statutory powers. That they have recently been upgraded into a government agency with greater power and resources to promote sustainable energy management is an encouraging development, but it may not be sufficient. Regulating the monopoly elements of electricity distribution has been particularly problematic. It emerged that it was inappropriate to integrate these elements with the more contestable ones, as this inevitably led to monopoly abuse. It has been extremely difficult to produce more competition in generation. The imperative of economic agents to dominate markets was underestimated, and the fact that this occurred with State-owned entities, proved no different. Recent adjustments to wholesale markets are designed to facilitate more competition in generation and make demand-side management alternatives, such as energy efficiency and conservation more attractive. It has been a feature of the reform process, that it is only really under crisis conditions, such as widespread power shortages, that the benefits of energy conservation really become apparent. The events that preceded these crises were arguably created by economic imperatives overshadowing the need to prudently manage risk, to maintain a secure and reliable supply. Again this highlights the strategic importance of electricity and that its allocation and management cannot be left solely to the market. The State still largely relies on market mechanisms to achieve the wider objectives of energy sustainability. The belief prevails that economic agents will act in ways which will produce long-term sustainable outcomes, rather than short-term, unsustainable ones. The geographic restructuring model stresses that the State acts as a filter for global and local processes. In the case of the New Zealand electricity sector, the State can, and in fact has had, a much stronger influence. Electricity is not a readily substitutable commodity, and in any case it can be more realistically perceived as an essential service. I have argued for the application of more facilitative and interventionist measures to quicken the uptake of renewable sources. I have also suggested that the State still needs to oversee both the operational aspects of the sector and its own regulatory authorities to ensure that they do not continue to give primacy to short-term unsustainable outcomes for the electricity sector. Key words: restructuring, New Zealand, neoclassical economics, ecological economics, electricity, energy sustainability energy policy, renewables, regulation, geographic restructuring model