Monday, November 14, 2022

Privatisation screws the future

There's a major report out today from 350 Aotearoa, First Union and the CTU about how National's privatisation of the electricity sector has led to entirely predictable outcomes of price gouging and underinvestment:

Meridian, Mercury, Genesis and Contact Energy paid out $8.7b in dividends to shareholders between 2014 and 2021, which was more than the $5.35b they earned in profits over the period, their report said.

The former three companies had achieved that by increasing the book value of their assets by more than $10b to reflect “high and rising electricity prices” while taking on extra debt, they said.

“What we are seeing here is asset-stripping that delivers disproportionate benefits to a privileged few at the cost of residential consumers and global warming.

“It’s doubly ironic that this is possible because of the investments made over decades by the taxpayer, yet it's the poorest New Zealanders who are paying the price in higher energy prices.”

Essentially, the big gentailers borrow to pay dividends, while deliberately under-investing in new generation, ensuring both ongoing scarcity and that fossil generation remains part of the mix, keeping prices high. Because the thing we want from our electricity system - cheap, reliable, renewable electricity - just isn't as profitable as expensive, unreliable, and dirty generation. Its a perfect example of how markets don't care about social outcomes, and why the electricity system needs to be fully in government hands.

And if anyone is in doubt about the underinvestment, just look at who is building the big new solar power projects, or the big offshore wind projects that are going to power us in the 2030's. Hint: it isn't the established players. Instead, its all startups, foreign companies, or big consortia backed by the Cullen Fund. The power companies you'd expect to be building these things just aren't. Instead, they're getting projects consented, and then sitting on them and letting them expire, specifically to ensure that no-one else can build them and disrupt their supply. Because they have no interest in lower prices or a cleaner, cheaper electricity supply.

350 and the unions are calling for the government to use its majority ownership of the major gentailers to cut dividends and force investment into renewables. However, in echoes of Contact Energy's proposed "ThermalCo", they're proposing the government buy all the old fossil generation and ringfence it for security of supply purposes - essentially a public bailout of Genesis and Contact (both of whom have invested heavily in new thermal generation since the Kyoto Protocol was signed, and who therefore deserve to lose their money). Instead of that, I'd rather see the government just invest directly in renewables, and drive the dirty generation out of business, rather than "compensating" dirty generators for their poor business decisions. If Genesis and Contact want to try and split off their liability generation to prevent it from dragging down the clean, then let them. But we shouldn't be spending a cent on fossil fuels.