Level playing field in electricity industry?

A level playing field in the New Zealand electricity industry?

A major new report doubts it.

Investment in generation shared between public and private-sector?

The conditions are not complete.

The New Zealand energy sector is no place for complacency. The country urgently needs new investment in energy generation.

The question is, where will this new investment come from? From the private sector? From the government?

All things being equal, you might expect the private sector to take up its share of the next phase of investment.

The problem is, all things aren’t equal. Far from it. Market inconsistencies create structural incongruities to essential new energy investment.

It’s a conclusion with unsettling challenges for policy-makers, and for the energy sector as a whole.

The New Zealand energy sector; under a welcome microscope.

We attach a comprehensive and detailed investigation, Investment in the New Zealand Electricity Industry, undertaken by Dr Alastair Marsden, Dr Russell Poskitt and Dr John Small, of Auckland UniServices Limited during the past year.

Co-commissioned by Alliant Energy New Zealand Ltd and TrustPower Ltd, the study investigates the financial structure and performance of the five largest producers of electricity in New Zealand, of which three are State-owned companies, over a five year period. The report considers the implications of that structure and performance for new investment in the industry. Its analysis is thorough. Its conclusions are clear.

The authors’ considered view is that the State Owned Enterprises Act is not working as intended in the electricity industry. Commercial imperatives appear weaker for SOEs than for their privately owned rivals.

The Challenge

The report highlights material undervaluation of assets, making cash returns required to cover the capital costs of new investment, lower and easier to achieve. The acceptance by the Government of lower expected returns from its investment as a shareholder, is lower than would be acceptable to commercially focussed shareholders. By doing this, the Government provides a systemic advantage to investment in future generation by SOE's.

With a playing field such as this, investment is more likely to come from the State-owned companies than the private sector.

The questions need to be asked. Is this an appropriate use of available funds? Does this assist in meeting compelling energy needs in a truly competitive sector?

Not without a realistic reassessment of the existing model.

We invite you to read, absorb and respond to this significant report.

-Ends-

For more information:

Simon Young Keith Tempest

Managing Director Chief Executive

Alliant Energy New Zealand Ltd TrustPower Ltd

09 917 4802 07 572 9800

To talk to the authors:

1. Arrange a phone interview

With: Dr Alastair Marsden, Dr Russell Poskitt and Dr John Small

Time: Call Veronicah at 09 917 4801 for an appointment

2. Participate in an online forum

Alliant Energy New Zealand is hosting an online forum for open debate of the report, its conclusions and their implications.

We invite you to join the debate from the link to the Forum on our website http://www.alliantenergy.co.nz/ or by visiting the Forum direct at http://forum.alliantenergy.co.nz We look forward to your coverage, comment and feedback.

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