Photo source: Our Climate Declaration
The OECD has recommended that the New Zealand government contemplate dismantling large energy corporations to lower electricity costs and promote economic development.
In its recent Economic Outlook Report, the Organisation for Economic Co-operation and Development (OECD) emphasised the necessity for New Zealand to enhance productivity growth through policy changes that encourage competition within the banking and electricity sectors.
The report highlighted that economic growth in New Zealand is currently “feeble,” with anticipated growth rates of only 1.4% in 2025 and 2.1% in 2026, falling short of the Reserve Bank’s forecast of 2.4%.
The OECD pointed out that several factors are hindering recovery, including a lack of skilled labour, a decline in post-pandemic international tourism, and sluggish productivity growth. “Insufficient supply of high-skilled labour, tapering of the post-pandemic rebound in international tourist arrivals and low productivity growth will temper the recovery,” it stated.
While lower interest rates and reforms in planning might accelerate recovery in housing and infrastructure, various risks remain. The report warned that “If electricity futures prices remain high, or rise further, this would cause more firm closures and undermine business investment” which could impede future growth.
The OECD suggested that evaluations of the electricity sector should focus on separating the generation and retail functions of large firms—often referred to as gentailers—to boost competition and provide better hedging options for the industry.
“High futures electricity prices for industry will exacerbate productivity problems by weakening business investment, especially in the green and digital transitions, as electricity is a core input for both.”
Recently, Energy Ministers Simeon Brown and Shane Jones initiated a review of the electricity market to determine its effectiveness. This review will evaluate whether the ownership structure and integration of generation and retail operations have impacted competition, although its terms are quite broad.
Additionally, a task force established by the Electricity Authority and Commerce Commission will explore methods to improve the electricity market’s performance. This investigation will examine non-discrimination regulations that would not dismantle integrated companies but would require them to sell energy to external retailers under identical conditions as those offered internally.