NZ has in recent years experienced some significant increases in electricity prices. These rises can be attributed to several factors:
1. Latent inflation in exceedingly low capital and operating costs in an era of low interest rates. This is destined at some point to change; whence-forth, we can expect a rise in energy prices.
2. Capital cost structure or framework for distribution and transmission cost pass-thru
3. The high marginal cost of new generating capacity - High because anyone attempting to build a new generating unit has to recover costs without knowing when competitors are commissioning their capacity
4. The need for all energy businesses to focus on yields rather than profits in a growth restricted market. If you can't cut costs or increase sales, then you are compelled to raise prices in order to achieve the profit growth that shareholder want to see; but more importantly the growth executives want to see so their option incentives deliver the gains that will put them on par with foreign enterprises and other sectors which are able to deliver those gains.
5. The high cost of natural gas. NZ has small resources of gas and those resources are concentrated in the Taranaki area. Eventually the nation will develop more competitive supplies from other fields, and this will mean cheaper fuel. The benefits may flow through to electricity prices. This assumes however that new supplies are competitive and in a state of oversupply; and that their geographic location will allow for interconnection through the NZ grid. There is good reason to expect that a new gas resource will be off-grid or too small in size for the resource to make a competitive difference. If it is so large to support export sales, then the imperative to offer cheap gas is undermined by export prices. This of course will not preclude lower long term contract prices to win an energy supply agreement.
What does this mean for NZ energy policy? Well it probably supports:
1. Energy market reform to encourage more privately owned electricity generation to supply local communities; which store surplus capacity for timely sale into the grid or captive consumption. This will make more sense as battery prices fall, whether they support wind, wood or solar capacity. Reform of the Resource Management Act (RMA) and council management and land use facilitation will also be important.
2. The reform of the distribution and transmission pricing so that it does not result in over-investment in said infrastructure. Observe that under govt patronage NZ capital spending has gone from under-investment to over-investment. From crippling black-outs to pillaging of customer savings. What can we say of NZ energy sector management? We can say that political intrusion has been a huge mistake.
The only political party in NZ which has an energy policy consistent with lower energy prices in the short term is the ACT Party. In the long run, one would expect National policy to increase gas exploration to eventually increase competition, but that could be decades. Private syndicate investment in generation offers the greatest scope for cheaper NZ energy supplies. The impact of such an energy policy would:
1. Increase competition in the power market; resulting in more money in the consumer's pocket. The gains would not however be equal. The disparity can be expected to impact residency decisions. Even in a town or city, you might welcome living in a community with captive power generation and supply arrangements.
2. Increased energy generation at point of use; reducing transmission demand. Sadly this will have meant prior capacity development was wasteful and that consumers reliant on said supplies will have to pay more.
The prospect of higher costs for some is not a justification for an aversion strategy by government, simply because government just adds to the distortion.
There is an opportunity for governments to optimize this investment however by easing the RMA rules. Ie. If community development was easier, more people would be living in optimized villages. Why? The reasons for living in communities with identity and connectivity has never been stronger. We don't have the regulatory setting to achieve that. We have dogmatic proscriptions understand which Gibraltar proscribe what is a healthy lifestyle. The practical outcome has been the exact opposite. The justification for adopting private planning is not the fact that the private sector always makes better decisions; it's that the private sector pays the costs of its mistakes - not you the consumer.
Another element of energy policy concerns the locating of generating plants and power lines. Said infrastructure raises two issues:
1. Property ownership - People have a right to compensation for disturbance of person or property. i.e. Build a generating facility in proximity to a house and people should expect compensation. I would however argue that there should be no compensation for land beyond disruption from use. I would argue that people own the property improvement, not the land. There is a tendency to consider property rights as intrinsically good; therein failing to ask why they are valued, and therein what actually constitutes property.
2. Property values - Any investment in property is for the sake of certain values or enjoyment. We might properly ask whether latter parties have the right to undermine the enjoyment of smothers property. In the same way that a person cannot undermine your right to live, they cannot undermine your ability to be productive or to enjoy one's labour. Again, there is a tendency to see property boundaries as intrinsically the basis of property disputes. The shortcomings of this regime have contributed to the collectivisation of property rights such that they have come to be defined as social mores. This development occurred because libertarians failed to provide an adequate solution to contemporary land use conflicts over previous centuries. Practically they folded and allowed the stat is talk to rule. This was understandable because if the mystic Christian roots for socio-economic values even dating back well before classic economics even developed.
It can only be hoped that sufficient numbers of libertarians will be able to politically advance a common law style of property rights rooted in rationality. To do that libertarians will need to differentiate themselves from 'small government' conservatives who have merely failed to identify the nature of the contradiction that has prompted their political brethren to sell out.