Power price cuts coming - analyst

A broking firm says a 10 per cent reduction in power prices could be achieved through the current electricity market, meaning an overhaul proposed by the Labour and Green Parties is unnecessary.

First NZ Capital, whose investment banking arm is involved in selling down Mighty River Power, released a research note yesterday dismissing Opposition claims that power price rises have been "excessive", and questioning why the model should be changed.

"Despite the alleged excessive price increase in the 13 years since 2000 we are not convinced the system is broken. If it isn't, then it doesn't need fixing," said analyst Jason Lindsay in the note.

Lindsay estimates that after line charges and allowing for inflation, residential electricity prices have risen 2.6 per cent since 2000.

"Since 2008, the "real" rate of increase (net of line charges) has slowed even further to 0.5 per cent per annum. Your writer knows for a fact he is paying less for electricity today than three years ago."

Lindsay said there were signs of genuine competition in the market due to Electricity Authority initiatives, and he believed the market should be given a chance.

Lindsay is predicting there will be reduction in the price of power over the next four years.

"Our modelling assumes 11.6 per cent residential tariff increases over the next four years, however net of line charges this reduces to 3.2 per cent over four years."

After inflation is taken into account Lindsay states that there will be a 1.2 per cent "real" price reduction per annum over the next four years and the reduction will be even higher if the Tiwai Point aluminium smelter is closed down.

"If the smelter shuts down, this figures reduces further to a 1.7 per cent 'real' price reduction per annum over the next four years.

"We believe the Opposition's desire for a 10 per cent reduction in power prices can mostly be achieved through the current market without the need for a complex and costly change of market structure."

- By Tamsyn Parker of the NZ Herald

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