Labour may ask gentailers to reinvest dividends in new generation to reduce prices
Labour finance spokeswoman Barbara Edmonds said the companies may be asked to invest in generation rather than pay a dividend. Photo / Mark Mitchell
Labour’s finance spokeswoman Barbara Edmonds has floated the idea of setting an expectation that the large gentailers reinvest dividends into new generation in a bid to ensure enough new electricity supply to keep prices affordable.
rel="" title="https://www.nzherald.co.nz/topic/energy-prices/">High prices are causing a raft of industrial closures. Most recently, Kinleith Mill in Tokoroa confirmed it would shed 230 jobs after axing paper production at the plant. Owner Oji Fibre Solutions complained last year about power prices. Forward indicators suggest prices will remain high for some time.
Speaking on her way into Labour’s caucus meeting, Edmonds said prices were a problem and suggested instructing the companies to invest in generation rather than paying a dividend might be a solution.
When asked about a solution, Edmonds said: “Part of it is around investment back into the infrastructure so obviously the security of transmission, the security of growing up more renewable sources”.
“Part of the dividend that comes back to the Government as ... shareholder, we need to have a closer look at that and see whether some of it needs to go back to the energy companies in order to reinvest in order to grow renewable energy sources.”
She said this would be covered in an expectations letter.
The Government has a majority stake in Genesis Energy, Mercury Energy, and Meridian Energy. These large firms both generate electricity and sell that electricity to businesses and households. As the majority owner of these companies, the Government can write letters of expectations to their boards.
They are under pressure after a period of high prices, which have been blamed on a lack of net new generation being built ever since the late 2000s. A wave of energy efficiency innovation and uncertainty over whether the closure of the Tiwai Pt smelter or the construction of the Lake Onslow pumped-hydro “battery” conspired to evaporate incentives for constructing new generation, with most new generation simply replacing retired fossil fuel assets.
Energy Minister Simon Watts and Associate Energy Minister Shane Jones have appointed consultancy Frontier Economics to lead a review of the electricity sector.
“The power crisis we experienced last winter highlighted how important affordable and secure electricity at internationally competitive prices is to the economic growth and prosperity of Kiwi households and businesses alike,” Watts said.
Council of Trade Unions chief economist Craig Renney, who sits on Labour’s Policy Council and is a significant voice in the party’s economic thinking, published a paper in 2022 with 350 Aotearoa and First Union arguing that the part-privatisation of the gentailers by the Key Government was to blame.
Renney said the gentailers had prioritised paying out dividends instead of investing in renewable generation.
He argued that the gentailers had paid out $4.2 billion in excess dividends over the decade at a time when the national generation capacity had only increased by 1%.
Gentailer Genesis criticised the report, arguing the decision to link dividends to net profit after tax (npat) created a misleading impression.
“Npat includes several non-cash items such as depreciation and revaluation of assets. These items recognise the previous investment in long-term assets and an estimate of the long-term value of these assets,” Genesis said at the time.
Edmonds said breaking up the gentailers into separate generation and retail arms, a policy independent retailers have been calling for, was not currently on the agenda, but Labour’s policy would be finalised closer to the election.
Labour’s energy spokeswoman Megan Woods, who was Energy Minister in the last Government, partly blamed the coalition Government for high prices, saying the decision to scrap the Lake Onslow scheme meant the Government was doing no work on energy storage.
She said the Government was not looking at storage for “ideological reasons” and that this was “concerning”.
On the question of dividends, Woods said: “Keeping the pressure on the gentailers and the Government setting ambitious targets for generation is hugely important.”
However, she appeared to distance herself slightly from that fix, saying the future of the sector would involve generation from independents.
“We can’t just get stuck in those 20th century ways of thinking. Actually, a big part of New Zealand’s energy future is making sure we’ve got the settings right for independent generation.”
Labour’s stimulation of energy demand through the Government Investment in Decarbonising Industry (Gidi) Fund had stimulated generation, Woods said but the new Government has since closed the fund.
“There’s nothing like demand to stimulate supply ... we’ve got a Government [that] won’t look at demand-side measures,” she said.
Thomas Coughlan is deputy political editor and covers politics from Parliament. He has worked for the Herald since 2021 and has worked in the press gallery since 2018.