New dashboard tracks electricity market competition

The Electricity Authority Te Mana Hiko has published a new competition dashboard to track competition trends in the wholesale and retail electricity markets.

The dashboard presents metrics for 2010-24 including retail, spot market, risk management and long-term indicators of competition and will be updated quarterly. This will help interested parties build a picture of the market using a range of indicators, rather than using one single indicator.

All aspects of the market – and competitive dynamics over the longer-term – feed into the final price that consumers pay for their power.

Improving competition in the electricity market is a priority for us. The Energy Competition Task Force is working on systemic changes that will enable new generators and independent retailers to enter, and better compete in the market, and provide more options for consumers. 

Structural indicators

The Herfindahl-Hirschman Index is used to measure market concentration. Higher scores indicate higher concentration, more scope for market power and less competition.

In the retail market, the Herfindahl-Hirschman Index decreased steadily from 2010-22, then increased when Mercury bought Trustpower’s retail business, and decreased since at a slower rate.

The number of retailers decreased from 2022-24 (42 in 2022 compared to 38 in Q4 2024) This could indicate less competition, or improved competition with the stronger, more competitive, retailers remaining in the market. The number is high by historic standards, indicating that barriers to entry are low.

Conduct indicators

The number of consumer switches varies by time of year. Consumer switches were down slightly in Q4 2024 compared to Q3 2023, indicating a less competitive market. However, from Q3 2023-Q3 2024, there was a large increase in switches compared to the same quarters in the previous year.

Performance indicators

The average quarterly spot price varies depending on underlying market conditions such as hydro storage, thermal fuel supply and peak capacity. In Q4 2024, the average spot price was lower than the previous year due to high hydro storage.

In a competitive market, the forward price curve should reflect the general consensus of expected prices. In the long term, this means that the traded price should be an unbiased predictor of the spot price.

The average spot price has increased since 2018, when gas uncertainty first became visible in the market. However, quarterly fluctuations suggest the spot price reflects underlying market conditions – which is what we expect in a competitive market.

Average spot prices have been increasing in recent years, so the forward price curve has been increasing and remained elevated.

It takes some time for the market to adjust as new generation is built, and there have been some delays in bringing new generation to market. We expect to see futures prices converge to the long-run cost of new generation (including costs of meeting demand with other generation or batteries when it is calm and cloudy) in the long term.

View competition dashboard

Note, the competition dashboard is a guide only. The data trends should be considered in a broader context, for example with underlying market conditions (available in our quarterly reviews), competitive dynamics and external factors. We will add more charts to the competition metrics when the data is available.