We have all heard our parents and grandparents tell stories about how inexpensive everything was ‘back then’. But when it comes to electricity prices, you don’t need to go back decades, or hear it from your elders.
With or without inflation, power prices are always on the rise. Let’s take a look at New Zealand’s typical electricity pricing trend.
Electricity Price Trend in New Zealand
The Ministry of Business, Innovation and Employment has compiled electricity pricing data from 2006 to 2022. We dug through this data to get a clear idea of New Zealand’s power price trend. The most important finding was that the average electricity price increase in NZ is 3% per year.
In March 2006, just 16 years ago, each kWh of energy cost 18.87 cents. In March 2022, this number had risen to 30.22 cents per kWh. This is a staggering cumulative rise of about 60%.
Another interesting finding from the data is that the price barely ever drops. In the 16 years of collected data, there was only one instance when the cost of electricity went down - this was in 2006, when the price of electricity dropped by 1.7%.
In terms of monthly bill expense, a typical household paid about $1,440 in March 2006 in power bills. In March 2022, this number had shot up to $2,194. This increase is exceptional, even if you discount the effects of inflation. But to really understand if electricity prices rise disproportionately in the country, we need to compare it with something similar.
Let us talk about the prices of petrol, which is probably the most comparable commodity. In January 2006, a litre of petrol cost $1.37. In January 2023, it was $2.33/litre. This increase is just over 40%, significantly lower than the 60% increase in electricity prices.
Moreover, unlike electricity, the average annual petrol prices have also dropped at least five times. But petrol and electricity are, after all, different commodities. Let’s go back to power costs and understand the factors that contribute to the fluctuation in its pricing.
What Causes Power Costs in NZ to Rise?
1. Cost of power generation
Although over 80% of New Zealand’s total power comes from renewable energy sources, there are still costs associated with it. Generating power requires manpower, machinery, land, and a dozen other things.
As the cost of one or more of these items goes up, the cost of electricity in the country goes up. For example, as wages rise in the electricity sector, so do consumer prices to account for that rise.
2. Cost of maintaining the electricity grid
An electric grid is a complex structure - it consists of tons of metal parts, hundreds or thousands of poles, cables, substations, distribution panels, and more. Naturally, a gigantic structure this complex has significant maintenance requirements.
Trained technicians conduct periodic inspections at multiple points on the grid to ensure everything is functioning as expected. Utility companies can also use modern technology such as remote sensors or drones to monitor the grid’s condition.
Aside from regular maintenance, the grid may also suffer major issues from extreme weather events such as storms or floods. This includes everything from trees falling on power cables to flooded distribution panels. Fixing such issues can often be expensive. And like the costs of regular maintenance, the added expense is recovered through increased power costs.
3. Availability of fuel
Despite the majority of NZ’s power coming from renewable sources, the country still relies on other fuels to fulfill fluctuating demands. When the power demand rises, such as on dark winter days, power generation companies resort to using backup sources such as coal.
When more fossil fuels enter the energy mix, the prices rise - since fossil fuels are not free sources of energy, like wind or geothermal.
4. Volatility of the wholesale energy market
The wholesale electricity market in NZ can often be fluctuating. Different retailers purchase power at the same time from power generation entities, selling it to homes and businesses. When the price of wholesale power changes, the retail price can immediately change, leaving home and business owners with higher prices.
Many utility companies in NZ also offer spot pricing, where the price of power changes every 30 minutes based on the power demand in each 30-minute window. Spot pricing allows companies to encourage consumers to use power at off-peak times instead of on-peak hours, such as mornings and evenings. This helps even out the demand and use generation facilities more efficiently.
Effects of Rising Power Costs
The effects of rising electricity prices go beyond just disrupting your monthly budgets. Rising power costs can have a domino effect on the entire economy. For instance, an increased expense in electric bills can discourage consumers from spending money elsewhere.
But the effect is most pronounced when we see industrial power prices rise. An increase in the operational cost of industries sets off a chain event, increasing commodity prices across all sectors. This in turn could change how people spend money, occasionally resulting in an economic slowdown.
How to Fight Rising Electricity Prices in NZ?
Now that we have understood the inevitability of power price rise, the final, and perhaps most important question to answer is what can we do to protect ourselves from this. Obviously, giving up the use of grid power isn’t really an option - power has now become one of the basic human necessities, as essential as clothing or shelter.
However, we always have the option to generate our own power, which is free from any price hikes or free from any bills at all. In New Zealand, as in most parts of the world, the best way to do this is to switch to solar power.
Yes, a solar power system can cost thousands of dollars, but it lasts for up to three or more decades, and generates free electricity from the sun. Naturally, since the power itself is free, there is no question of an ‘increase’ in the power cost.
And that’s not all. If you have a solar + battery setup, you can save even more. In homes where spot pricing is applicable, batteries can be useful to shift the power consumption from on-peak hours to off-peak hours. For instance, a battery can charge itself from the grid at night, when the prices are low, and discharge during the mornings or evenings, when the prices are high. This is somewhat akin to buying cheap shares and selling them when their price boosts.
Summary
Rising electricity bills are among the most common woes worldwide, and Kiwis are no exception to it. Power prices in NZ have risen over the past years at an average 3% per year. If you consider a typical annual spend of $2,500, this means the average rise in a year would be about $75. This may not sound like much over just a year, but in 20-25 years, you would be spending around $1,800 more.
Currently, the best way to fight the power price rise is to reduce your grid power consumption as much as possible, and the best way to do that is to go solar. Solar panels generate free power from sunlight, thus avoiding high power prices as well as any increase in them.
Additionally, using a battery with your solar power system can help save even more by shifting your on-peak power consumption to off-peak hours.
Ultimately, things such as fossil fuel prices, storm damages, energy policy, etc. aren’t in your control. But there is one thing you can (and should) take control of - your source of power.