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• 12. Affordability

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12.1 Our Direction

Cheap and abundant energy – particularly gas and electricity – has been one of the foundations of the New Zealand economy's competitive advantage. As a result, investment in energy efficiency measures in homes, businesses and industry has been relatively low. However, electricity prices have risen in recent years, largely in response to growing demand and the depletion of cheap Maui gas. In the transport sector, oil prices have increased sharply as a consequence of overseas price increases.

The government does not set prices for energy. Prices are determined in competitive markets within a regulatory framework. Ensuring that the market remains competitive will remain a key part of our work to protect all customers, including the most vulnerable.

Prices provide important signals for producers to ensure necessary investment in new supply. Consumers react to prices when making choices about which goods and services to purchase, and whether to economise.

Using energy more efficiently can save households money and contribute to better health and wellbeing. However, some energy efficiency actions come with up-front costs, even if these are soon repaid through savings in energy costs.

The introduction of emissions pricing under an ETS will raise the price of electricity, gas and transport fossil fuels, but the government will consider options to manage these cost impacts on business and residential consumers during the transition to a low emission energy system.

12.2 Our Actions

Reliable access to energy resources is essential to a vibrant economy. The government has a programme of fostering greater energy efficiency and maintaining security of supply at fair and efficient prices.

Low income households are more vulnerable to energy price increases in homes and for transport. Energy costs may take up a relatively high proportion of their income, leaving less money for other essentials.

12.2.1 Household Energy Use

Households generate greenhouse gas emissions through using electrical appliances, burning fuel to cook or heat homes, and using transport such as driving a car or riding on the train. Everyone can make a difference to household greenhouse gas emissions by being more energy efficient.

Homeowners and households will not be directly involved in the ETS. But households will feel some of the effects as the main sectors pass costs on to them. We expect that the main impact of emissions trading for households will be a rise in fuel and electricity prices.

For example, we currently expect fuel to rise by around four cents/litre, and electricity to rise by around five percent.

However, consumers will benefit from a number of related policies, such as the planned fuel economy information labelling programme for vehicles, additional investment in public transport, the solar water heating programme, Fuel$aver (information about the fuel consumption of different vehicle models) and the Choke the Smoke campaign (encouraging people to go on a "low carbon diet").

In 2008 the government will be rolling out under the NZEECS Energywise homes package a new household assistance programme to help people make their home warmer, healthier and more energy efficient.

ACTION: The government is considering additional measures to reduce the cost impact of higher electricity prices arising from the introduction of an ETS on low and modest income households.

Electricity

New Zealand houses tend to be damp and to have lower indoor temperatures than the World Health Organisation recommends.⁵⁹ This is particularly true for low income households in colder parts of the South Island.

Several central and local government initiatives are under way to make it easier for low income households to pay for electricity services.

The EC has issued new guidelines to reduce the likelihood of vulnerable consumers from having their electricity disconnected. The guidelines encourage better communication between retailers, consumers and social agencies. Retailers should provide alternative payment options, such as prepayment meters or smoothed billing, to help vulnerable consumers manage their bills. They could also give low income consumers advice on the information available on such issues as energy efficiency practices and technologies to help them meet their electricity costs.

The NZEECS will also target the underlying causes of high spending on electricity, such as inadequate house insulation. The government's Energywise homes package significantly increases funding for energy efficiency measures in homes.

The LFC Regulations assist households using less than 8,000 GWh of electricity per year. The current LFC regime will be amended to take into account regional differences in energy use, and will benefit households in colder parts of the country. Under the amended LFC Regulations, households from Christchurch south will be eligible for the LFC tariff up to a threshold of 9,000 GWh per year. This amendment will be introduced by the end of 2007.

ACTION: The government will amend the Electricity (Low Fixed Charge Tariff Option for Domestic Consumers) Regulations 2004 (the LFC Regulations) to take into account regional climate variations that have an impact on heating costs.

Gas

The GIC works to minimise barriers to competition to keep gas prices down for the long-term benefit of gas consumers.

The GIC has worked on developing an effective switching arrangement for gas consumers, which is expected to improve competition in the gas retail market and to reduce associated costs for retailers and consumers. In addition, the GIC hosts annual consumer conferences to keep in touch with consumer concerns and to update consumers on retail-related gas issues.

12.2.2 Transport Accessibility

High transport costs make it harder for people on low incomes to stay involved in community, economic and social activities. Rising prices can have a disproportionate impact on particular groups of people, such as those living in rural areas or in outer suburbs of large cities with few services close by.

Assuming a cost of emissions of $15/tonne of carbon dioxide, petrol prices would increase by approximately four cents/litre in 2009. This is well below the changes in petrol and diesel prices, which are respectively up 47.7 and 35.1 cents/litre between 2002 and 2007.⁶⁰

Chapter 7 sets out measures to increase the fuel efficiency of vehicles and improve the availability of public transport services in major urban areas. Both measures will help to reduce the impact of emissions pricing on transport costs.

Improved accessibility isn't necessarily about cars. Transport infrastructure can make it safer and more enjoyable for children to walk or cycle to school, while better urban design and transport planning for new developments can improve public transport links and provide more services that are accessible by foot or by bicycle.

Central government funding for public transport services has increased ninefold over the past seven years. The government will continue to support the development of more sustainable urban form and transport infrastructure changes through the NZEECS and the NZTS.

12.2.3 Making Informed Energy Choices

A core focus of the NZEECS is to improve the quality of information consumers are given about their energy options.

As part of the Energywise homes package, EECA will manage an energy efficiency information campaign. The campaign will include a website to help householders find the best ways to improve the energy efficiency
of their homes.

The Ministry of Consumer Affairs and the Consumers' Institute promote the Powerswitch website, which enables consumers to find the best electricity supplier for them.

The Department of Building and Housing has launched the Smarter Homes website.

ACTION: The government will continue to provide households with information about how to improve energy efficiency.