8. What Will Happen To Prices?
(a) Downward Trend in Prices
At present, generation capacity exceeds electricity demand significantly. This imbalance will increase with new generation projects that are currently being commissioned. The most notable of these is Contact Energy's new high efficiency thermal power station at Otahuhu.
With more competition, excess generation capacity will result in lower prices making it difficult for less efficient plant to be dispatched profitably. After the split, with more direct competition, wholesale electricity prices are expected to fall significantly to reflect the level of oversupply. Genuine retail competition will ensure that consumers receive the benefits of lower prices. This is evident already from new retail companies entering the market and from the prices being offered by them.
ERTU expects that wholesale prices will be at least 10% lower than would otherwise be the case when ECNZ is split. Retail prices should follow this trend.
(b) Greater Wholesale Price Variability
The current level of excess capacity is unlikely to be utilised fully for several years and intense competition between generators is likely to take some time to settle down. It is likely that there will be periods of volatility with spot prices falling to very low levels for some periods while generators seek more market share.
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