Under-investment and high power prices explained: "Why invest in additional capacity if the government might unpredictably undercut you?"

"Prices balance supply and demand. They convey useful information about scarcity at the margin. High [electricity] prices motivate a search for better options and reward investments in additional backup peak capacity.
    "There seems to be little disagreement about the proximate cause of the extraordinarily high August 2024 prices – backup capacity from thermal generation is limited and water levels in the hydro lakes are particularly low.
    "Politically, the devil is in the diagnosis. A populist interpretation of the inadequate backup generating capacity is that energy companies’ failure to invest more is a deliberate ploy to generate greater profits.
    "In fact, high prices must frustrate companies who cannot generate electricity because they are out of lake water or gas. So why did they or others not invest in more capacity earlier?
    "An alternative explanation is that the inadequate backup capacity is the unintended consequence of a policy environment that is too hostile to investment.
Potential impediments to greater past investment include:

• difficulties in obtaining resource consents for large projects,
• policy hostility to fossil fuel generation,
• uncertainty about future demand from major consumers like the Tiwai Point aluminium smelter,
• a general hostility to foreign direct investment, and
• pre-emptive capacity-enhancing initiatives by past governments, such as the Whirinaki Power station (2004) and the aborted Lake Onslow project.

"Why invest in additional capacity if the government might unpredictably undercut you?"

~ Bryce Wilkinson, from his article ' The root cause that links our GP shortage and skyrocketing power prices'