Current Policy Work

Electricity

29. Electricity plays a vital role in developed economies. To this end the Government has a critical interest in ensuring the market generates an adequate supply of power at a fair price. Constrained hydro-electricity generation (due to dry winters), and occasional transmission failures have led to perceptions of a sub-standard system. Actual system performance has been somewhat better than the public perceives, but perceptions matter when it comes to investment[7].

30. The preliminary findings from the most recent review (August 2009) concluded that the price for electricity is roughly in line with the long-run marginal cost of generation investment. The review also concluded that generation safety margins are expected to increase in the next decade (see Sectoral Analysis). Transmission capacity is also expected to benefit from increased investment by Transpower. The review noted that supply vulnerability was likely to persist due to the dominance of hydro electricity, and concluded that improvements to the market could be made to better manage this vulnerability[8].

31. The review made 29 recommendations to improve electricity market operation. These include measures to improve:

• The management of dry years;
• Downward pressure on generation costs;
• Procedures for upgrading transmission services;
• Retail competition and prices restraint; and
• Governance of the electricity sector.

32. The government will consider submissions on the review recommendations and make any required changes to the sector before the end of 2009.

33. This work is led by the Minister of Energy and Resources, Hon Gerry Brownlee, supported by the Ministry of Economic Development.

Water/Irrigation

34. Irrigation can potentially increase productivity in large tracts of arable land. The productivity improvements enabled by irrigation are often much higher than the financial cost of providing it. However, competing uses, environmental concerns and Treaty issues should also be considered. Farmers attempting to develop irrigation schemes face significant ‘collective action’ problems and must overcome a number of regulatory barriers. Clearing these hurdles typically takes 10-15 years.

35. The government wants to ensure that appropriate schemes are to be built. Tensions between competing uses for water will never be eliminated but the government believes that wasted effort and uncertain outcomes can be reduced. Cabinet has therefore agreed to a new strategic direction for fresh water. This includes a three-pronged approach to improvements to fresh water management:

• A stakeholder-led collaborative process run by the Land and Water Forum that will develop shared outcomes, goals and long-term strategies for fresh water;
• Engagement between Ministers and the iwi leaders group to advance discussions on resolving high-level freshwater issues, including iwi/Māori rights and interests, particularly in freshwater management and allocation initiatives; and
• Concurrent scoping of policy options on matters including freshwater allocation, quality and infrastructure.

36. This work programme is led by the Minister for the Environment, Hon Nick Smith, and the Minister of Agriculture, Hon David Carter, supported by their respective ministries.

Improving effectiveness of government's infrastructure spend

37. The government’s spend on its own infrastructure is an important component of the economy. There have been a number of notable procurement failures and cost blow-outs in recent times. In addition, the public sector has a patchy record of long-term asset management. For the broader economy to perform to its potential, the public sector must do better.

38. This initiative has two components. First, the government is developing its asset management practices by improving up-front decision making and taking a whole-of-life approach to its assets. Second, for appropriate projects, performance will be improved by accessing the skills and expertise available in the private sector. This initiative may entail contracting out, public private partnerships, alliancing or other procurement methods where they will provide value for the tax-payer.

39. This initiative is about getting better use out of existing assets. In some cases this will avoid the need to invest in new assets. But it is also about getting innovation in design, construction and management of new assets. Private finance may be used where appropriate to pass the risk to those best placed to manage it. For example, the government is investigating whether more prison capacity could be delivered by use of a public private partnership.

40. This work is led by the Minister of Finance / Minister for Infrastructure, Hon Bill English, supported by the Treasury.