Electricity demand fell 2.5 per cent last year but retail electricity prices rose 3 percent; over the past five years, demand has fallen 1.6 per cent but retail prices have risen by 27 per cent, according to figures released by the Government last week.
Only a failed market delivers such perversely uneconomic outcomes.And then
Meridian's ... earnings are the most volatile because it is so dependent on rain to drive its hydro plants. ....Fiscal 2012 was an exceptionally dry year. Transpower's long-term data for New Zealand's hydro assets show that dry years are becoming more frequent and more severe.I can ony guess that the Government has not released figures on some careful instrumental variables regression estimate of NZ demand curves, but rather has published figures on the quantity demanded. So what I take from the two quoted paragraphs is that supply curves have shifted up, price has risen and the quantity demanded has fallen. Isn't that exactly what ECON 101 S&D would predict? How, exactly is this evidence of a failed market? Furthermore, there have been only slight changes in the structure of the market over the past five years. How does a level of market structure explain a change in prices and quantities?
Now the electricity market presents its own unique characteristics that make market design difficult, and any system will have imperfections, so certainly evidence can be found to suggest that the market is not perfect; the difficult policy question is whether alternatives would be better. But evidence consistent with ECON 101 S&D theory is not the place I would be looking to suggest that a particular market has failed. What am I missing?