ComCom to look at ‘counterproductive’ clauses in energy contracts

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The Commerce Commission has confirmed it is “assessing concerns” brought to it by two Mercury customers, about whether a clause in their contracts may breach the Fair Trading Act.

The gentailer is known to include formulas in its agreements, noting clearly that the provider will charge for every kilowatt hour not purchased from them, subtracted from the total and charged as a penalty.

Mercury says penalty clauses on commercial electricity agreements for on-site generation are common industry practice.

A competing solar company, however, says the adjustments are anti-competitive and disincentivise the use of renewable energy by larger users.

The adjustments are based on anticipated replacement of electricity supply and apply to companies which install solar generation on their premises at any stage of their supply agreement.

The complaints comes on the heels of a survey by the Auckland Business Chamber suggesting that 90% of businesses have seen “large or very large” energy price increases over the past year. More than half say they have had to increase their prices, and a quarter have had to cut back production and reduce staff.  

Chamber chief executive Simon Bridges said businesses were reluctant to be identified when talking about energy costs, for fear of commercial backlash.

However, Karen Boyes, executive director of the Major Electricity Users' Group (MEUG), confirmed there were concerns over tighter conditions being added, with some members having a limited choice of providers. The group's 13 members include Fonterra, NZAS, Pan Pac Forest, Woolworths and Amazon Web Services.

Major users such as Fonterra often have limited choice of energy provider.

Boyes said it was also "disappointing" that there were clauses in place to deter onsite generation. "These penalties seem counterproductive, when we're trying to drive energy efficiency and self-generation on site, which is in line with what the Government's been doing work on."

A recently released Cabinet paper on the electricity sector suggests that higher prices, and insecurity of electricity and gas supply have already cut GDP by as much as 1.25%, translating to a $5.2 billion hit to the economy.

The paper noted that wholesale prices have more than doubled over the past eight years, peaking at just under $900 per megawatt hour last August.

Chelsea Sugar installed 650 solar panels on its warehouses in 2024.

A tough nut to crack

Mercury was fined $279,500 by the regulator in March 2023 in relation to six charges under the Act for charging early termination fees between July 2017 and December 2020. In March this year, Mercury was also issued a warning for breaches of the Telecommunications Act 2001.

Rory McCarthy, the chief operating officer of Lightforce Solar, said its reading of the solar generation clause showed businesses could end up paying about 9 cents per kilowatt hour for any change in their installation control point (ICP) annual consumption.

Auckland-based Lightforce, which holds about 20% of the residential solar installation market across 10,000 residential sites, has been focused on building its commercial book over the past several years.

It now has 20 commercial sites, including a site at the Chelsea Sugar refinery on the North Shore, which generates 245,000 kWh of electricity.

McCarthy, the former COO at Yellow Door Energy in the Middle East, said the commercial sector had been tougher to crack.

He was aware of another business, a Waikato food distributor, that had a clause in its supply agreement with Meridian which would see it incur a $50,000 penalty if it didn’t use the full three years of its contract.

Mercury portfolio manager Craig Parker said the company wasn’t aware of the complaints, but the clauses – included in larger commercial ‘time of use’ contracts – had applied only to customers who didn’t have solar at the time of contracting.

Mercury factored in the supply dynamics of solar generation for those customers with solar already installed and in practice, the clause had only been used “a few times” to adjust supply terms, he said.

The clause in the Mercury NZ agreement.

Parker suggested that it would be “highly unlikely” that a customer would receive an adjustment of 9c/kWh on their rates, as it would require installing a solar generator around 18 times the size of their consumption, or 18 megawatts on a 1MW average load.

Fair pricing

Meridian head of energy Richard Sandford said while he couldn’t comment on individual contracts, its commercial electricity agreements were based on the level of consumption that customers committed to over the term of a contract.

Sandford confirmed that all of their commercial and industrial customers had clauses in their contracts stating that they could export electricity to a network with Meridian's consent. And while Meridian didn't withhold consent for customers to export back, that energy was purchased at between 8c-12c/kWh, compared to a sale price of closer to 28c/kWh.

McCarthy said that translated to "little symmetry" in the tariffs charged in NZ, unlike other countries, including the Netherlands, UK, US or Germany, where fair pricing was mandated by government for energy sold back to the grid.

The Lightforce model, by contrast, was about saving commercial customers money by generating electricity on site, he said.

Lightforce Solar’s Rory McCarthy.

“That meant they were able to plan into the future, so we’d structure that on a power purchase agreement which paid for the power from the savings the customer would make between the utility bill and what they were able to pay.”

A residential set-up would come in at as little as $10,000, or double that if it included a battery storage option.

The company was also able to structure lease agreements working around workday time of use, so companies weren't getting billed for "every kilowatt hour the sun’s out", he said.

McCarthy said renewable energy on site could be a "massive win" for large operations such as mining or quarries that used significant energy, or those with large freeze cooling operations. Driving that process cooling from a battery, allowed a “timeshift” away from dependence on changes to the grid price.

“NZ businesses can be smarter and we’re working on software projects that can provide that kind of service to customers.”

McCarthy said the commercial baseline ran from 150 kilowatts to 10 megawatts. The firm was evaluating micro-wind generation as an option for its clients.

Offshore investment

Lightforce director John Harman said the stranglehold on the market by the main generators had also stymied any serious offshore investment into renewable energy.

Harman, a former surgeon who invested in the solar firm five years ago, cited Helios Energy as an example. Over the past five years, Helios had built zero solar farms, despite having several in the pipeline, he said.

"New Zealanders are often facing $800-$900 [a month] power bills, which is double what they were a couple of years ago, and energy companies were pointing at that and telling commercial players that what they were paying is a steal."

Bidwill consultant William Bisley.

William Bisley, an energy data consultant at Bidwill Analytics in Wellington, said the lack of truly independent generation coming into the market was because projects weren't bankable, as there wasn't a liquid enough market to be able to generate and then sell it to end-users.

Bisley said since the late 1990s, when the market was liberalised, there'd been cheaper intermittent or geothermal energy replacing thermal generation, but the overall output had remained stable.

"Now we're getting into demand growth, and it's not entirely clear that market incentives are set up to encourage and create new demand, so we're not seeing the large players bringing enough new generation to the market, and that's seen offshore investors such as AWS retreat out of the market due to an inability to get enough electricity."

MEUG's Boyes said high prices and the current market settings – which would see members facing 15-20% increases starting from April 1 next year – could potentially make energy a hot topic in an election year.

"But what we've seen a lot of is the flip-flopping between governments, where something had been introduced and subsequently been repealed. The oil and gas ban is an example of a policy risk that is a huge concern for the sector. You can't expect generators or Transpower or distributors to invest in long-term assets if you've got that level of uncertainty."

Uncertainty was also a risk for businesses, she said, and would deter them from investing in their own power generation.