An analysis of the NZ Power proposal finds it would not bring enough economic benefit to be worth pursuing.
NZ Power is the electricity policy of the Labour and Greens parties for the 2014 election.
The policy would involve the state acting as central planner for the sector and would require all generators to sell their electricity wholesale to a state-owned buyer at a price set by the buyer, with the aim of reducing retail electricity costs to households by $300 per year.
Analysis of the proposal by economics firms Sapere Research Group and others have found the proposal would be unlikely to deliver a well-functioning electricity market and unlikely to deliver lower prices.
A new analysis by Infometrics looks beyond the electricity market at some of the impacts on the wider economy.
It shows that if the policy achieved lower retail electricity prices, these would be mostly outweighed by large negative effects elsewhere in the economy.
Infometrics notes that lower retail electricity prices would encourage more use of electricity.
It says the NZ Power proposal would most help industries that are heavy users of electricity, giving them a competitive advantage over less heavy users.
More electricity consumption would require more generation, including more fossil-fuelled generation. An extra 300 MW of generation capacity would be required.
This would lead to greater emissions. Greenhouse gases would rise by half a percent, requiring the purchase of carbon credits if New Zealand takes on any international emissions responsibility targets.
Lower generator revenues would result in lower dividends paid to the government from state-owned generators, and lower tax revenues to the government from privately owned generators. Taxes paid by households would have to rise by $400 million per year to compensate.
Taxes would rise by about $250 a year per household.
The result would be a net gain in real household spending of $120 a year instead of $300 a year as claimed by the NZ Power proposal.
No new jobs are likely to be created.
Infometrics says the small improvement in electricity prices would not be the result of a more productive use of resources, but of switching resources around and incurring higher costs elsewhere.
Meanwhile, the wider costs including the removal of market-based efficiencies from the economy, weakened investment, and lower security of supply could greatly outweigh this benefit.
Infometrics concludes that the proposal does not promise enough benefits to be worth pursuing.
Click here to read the Infometrics report: A General Equilibrium Analysis of Proposed Changes to the Electricity Industry