The Auckland Business Chamber and advocacy group Northern Infrastructure Forum on Tuesday called for the separation of the generation and retail operations of New Zealand's major energy companies, saying that the proposal will help boost competition in the retail market.

The proposal is part of a two-step plan for the domestic energy market's reform, which also includes the establishment of long-term energy supply agreements for generation to enable independent projects to bypass the firming barrier.

The parties said New Zealand has the potential to grow its economy by NZ$30 billion annually if it can bring on an additional 20 terawatt-hours of supply.

This will require policymakers to resolve structural issues related to market concentration, with four gentailers controlling 85% of the country's generation and 95% of firming, or back-up supply, as well as their vertically integrated model where generation and retail arms operate as a single, integrated business.

"Concentration on the generation side incentivizes gentailers to hold back new supply, because additional supply will bring down prices and reduce income from existing assets," said Auckland Business Chamber CEO Simon Bridges.

The proposal to separate generation and retail operations does not represent a structural break-up as it does not involve forced asset sales, said Northern Infrastructure Forum Executive Director Barney Irvine.

"It simply means the internal deal-making that currently keeps the contracts market illiquid is replaced by real market trading," Irvine added.

In a response to MT Newswires' request for comment, the industry organization Electricity Retailers & Generators NZ, or ERGANZ, said that "any reforms should ultimately be judged against whether they improve affordability and reliability of the energy system."