August 28, 2024 • 19 mins
Back in May on The Front Page, in the wake of warnings about overuse of the power grid, we discussed what challenges faced the energy sector for the winter ahead.
Over the last few weeks, those challenges have become more and more apparent, with diminishing supply sparking rising power prices across the country.
It has prompted the Government to this week announce it is fast tracking a new liquified natural gas import terminal, amongst other measures.
So what’s behind this latest energy crisis, and what can the Government do to stop this?
Today on The Front Page, we’re joined again by the Major Electricity Users Group Chair John Harbord to analyse this latest crisis.
Follow The Front Page on iHeartRadio, Apple Podcasts, Spotify or wherever you get your podcasts.
You can read more about this and other stories in the New Zealand Herald, online at nzherald.co.nz, or tune in to news bulletins across the NZME network.
Host: Chelsea Daniels
Sound Engineer: Paddy Fox
Producer: Ethan Sills
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:05):
Kyoda. I'm Chelsea Daniels and This is the Front Page,
a daily podcast presented by The New Zealand Herald. Back
in May, on the Front Page, in the wake of
warnings about overuse of the power grid, we discussed what
challenges faced the Energy Center for the winter ahead. Over
(00:28):
the last few weeks, those challenges have become more and
more apparent, with diminishing supply sparking rising power prices across
the country. It's prompted the government to this week announce
it is fast tracking a new liquefied natural gas import terminal,
amongst other measures. So what's behind this latest energy crisis
(00:53):
and what can the government do to stop it? Today
on the Front Page, we're joined again by the Major
Electricity Users Group chair John Harbord to analyze this latest crisis. John,
let's start with the obvious. What's going on with the
(01:14):
power prices at the moment.
Speaker 2 (01:15):
It's a combination of two things. One is longer term
we actually don't know. In the shorter term, it's very
clear that we have a scarcity of energy with which
to make electricity, so our hydro lake levels are low.
We've got less gas available than we thought we did.
And partly just because it's winter. You know, solar generation
(01:38):
is down just because of the number of daylight hours
we have in winter. And we've had sort of periods
where wind levels in the places of the country where
we generate wind electricity have also been down. And when
something gets incredibly scarce, the price goes through the roof,
and that's seen wholesale prices go from you know, three
four hundred dollars a mega wad hour, you know, going
(01:59):
up one thousand dollars a Mega white hour. The longer
term issue is we had an outage at the Papakurr
gas field back in twenty eighteen. So when the gas
field went down, the wholesale electricity price jumped from around
seventy five eighty dollars a Mega white hour to almost
twice that. But when the gas field came back online,
the price stayed up, and it stayed up for the
(02:22):
last six years. So that price has been averaging around
one hundred and fifty to one hundred and sixty dollars
a Mega white hour for the last six years. And
the electricity authority had a look at it probably three
years ago now and they couldn't explain why the price
had stayed up as high as it was now, I
think there's a legitimate question or criticism that they didn't
do anything about that. They just sort of made a
(02:43):
finding and carried on. So lots of people have different
theories on why the price is high, but we don't
have a really rigorous examination of it, which is why
I say we don't actually know.
Speaker 1 (02:54):
What does this crisis mean generally for the average Keiwi.
Is it simply that their bills are going to Yeah.
Speaker 2 (03:01):
I think it's important to note that most Kiwis are
on fixed term retail plans with their electricity retailer. So
while their current contract is in effect, they're probably not
noticing too much right at this very moment. But the
next time their plan gets renewed, you know, households could
be in for a bit of a shock. But ultimately,
(03:22):
the high wholesale prices do get passed on to households
to a degree. We do know that the Big four
Gen Taylors have been running their retail arms at a
loss deliberately, and that has shielded households from a lot
of the impacts that larger manufacturers are experiencing. Shane Jones
(03:43):
is accusing the big power companies of profit tearing as
big firms layoff workers.
Speaker 3 (03:47):
The energy prices at the moment offered by Gen Taylors
are the highest in the western world. The gent tailors
have promised for so long that they can boost energy security.
The shar shows.
Speaker 2 (03:59):
That they've failed.
Speaker 3 (04:01):
We've got to a point where not only a deep dive,
but the time for talk is over.
Speaker 1 (04:09):
The words price gouging have been thrown around a lot
in this crisis, so those accusations fair.
Speaker 2 (04:15):
I think what I would say is there is a
basis on which to make those allegations. So if I
unpicked that. Back in two thousand and nine, the Commerce
Commission reviewed the wholesale market and found that prices were
higher than they would be in a competitive market because
the big four generators had market power and they were
(04:37):
using it to keep prices higher. And I want to
stress though, the Commerce Commission also found there was nothing
unlawful happening, so there's no no one's breaking any laws
or anything like that. And there were a suite of
independent studies that followed that that all found pretty much
the same thing. The Electricity Authority itself again in that
same piece of work two or three years ago. They
(04:58):
also found that same thing, that the big four generators
have some market power and prices are higher because of that.
MUTE itself commissioned some work around analyzing the level of
economic profit, and we certainly found that in some cases
there's evidence of that of very high levels of economic profit,
but it wasn't across all generators, So I think we
(05:20):
also need to be careful that we don't make blanket
allegations across all generators.
Speaker 1 (05:25):
The phrase gen Taylor's, and you've mentioned it once now
it pops up a lot during the coverage. What is
a gen Taylor?
Speaker 2 (05:32):
Yeah, so it's basically referring to the four big companies
we have that do both generation and who do retail.
So you just combine gen with Taylor from retail, and
we mash it together to make a single word. It's
a recognition that they make electricity and they sell it
to households.
Speaker 1 (05:49):
So how have these Gen Taylors responded to all of this?
You mentioned they're actually running at a loss.
Speaker 2 (05:55):
They've been running their retail arms at a loss. Their
generation arms over the last few years have certainly been
making very high levels of profit. Some of the Big
four have been running you know, almost all time record
profits year after year for some of the recent periods.
So there's like I said, there is certainly a basis
on which to make those allegations. But equally, we haven't
(06:15):
had a really rigorous analysis, like from say the Commerce
Commission into that issue. So like I said, there's there's
certainly a basis to make those claims. There's certainly evidence
of it, but I just think you also just need
to be a little bit careful that, you know, we're
not applying that allegation equally to everybody. Some of it
could just be you know, a combination of fact is
almost sort of beyond the control a little bit of
(06:36):
some of these companies. So you know, if you are Meridian,
for example, and I'm not using them to shine a
light on them, this is in the sense of, you know,
a lot of their generation assets were built back in
the nineteen sixties, you know, the big hydro dams in
the nineteen seventies and nineteen eighties, and they've been built
to a very high standard, so you know, they haven't
had to spend a lot of money on new generation
(06:57):
until more recently. So because they're not spending that money
on new generation, then kind that looks like their revenue
is higher as a result of it. That's not to
say they're doing anything unlawful or anything dodgy. It's just
the fact of, you know, the assets that as a
business they inherited. But there's no doubt that some gen
taylors have been earning very high levels of profit in
(07:18):
recent years. And it's particularly concerning in the sense of
electricity is in the truest sense of the word a
public good. You know, we can't have modern life without it.
Our households don't function without electricity, and our demand for
it is highly anelastic. And by that I just mean
you don't have a lot of control over how much
electricity you use. You've got to have showers, you've got
(07:39):
to cook your meals, you've got to heat your home
unless you just simply can't afford it. There's not a
lot of discretion in there around how much electricity you use,
so you've kind of got a captive consumer market. So
it's important that people can have confidence that the price
they're paying is fair. And I don't think the government
or the regulators could say hand on heart at the
moment that prices have been fair for the last six years,
(08:00):
let alone in the current situation.
Speaker 1 (08:12):
A review of the performance of the electricity market is
being jointly conducted by the Commerce Commission and the Electricity
Authority At the moment, what do you think that might reveal.
Speaker 2 (08:24):
We haven't seen the terms of reference for it, so
I'm not entirely for exactly what they're looking at. But
if I assume it's a general review of electricity market regulation,
then I think on the basis of past work, we're
likely to have a finding that prices are higher in
New Zealand because of a lack of meaningful competition in
the generation space. Now we hope that changes over time
(08:46):
with more generators entering the market and from the announcements,
distribution companies can potentially start generating as well. But it's
also a reflection of New Zealand's a small country. We
don't have a lot of operators in that space, so
you know, regardless of the finding, not much might change
in that space. But you've also got to unpick how
we arrive at the wholesale electricity price. So the current
(09:07):
market settings are very good at pricing short term scarcity
or short term availability of electricity. What it's not very
good at is taking sort of a longer run view
of pricing. So our prices tend to be high because
everyone in the short term seeds risk, whereas if you're
taking a longer term view, risk sort of gets evened
(09:28):
out over time. So I would hope that we've come
to some things that would end up with the market
taking a longer view. There's also a really important question
around how we arrive at the wholesale price. So at
the moment, if you're a generator and say you're generating
wind or hydro electricity, because roughly speaking, supply of electricity
(09:50):
matches the demand for that electricity. Genuinely speaking, if you're
generating electricity, you know you can kind of sell whatever
you're making. So what it is is you price up
to the most expensive form of electricity. So in New Zealand,
the most expensive form of electricity is coal fired electricity
because almost half the cost is from the ETES. But
(10:11):
if you're making wind electricity, you're not paying any ETES costs.
You just make a massive profit at the expense of consumers.
So I would hope that it would look at what's
the regulation around renewable electricity versus thermal electricity, and do
you sort of decouple the two. So renewable generators aren't
making excess profit at the expense of consumers because they
(10:33):
don't have to pay etes costs. Equally, I think one
of the things that the current crisis has really highlighted
is the market is very poor at taking an nz
INK approach or perspective. So individual generators, you know, they're
looking at what's the new generation we can build, and
often that you're looking at wind or solar if for
(10:54):
no other reason, then you've got a chance of getting
those consented. But people aren't looking at, well, who's going
to be say the gas or qualified peaking plant we're
going to continue to need for the next say ten years,
because you'd never get it consented. And Equally, a lot
of companies don't want to be seen to be building
through more generation because social license and as a country
(11:14):
we're not particularly keen on emissions. We need some way
for the market to identify what generations actually required and
then to incentivize that generation. So I think there's a
really interesting role there potentially for transparers the system operator
to do that analysis around what generation mix do we
need and in what amounts, and then whether it's through
(11:38):
going to market for contracts to supply that generation, or
through another mechanism you go back to the market for
the provision of that generation. But there's no sort of
coordination at all in the market in that respect.
Speaker 1 (11:51):
The government this week announced a liquefied natural gas import
terminal will be fast tracked. First of all, what in
the world does that mean?
Speaker 2 (12:00):
The shorthand version is we just pay for someone to
send the ship to New Zealand carrying LNG and they
just sail into port, they hook up to a pipe
and they pump the gas into our existing network. That's
fundamentally it. So it's just the means of getting natural
gas from a means other than our own gas.
Speaker 1 (12:17):
Fields, right, And so LNG is that natural gas? How
will that help the crisis that we're facing now.
Speaker 2 (12:24):
Well, one of the big constraints we've got at the
moment that's exacerbating the crisis is we just don't have
a lot of gas available now. Methods has acted very
responsibly in ceasing manufacturing of methanol for a few months
and just basically selling their gas directly to genesis and
contact to make electricity with. But you know that's not
a long term future for Method X because then they're
(12:45):
not actually making any product, So they can't do that indefinitely.
And until we can unlock more of the gas that
we know is in our existing gas fields, we need
sort of a short term solution, and so the government's
decision will just make it a lot quicker and easier
for us to bring ships in with LNG and put
that into our existing system.
Speaker 4 (13:08):
LNG liquefied natural gas is hailed as the magic solution
to a lot of our problems. In Europe that's getting
much less gas from Russia. It's supposed to keep the
lights on. In Asia, it's supposed to do away with
dirty coal, and in the US katar in Australia, where
most of the stuff is coming from. It's supposed to
make a lot of people a lot of money. When
(13:30):
all a said and done, LNG remains a fossil fuel.
If we are serious about slowing climate change, we need
to dig it. The sooner the better, and every terminal
we build makes that harder.
Speaker 1 (13:44):
The government's blamed a lot of this crisis on labor
for canceling oil and gas exploration. Labor has responded by
saying that the part privatization of Gen Taylor's under Sir
John keyes National, either of them or both of them.
Speaker 2 (13:58):
Right, If we take the first one, the offshore oil
and gas band, I think that's been a contributing factor.
It essentially scared off investment and maintenance into our existing fields.
So because we haven't had that maintenance and we haven't
had sort of the fresh exploration of existing fields, So
not even talking about finding new ones, but just ongoing
exploration of our existing fields. The question around the impact
(14:23):
of the partial privatization of three of the Gen tailors,
as I mentioned earlier, you know, the Commerce Commission found
there were issues with excess pricing in two thousand and
nine before the partial privatization happened. So I don't think
we can be as clear cut on the partial privatization question.
Having said that, though the independent work that the Major
(14:46):
Electricity Users Group commissioned a couple of years ago into
the levels of excess economic profit certainly showed in one
case that the level of economic profit being earned certainly
started to pick up quite dramatically following the partial privatization
but that's just looking at one generator, not across the
whole market, So I think that's still a bit more
(15:08):
open to debate.
Speaker 1 (15:09):
And John, with winter ending, is this crisis likely going
to come to an end for the foreseeable future and
what can be done in the next twelve months to
stop this happening next winter. I suppose that's a conversation
we have every year.
Speaker 2 (15:22):
I think it's really important that we recognize that the
current crisis we're in hopefully sort of the level of
crisis diminishes, but we're stuck in this situation for a while.
This is not a short term issue, so the risk
of rapidly escalating household prices, for instance, is one hundred
percent still there. And I think, you know, the announcements
(15:43):
to the government made this week will certainly help in
the longer term. You know, if we can secure a
ready supply of gas to supplement our own domestic production
of gas to make electricity with, that will help, giving
distribution companies the ability to also generate how tricity. That
just means potentially we've got more electricity being made. That
(16:05):
will take some of the pressure off, though that's a
longer term thing. If we can get the market settings right,
that will certainly help restore confidence in the market, because
the confidence is really low. But there's a really crucial
state that we're in with the electricity system as a whole.
It's essentially the transition to sort of a lower emissions future.
(16:27):
And what I mean by that is as we become
more and more reliant on renewable electricity, particularly wind and solar,
which is what most of the new generation being built is,
we have to recognize that they are both highly intermittent
sources of generation. So an efficient wind farm is making
electricity about forty percent of the time, and solar generation
(16:49):
is making electricity even less so for all the time
when the sun's not shining and the wind's not blowing,
you need other sources of electricity to fill in the
gaps for want of a better term. Now, usually we
rely on the hydro lakes, but often the hydro lakes,
you know, it seems like every couple of year, every
two or three years, the hydro lakes are a bit low,
(17:10):
and so you don't have a lot of options to
fall back on, which is why we're going to continue
to need gas and coal for the foreseeable future. I
think we all hope that we use less and less
of it, but we're still going to need it. The
point I make there is the cost of becoming more
reliant on wind and solder is massive. And that's not
(17:33):
to say that the cost of building that generation is expensive,
because it's not relatively speaking. It's all the work you
have to do to the infrastructure around distribution and the
rest of it that's really really expensive, because you need
to shore up all that wind and solar with other
forms of generation that you have to build, and you
need the infrastructure to move all the electrons around. So
(17:55):
there's a real trade off that we're going to have
to make at some point around affordability and how renewable
we actually become. And that's in the context of New
Zealand is either the second or third most renewable electricity
generation in the world already, so you know, we're all
ready a world leader. So I don't think we need
to sort of castigate ourselves too harshly. We're doing a
(18:16):
pretty good job, so we can always obviously do better.
There's a balance to be reached about how renewable we
go and how much sort of thermal firming or peaking
we keep in the system, and I don't know if
we've got a really clear picture on that yet, but
that's a debate or a trade off that's rapidly coming
towards us, and until we get an answer to that,
(18:37):
then that's just going to get worse, not better.
Speaker 1 (18:39):
Thanks for joining us, John. That's it for this episode
of The Front Page. You can read more about today's
stories and extensive news coverage at zat herold dot co
dot z. The Front Page is produced by Ethan Seals
with sound engineer Patty Fox. I'm Chelsea Daniels. Subscribe to
(19:02):
The Front Page on iHeartRadio or wherever you get your podcasts,
and tune in tomorrow for another look behind the headlines.
Kyoda. I'm Chelsea Daniels and This is the Front Page,
a daily podcast presented by The New Zealand Herald. Back
in May, on the Front Page, in the wake of
warnings about overuse of the power grid, we discussed what
challenges faced the Energy Center for the winter ahead. Over
(00:28):
the last few weeks, those challenges have become more and
more apparent, with diminishing supply sparking rising power prices across
the country. It's prompted the government to this week announce
it is fast tracking a new liquefied natural gas import terminal,
amongst other measures. So what's behind this latest energy crisis
(00:53):
and what can the government do to stop it? Today
on the Front Page, we're joined again by the Major
Electricity Users Group chair John Harbord to analyze this latest crisis. John,
let's start with the obvious. What's going on with the
(01:14):
power prices at the moment.
Speaker 2 (01:15):
It's a combination of two things. One is longer term
we actually don't know. In the shorter term, it's very
clear that we have a scarcity of energy with which
to make electricity, so our hydro lake levels are low.
We've got less gas available than we thought we did.
And partly just because it's winter. You know, solar generation
(01:38):
is down just because of the number of daylight hours
we have in winter. And we've had sort of periods
where wind levels in the places of the country where
we generate wind electricity have also been down. And when
something gets incredibly scarce, the price goes through the roof,
and that's seen wholesale prices go from you know, three
four hundred dollars a mega wad hour, you know, going
(01:59):
up one thousand dollars a Mega white hour. The longer
term issue is we had an outage at the Papakurr
gas field back in twenty eighteen. So when the gas
field went down, the wholesale electricity price jumped from around
seventy five eighty dollars a Mega white hour to almost
twice that. But when the gas field came back online,
the price stayed up, and it stayed up for the
(02:22):
last six years. So that price has been averaging around
one hundred and fifty to one hundred and sixty dollars
a Mega white hour for the last six years. And
the electricity authority had a look at it probably three
years ago now and they couldn't explain why the price
had stayed up as high as it was now, I
think there's a legitimate question or criticism that they didn't
do anything about that. They just sort of made a
(02:43):
finding and carried on. So lots of people have different
theories on why the price is high, but we don't
have a really rigorous examination of it, which is why
I say we don't actually know.
Speaker 1 (02:54):
What does this crisis mean generally for the average Keiwi.
Is it simply that their bills are going to Yeah.
Speaker 2 (03:01):
I think it's important to note that most Kiwis are
on fixed term retail plans with their electricity retailer. So
while their current contract is in effect, they're probably not
noticing too much right at this very moment. But the
next time their plan gets renewed, you know, households could
be in for a bit of a shock. But ultimately,
(03:22):
the high wholesale prices do get passed on to households
to a degree. We do know that the Big four
Gen Taylors have been running their retail arms at a
loss deliberately, and that has shielded households from a lot
of the impacts that larger manufacturers are experiencing. Shane Jones
(03:43):
is accusing the big power companies of profit tearing as
big firms layoff workers.
Speaker 3 (03:47):
The energy prices at the moment offered by Gen Taylors
are the highest in the western world. The gent tailors
have promised for so long that they can boost energy security.
The shar shows.
Speaker 2 (03:59):
That they've failed.
Speaker 3 (04:01):
We've got to a point where not only a deep dive,
but the time for talk is over.
Speaker 1 (04:09):
The words price gouging have been thrown around a lot
in this crisis, so those accusations fair.
Speaker 2 (04:15):
I think what I would say is there is a
basis on which to make those allegations. So if I
unpicked that. Back in two thousand and nine, the Commerce
Commission reviewed the wholesale market and found that prices were
higher than they would be in a competitive market because
the big four generators had market power and they were
(04:37):
using it to keep prices higher. And I want to
stress though, the Commerce Commission also found there was nothing
unlawful happening, so there's no no one's breaking any laws
or anything like that. And there were a suite of
independent studies that followed that that all found pretty much
the same thing. The Electricity Authority itself again in that
same piece of work two or three years ago. They
(04:58):
also found that same thing, that the big four generators
have some market power and prices are higher because of that.
MUTE itself commissioned some work around analyzing the level of
economic profit, and we certainly found that in some cases
there's evidence of that of very high levels of economic profit,
but it wasn't across all generators, So I think we
(05:20):
also need to be careful that we don't make blanket
allegations across all generators.
Speaker 1 (05:25):
The phrase gen Taylor's, and you've mentioned it once now
it pops up a lot during the coverage. What is
a gen Taylor?
Speaker 2 (05:32):
Yeah, so it's basically referring to the four big companies
we have that do both generation and who do retail.
So you just combine gen with Taylor from retail, and
we mash it together to make a single word. It's
a recognition that they make electricity and they sell it
to households.
Speaker 1 (05:49):
So how have these Gen Taylors responded to all of this?
You mentioned they're actually running at a loss.
Speaker 2 (05:55):
They've been running their retail arms at a loss. Their
generation arms over the last few years have certainly been
making very high levels of profit. Some of the Big
four have been running you know, almost all time record
profits year after year for some of the recent periods.
So there's like I said, there is certainly a basis
on which to make those allegations. But equally, we haven't
(06:15):
had a really rigorous analysis, like from say the Commerce
Commission into that issue. So like I said, there's there's
certainly a basis to make those claims. There's certainly evidence
of it, but I just think you also just need
to be a little bit careful that, you know, we're
not applying that allegation equally to everybody. Some of it
could just be you know, a combination of fact is
almost sort of beyond the control a little bit of
(06:36):
some of these companies. So you know, if you are Meridian,
for example, and I'm not using them to shine a
light on them, this is in the sense of, you know,
a lot of their generation assets were built back in
the nineteen sixties, you know, the big hydro dams in
the nineteen seventies and nineteen eighties, and they've been built
to a very high standard, so you know, they haven't
had to spend a lot of money on new generation
(06:57):
until more recently. So because they're not spending that money
on new generation, then kind that looks like their revenue
is higher as a result of it. That's not to
say they're doing anything unlawful or anything dodgy. It's just
the fact of, you know, the assets that as a
business they inherited. But there's no doubt that some gen
taylors have been earning very high levels of profit in
(07:18):
recent years. And it's particularly concerning in the sense of
electricity is in the truest sense of the word a
public good. You know, we can't have modern life without it.
Our households don't function without electricity, and our demand for
it is highly anelastic. And by that I just mean
you don't have a lot of control over how much
electricity you use. You've got to have showers, you've got
(07:39):
to cook your meals, you've got to heat your home
unless you just simply can't afford it. There's not a
lot of discretion in there around how much electricity you use,
so you've kind of got a captive consumer market. So
it's important that people can have confidence that the price
they're paying is fair. And I don't think the government
or the regulators could say hand on heart at the
moment that prices have been fair for the last six years,
(08:00):
let alone in the current situation.
Speaker 1 (08:12):
A review of the performance of the electricity market is
being jointly conducted by the Commerce Commission and the Electricity
Authority At the moment, what do you think that might reveal.
Speaker 2 (08:24):
We haven't seen the terms of reference for it, so
I'm not entirely for exactly what they're looking at. But
if I assume it's a general review of electricity market regulation,
then I think on the basis of past work, we're
likely to have a finding that prices are higher in
New Zealand because of a lack of meaningful competition in
the generation space. Now we hope that changes over time
(08:46):
with more generators entering the market and from the announcements,
distribution companies can potentially start generating as well. But it's
also a reflection of New Zealand's a small country. We
don't have a lot of operators in that space, so
you know, regardless of the finding, not much might change
in that space. But you've also got to unpick how
we arrive at the wholesale electricity price. So the current
(09:07):
market settings are very good at pricing short term scarcity
or short term availability of electricity. What it's not very
good at is taking sort of a longer run view
of pricing. So our prices tend to be high because
everyone in the short term seeds risk, whereas if you're
taking a longer term view, risk sort of gets evened
(09:28):
out over time. So I would hope that we've come
to some things that would end up with the market
taking a longer view. There's also a really important question
around how we arrive at the wholesale price. So at
the moment, if you're a generator and say you're generating
wind or hydro electricity, because roughly speaking, supply of electricity
(09:50):
matches the demand for that electricity. Genuinely speaking, if you're
generating electricity, you know you can kind of sell whatever
you're making. So what it is is you price up
to the most expensive form of electricity. So in New Zealand,
the most expensive form of electricity is coal fired electricity
because almost half the cost is from the ETES. But
(10:11):
if you're making wind electricity, you're not paying any ETES costs.
You just make a massive profit at the expense of consumers.
So I would hope that it would look at what's
the regulation around renewable electricity versus thermal electricity, and do
you sort of decouple the two. So renewable generators aren't
making excess profit at the expense of consumers because they
(10:33):
don't have to pay etes costs. Equally, I think one
of the things that the current crisis has really highlighted
is the market is very poor at taking an nz
INK approach or perspective. So individual generators, you know, they're
looking at what's the new generation we can build, and
often that you're looking at wind or solar if for
(10:54):
no other reason, then you've got a chance of getting
those consented. But people aren't looking at, well, who's going
to be say the gas or qualified peaking plant we're
going to continue to need for the next say ten years,
because you'd never get it consented. And Equally, a lot
of companies don't want to be seen to be building
through more generation because social license and as a country
(11:14):
we're not particularly keen on emissions. We need some way
for the market to identify what generations actually required and
then to incentivize that generation. So I think there's a
really interesting role there potentially for transparers the system operator
to do that analysis around what generation mix do we
need and in what amounts, and then whether it's through
(11:38):
going to market for contracts to supply that generation, or
through another mechanism you go back to the market for
the provision of that generation. But there's no sort of
coordination at all in the market in that respect.
Speaker 1 (11:51):
The government this week announced a liquefied natural gas import
terminal will be fast tracked. First of all, what in
the world does that mean?
Speaker 2 (12:00):
The shorthand version is we just pay for someone to
send the ship to New Zealand carrying LNG and they
just sail into port, they hook up to a pipe
and they pump the gas into our existing network. That's
fundamentally it. So it's just the means of getting natural
gas from a means other than our own gas.
Speaker 1 (12:17):
Fields, right, And so LNG is that natural gas? How
will that help the crisis that we're facing now.
Speaker 2 (12:24):
Well, one of the big constraints we've got at the
moment that's exacerbating the crisis is we just don't have
a lot of gas available now. Methods has acted very
responsibly in ceasing manufacturing of methanol for a few months
and just basically selling their gas directly to genesis and
contact to make electricity with. But you know that's not
a long term future for Method X because then they're
(12:45):
not actually making any product, So they can't do that indefinitely.
And until we can unlock more of the gas that
we know is in our existing gas fields, we need
sort of a short term solution, and so the government's
decision will just make it a lot quicker and easier
for us to bring ships in with LNG and put
that into our existing system.
Speaker 4 (13:08):
LNG liquefied natural gas is hailed as the magic solution
to a lot of our problems. In Europe that's getting
much less gas from Russia. It's supposed to keep the
lights on. In Asia, it's supposed to do away with
dirty coal, and in the US katar in Australia, where
most of the stuff is coming from. It's supposed to
make a lot of people a lot of money. When
(13:30):
all a said and done, LNG remains a fossil fuel.
If we are serious about slowing climate change, we need
to dig it. The sooner the better, and every terminal
we build makes that harder.
Speaker 1 (13:44):
The government's blamed a lot of this crisis on labor
for canceling oil and gas exploration. Labor has responded by
saying that the part privatization of Gen Taylor's under Sir
John keyes National, either of them or both of them.
Speaker 2 (13:58):
Right, If we take the first one, the offshore oil
and gas band, I think that's been a contributing factor.
It essentially scared off investment and maintenance into our existing fields.
So because we haven't had that maintenance and we haven't
had sort of the fresh exploration of existing fields, So
not even talking about finding new ones, but just ongoing
exploration of our existing fields. The question around the impact
(14:23):
of the partial privatization of three of the Gen tailors,
as I mentioned earlier, you know, the Commerce Commission found
there were issues with excess pricing in two thousand and
nine before the partial privatization happened. So I don't think
we can be as clear cut on the partial privatization question.
Having said that, though the independent work that the Major
(14:46):
Electricity Users Group commissioned a couple of years ago into
the levels of excess economic profit certainly showed in one
case that the level of economic profit being earned certainly
started to pick up quite dramatically following the partial privatization
but that's just looking at one generator, not across the
whole market, So I think that's still a bit more
(15:08):
open to debate.
Speaker 1 (15:09):
And John, with winter ending, is this crisis likely going
to come to an end for the foreseeable future and
what can be done in the next twelve months to
stop this happening next winter. I suppose that's a conversation
we have every year.
Speaker 2 (15:22):
I think it's really important that we recognize that the
current crisis we're in hopefully sort of the level of
crisis diminishes, but we're stuck in this situation for a while.
This is not a short term issue, so the risk
of rapidly escalating household prices, for instance, is one hundred
percent still there. And I think, you know, the announcements
(15:43):
to the government made this week will certainly help in
the longer term. You know, if we can secure a
ready supply of gas to supplement our own domestic production
of gas to make electricity with, that will help, giving
distribution companies the ability to also generate how tricity. That
just means potentially we've got more electricity being made. That
(16:05):
will take some of the pressure off, though that's a
longer term thing. If we can get the market settings right,
that will certainly help restore confidence in the market, because
the confidence is really low. But there's a really crucial
state that we're in with the electricity system as a whole.
It's essentially the transition to sort of a lower emissions future.
(16:27):
And what I mean by that is as we become
more and more reliant on renewable electricity, particularly wind and solar,
which is what most of the new generation being built is,
we have to recognize that they are both highly intermittent
sources of generation. So an efficient wind farm is making
electricity about forty percent of the time, and solar generation
(16:49):
is making electricity even less so for all the time
when the sun's not shining and the wind's not blowing,
you need other sources of electricity to fill in the
gaps for want of a better term. Now, usually we
rely on the hydro lakes, but often the hydro lakes,
you know, it seems like every couple of year, every
two or three years, the hydro lakes are a bit low,
(17:10):
and so you don't have a lot of options to
fall back on, which is why we're going to continue
to need gas and coal for the foreseeable future. I
think we all hope that we use less and less
of it, but we're still going to need it. The
point I make there is the cost of becoming more
reliant on wind and solder is massive. And that's not
(17:33):
to say that the cost of building that generation is expensive,
because it's not relatively speaking. It's all the work you
have to do to the infrastructure around distribution and the
rest of it that's really really expensive, because you need
to shore up all that wind and solar with other
forms of generation that you have to build, and you
need the infrastructure to move all the electrons around. So
(17:55):
there's a real trade off that we're going to have
to make at some point around affordability and how renewable
we actually become. And that's in the context of New
Zealand is either the second or third most renewable electricity
generation in the world already, so you know, we're all
ready a world leader. So I don't think we need
to sort of castigate ourselves too harshly. We're doing a
(18:16):
pretty good job, so we can always obviously do better.
There's a balance to be reached about how renewable we
go and how much sort of thermal firming or peaking
we keep in the system, and I don't know if
we've got a really clear picture on that yet, but
that's a debate or a trade off that's rapidly coming
towards us, and until we get an answer to that,
(18:37):
then that's just going to get worse, not better.
Speaker 1 (18:39):
Thanks for joining us, John. That's it for this episode
of The Front Page. You can read more about today's
stories and extensive news coverage at zat herold dot co
dot z. The Front Page is produced by Ethan Seals
with sound engineer Patty Fox. I'm Chelsea Daniels. Subscribe to
(19:02):
The Front Page on iHeartRadio or wherever you get your podcasts,
and tune in tomorrow for another look behind the headlines.
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