Fraser Whineray: former Mercury CEO unveils potential solution to fix energy crisis

There's plenty of solutions being suggested to clear up the current energy crisis - and the former head of Mercury Energy has just unveiled a potential idea.

Fraser Whineray recently suggested the time has come to drop the carbon price that we've put on coal through the ETS in order to bring power prices down. 

He says the ETS is designed to encourage people to use green alternatives, but there isn't a green alternative applicable here as of yet.

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Episode Transcript

Speaker 1 (00:00):
Together due to see moment.

Speaker 2 (00:02):
Obviously, we're trying to figure out how to fix the
electricity sector and we're getting a lot of ideas, and
one of them is from the former boss of Mercury
Energy who says that we need to drop the carbon
price that we put on coal through the ETS to
bring our power prices down. His Fraser Winner and he's
with us now high Fraser, Hi, Heather, So do you
reckon you charge coal the same as you charge gas?

Speaker 1 (00:22):
Yeah?

Speaker 3 (00:22):
That was one of four things that laid out in
an article I did recently because at the moment, what
we have is an unfortunate intersection between the ETS and
the spot market and the electricity and the point of
the ETS is is to then incentivize using lower greenhouse
gase alternatives. But there isn't an alternative for hydro insurance

(00:42):
in the electricity system for a South Island drought. So
you can only use coal now because of gas market shot.
So unfortunately, that high price of carbon then flows through
to a price of turning on the coal plant, which
then flows through to everyone's power prices when there's no
alternative to enter into.

Speaker 2 (01:01):
So because we've got no one, because we're running out
of gas. We've only got coal, therefore charged coal lower.
But if we were charging so just tell me the
difference between between the two of them. What does coal
get charged at and what does gas get charged at?

Speaker 3 (01:11):
Yeah, so if you're making a decision to turn on
the coal power station there one dollar a ton of
carbon equals a dollar per mega what our So carbon
is now priced about sixty five dollars, so that lifts
the price at which you'd offer that power in it
Huntly by sixty five dollars per megawa our, which is
a huge amount if you if you're running a large
gas fired power station, which is.

Speaker 1 (01:32):
Not many left now, but that would be a third
of that.

Speaker 3 (01:35):
So that means about forty five dollars per megawa our
is simply the insurance cost of coal. Now we don't
use much coal in New Zealand. It's down to single
digits thanks to g thermal and now wind because it's
pushed GFIM was a base load and it's just pushed
the Huntly power station off the stack from the two thousands, right,
and so now what we just need it for is

(01:57):
South Island hydro insurance and there is nothing else you'd
need three hundred and fifty million power walls or something
like that to be able to do the hydro insurance
in the South Island.

Speaker 1 (02:07):
That's why Cole is the only one to do it.

Speaker 2 (02:09):
So what would it bring our prices down by?

Speaker 3 (02:12):
Well, I don't know that all will have to flow
through the market, But I've been on both sides of this.
I've run Mercury, so I've sold made built power stations
and being involved with that, and I've been the COO
of Fonterra, which was the second or fourth largest user
of electricity and a whole bunch of other energy as well.

Speaker 1 (02:30):
So I've been on both sides of the market.

Speaker 3 (02:32):
My view, and having looked at that spot electricity market
and rainfall patterns for twelve years when I was at Mercury,
I think it'd probably bring it down by tens of
dollars per Megawa are on that insurance cost which flows
through to the future's curve.

Speaker 1 (02:47):
Everything prices off the future's curve. Right.

Speaker 2 (02:49):
If this is the kind of perverse effect that the
ETS is having, then should we not just get rid
of the ETS altogether?

Speaker 3 (02:57):
Well, I think the ETS has its has its own
origins in place. It's just what we've got at the
moment is an unfortunate intersection of the two.

Speaker 1 (03:05):
We didn't used to.

Speaker 3 (03:06):
Have this because Gas would be able to come along
and compete with Cole, but now Gas isn't able to
do that, so we've only got one one thing that
can do this, insurance, And so it's just a perverse
incentive that's come together by the E test and the
spot electricity market and intersecting here. So let's if we
just look at the unique drivers of that, then I

(03:28):
think we can make it work and keep both markets
intact if that's what politically people.

Speaker 1 (03:33):
Want to do.

Speaker 2 (03:34):
Listen, I'm sure you've been following this business, the rumors
around the Frontier report, which apparently recommends that the government
nationalizes thermal generation. Would you do that?

Speaker 1 (03:43):
Yeah, I don't think that's needed.

Speaker 3 (03:45):
I think the discipline I went right through six years
before Mighty River Power was listed and then where I
was running operations and sixties afterwards where our chief executive,
and I can tell you the impact of being having
the disciplines of the capital markets on performance is and
just doing good business is phenomenal.

Speaker 1 (04:05):
So I think it still needs to.

Speaker 3 (04:07):
It can stay in private hands, but I do think
we need to make it a bit easier for thermal
plant like that to run.

Speaker 1 (04:15):
At the moment, you try building.

Speaker 3 (04:16):
A coal fired POWERstation, try getting a gas, getting some
more gas, things like that. The RMA and the planning
rules make it very hard. So then what happens is
you say, why isn't the market working? Well, actually, I
think it's the beehive because you've taken away coal gas,
You've made consenting renewables and everything else extremely hard. And
we're still saying, well, why is the market struggling to

(04:38):
deal with the winter? Well, actually it's because of the
rules that sit around the market, not the market.

Speaker 2 (04:42):
We read tape strikes again. Hey, thank you Fraser. It's
been wonderful to talk to you. I really appreciate your time.
That's Fraser Winner R, former Mercury Energy chief executive form
of fin Terror COO. And if you want to read
the piece that he wrote, it is up on the Herald.
You'll have to do a little bit of search. It
was there last week, so just go and have a
look at it and he explains everything in there.

Speaker 3 (04:59):
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