Simon Watts: Energy Minister on the Government's new energy sector announcement

The Government's opted against a significant energy shake-up - rejecting calls to re-nationalise or split up the big gentailers. 

Instead, it'll offer the Crown-controlled companies more capital to invest in generation projects.

Energy Minister Simon Watts explained the changes further here today.

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Episode Transcript

Speaker 1 (00:00):
And there's a fair bit of disappointment today with the

(00:01):
government's much hyped energy reforms. Plans announced this morning included
a new imported gas terminal and the government freeing up
money for the crown controlled gent tailors to build more
generation consumer New Zealand. Simon Bridges of the Auckland Chamber
of Commerce and the opposition parties have all have all
criticized the plan. Simon, what's the energy ministers with me
right now? Has Simon?

Speaker 2 (00:20):
Heather you made it in time.

Speaker 1 (00:21):
It's a bit of a run.

Speaker 2 (00:22):
I did I apologize that crash on the bridge. Welcome
to Auckland.

Speaker 1 (00:25):
Yeah, but at least you're training for a half marriage.

Speaker 2 (00:27):
I'll tell you what. It's great to be here.

Speaker 1 (00:29):
So you had you had the speed to get in.
Now talk to me about this import terminal. How much
would it cost?

Speaker 2 (00:33):
Look, we don't have a price on it at this point.
We're going to go to the market and ask what options.
It's pretty complex building an importation terminal. You can have
medium size and large sizes. But we're going to get
feedback from the market and make a decision on it
by Christmas.

Speaker 1 (00:45):
Would you go medium or large?

Speaker 2 (00:47):
Well, it depends what's available on the market. We want
to make sure that we get this terminal in place
as fast as practical, so we're going to have to
consider what's available. That most of stuff comes in from
overseas on.

Speaker 1 (00:56):
Large as a billion dollars. You don't have billion dollars.

Speaker 2 (00:59):
It can come. It can get up to some pretty
reasonable numbers. Again, the way in which you fund us,
there are options in the context of other of the
providers are actually funding it, so you know, we'll be
looking at the different options. There are scenarios where the
government don't contribute capital to this model. Who would Well,
there are models which you can enter into with some
of these big providers to put in place the terminal,

(01:20):
and then we need to do They.

Speaker 1 (01:21):
Want to though, because this thing doesn't make any economic sense.
The gas that comes out of its expensive and the
way we've done.

Speaker 2 (01:26):
Some market sounding already in regards to that. There is
some interest out there in regards to that terminal, and
so we're going to.

Speaker 1 (01:33):
You can turn the funnel. To be fair to you,
you did have to run in so no surprises a
loud who would do it if they if they wanted
to do it, simon, they would have done it already, wouldn't.

Speaker 2 (01:42):
They No, Because the last government had a pretty clear
policy of you know, shutting down Huntley, shutting down oil
and gas, which as a result of that left us
in a pretty desperate situation. Last year. We've come in,
We've identified the problem. I've got a lack of fuel,
We're going to lack of generation when we haven't got

(02:02):
enough water in our dams. And we've got to mash
the fissue around sovereign risk because of what the last
guys did and now no one has confidence to be
able to invest, so we're having to unpick all those
three elements and the ten point plan them have put
in place. You've got to look at it as a
package of interventions. The alergy terminal is one of the interventions,
but also the regulary model that we're putting in place
will make sure that the market does have appropriate firming

(02:25):
capacity in a dry year. At the moment, there's no
regulation of that in the market. We're going to work
through the exact regulatory model with the industry and have
that done by Q one of next year. But in effect,
we've asked Transpower to look at the demand and supply
see what the gap is and then the EA regulator
will enforce and make sure that's gaps come.

Speaker 1 (02:44):
But how do you force them to have firm in
capacity If they don't, they would already have it if
they could.

Speaker 2 (02:49):
Currently the market does not regulate to make sure that
there is appropriate firming capacity to deal with a dry year.

Speaker 1 (02:56):
We're talking about Huntley stockpiling coal.

Speaker 2 (03:00):
Doing that they are, but that is not going to
be sufficient as we see a significant build out of
more renewables and the fact that everyone is using a
lot more electricity than what they have when the.

Speaker 1 (03:08):
Parts, what are your options for firm incapacity, gas and coal.

Speaker 2 (03:11):
Gas and cole That's what we've got and realistically that's
our options.

Speaker 1 (03:15):
Okay. The money for the gent tailors, which of the
gentailors are asking for money to help them build generation?

Speaker 2 (03:21):
Well, at this stage we haven't got any of the
gent tailors asking for money, but the report identified that
there is a perception that if they did ask government
the answer would be no. And that's because under the
last government the answer would have been.

Speaker 1 (03:34):
Some in the not short on money out, They've got
enough money if they wanted. Well, the reality is they're
paying it out and dividends.

Speaker 2 (03:39):
Well, the government is a major shareholder and three of
those entities, and any capital rays needs to be approved
by government. You know, under the last government they were
not going to be approving anything with coal or gas
evenywhere near it. And so we've been very clear to say, look,
we're going to be able. We will be investing if
you ask us too, because we need that general.

Speaker 1 (04:00):
Are you wanting them to build more gas generation, more
cold generation?

Speaker 2 (04:04):
Either we need more generation and in particular another Huntley,
Absolutely we are. Do they want to Well, the reality
is we're going to have to replace Huntley by about
twenty thirty five anyway, because it's coming up. It's about
sixty years old. So we are going to need to
think about what that model is in the future. Under
the last government, there was no certainty Huntley was going

(04:24):
to close. I don't know how the lights would have
been stayed on last winter at all if we hadn't
had Huntly, because I could tell you what they wouldn't have.

Speaker 1 (04:31):
Now, how much cheaper would electricity be if you just
took it out of the etes?

Speaker 2 (04:34):
Well we know that. Oh well, in regards to the ets,
we've ruled that out that's not something Why why would
you do that? Because it's not going to be aligned
with the government's principles around a credible ets market. And
also the peer review, we had two international peer reviews.
They also discredited that and said that wasn't an appropriate
mechanism because we've got an emissions trading scheme that does
removes emissions. That's the heavy lifting vehicle the government's committed to.

(04:58):
And you can't just take electricity city one industry completely
out of the market and leave it. Electricity impacts every
part of the market. So it's just not a sensible
would it be the We don't have an exact indication
of well, I had.

Speaker 1 (05:11):
A look at said who wholesale prices might come down
by up to thirty percent.

Speaker 2 (05:15):
That is not numbers that are consistent with the analysis.

Speaker 1 (05:18):
What is the analysis you've seen?

Speaker 2 (05:19):
I definitely have not seen numbers of.

Speaker 1 (05:21):
That scale ten to thirty percent. You haven't seen No.

Speaker 2 (05:23):
I haven't seen that.

Speaker 1 (05:24):
So what have you seen?

Speaker 2 (05:25):
I haven't got the numbers in front of me in
regards to you don't numbers are but you know they're
mind whether they're nowhere in the in the spectrum in
which you're recommending we've got to go back what's all.

Speaker 1 (05:36):
But the point that I'm trying to make here, though, Simon,
is that you could tomorrow, you could make our electricity
prices cheaper significantly as opposed to the two percent that
you're talking about, and it would make a big difference, right,
because what you're talking about is we've got to have
a credible climate policy here. At the same time we
have mills shutting down, we have businesses unable to forward
their power bills. You have got a crisis on your hands,

(05:56):
but you want to keep your reputation as a climate
as a client.

Speaker 2 (05:59):
Problem is that we do not have sufficient fuel to
power our existing generation gas peakers. In particular today, it
is a fuel shortage riving.

Speaker 1 (06:10):
Up the price, which is causing mills to shut.

Speaker 2 (06:12):
And we need that fuel. And so the decisions that
we've announced and the actions were announced today deal with
the problem. States changing it is going to solve.

Speaker 1 (06:20):
That problem, but it does. What it does is it
solves the price problem that you've got today as opposed
to what you're talking about, which is twenty twenty.

Speaker 2 (06:28):
Price problem that we have today is driven by the
fact that we do not have adequate firming fuel in
the market, and that is why the price is what
it is about thirty to fifty dollars a megawatt. Is
the risk premium built into the power price today because
the market does not have certainty that if we have
a dry year it can be covered.

Speaker 1 (06:44):
Why don't you do what Phraser winner A said, which
is to take coal out of the etes or at
least price coal at the same level as gas.

Speaker 2 (06:51):
Look, the reality is is we're going to need gas
in addition to coal in order to firm our electricity.
And as I said, that is an area that we
are proceeding.

Speaker 1 (07:00):
Call at the same level as gas because at least
it's more affordable then for the country.

Speaker 2 (07:04):
Because we're not in the market around trying to set prices.
We want to make sure that we've got the appropriate
amount of fuel to run the generation capacity we have today,
and that we don't have that at the moment.

Speaker 1 (07:15):
It's your announcement which you have made today going to
stop the closure of mills.

Speaker 2 (07:19):
It is going to put downward pressure on energy prices,
and that is one of the major issues businesses want
from Businesses want certainty and the interventions and actions that
we've announced today will have an immediate effect on that
downward pressure price. We've announced a number of those interventions.
We're releasing the RFI around what the government's going to buy.
We're going to do the allergy RFI next Monday. The

(07:42):
signal that I've instructed transpower around some of the relatory
work has started immediately, and you know, as an eventive,
as a package of interventions, this is the most significant
package of interventions that we've seen in decades, and importantly
it deals with the problem that our energy market faces,
and that's a lack affirming fuel and generation capacity.

Speaker 1 (08:02):
Simon, thank you for coming in. I appreciate you making
the effort very very much. Thanks So what's the Energy Ministic?
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