John Harbord: Major Electricity Users Group Chair on the energy crisis in New Zealand

New Zealand seems to have “sleepwalked” its way into an energy crisis. 

Both Winstone's Ohakune pulp and timber mills could shut, putting 300 jobs in the small central North Island town on the line. 

This is due to their energy bills have increased significantly for the company in recent years. 

John Harbord, Chair of the Major Electricity Users Group, told Kerre Woodham that if you go back six years, the price for a megawatt hour of electricity was about $75-80, and for the majority of the recent years, it’s been around $150 on average.  

He said that for some businesses they’re not paying 40% more, but rather four times as much as they used to pay, and when one of your three biggest costs quadruples, it has a significant impact on your business. 

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Episode Transcript

Speaker 1 (00:06):
You're listening to the carry wood of morning's podcast from
News Talk sed B.

Speaker 2 (00:11):
New Zealand seems to have sleep walked into an energy crisis.
According to the chairman of Open Country Dairy Lorrie Margrain,
John Harvard, the Major Electricity Users Group, joins me, now,
very good morning to you. John, Good morning, good morning.
Would you agree with that that we have sleep walked
our way into an energy crisis?

Speaker 3 (00:33):
I think there is an element of that, Yes, when it.

Speaker 2 (00:37):
Comes to providing a continuous, secure supply of electricity. How
confident are manufacturers that we have one?

Speaker 3 (00:47):
I think there's two aspects to that. Carry One is
security of supply and reliability. Yeah, and we're pretty confident
that the security of the supply is reasonably good. What
we're not confident about is do we have enough supply
and are we paying a fair price? Yep.

Speaker 2 (01:08):
You would have to wonder how businesses survive when the
price has gone up so dramatically in such a short
space of time, Like when you look at the Winston
Poult Milly they have absolutely looked at every aspect of
their business and have got it as efficient as they
possibly can. But the price of electricity has gone at

(01:29):
forty percent. You cannot wear that on an international market.

Speaker 3 (01:34):
Yeah, absolutely, And it's in terms of looping back to
your your sleep walking point. You know, if we go
back six years, the wholesale price in New Zealand was
around seventy five to eighty dollars a megawatt hour. For
most of the last six years, it's been around one
hundred and fifty dollars a megawatt hour on average, with
some very high spikes in there. Yep. And for a

(01:54):
lot of this year the price has been averaging, you know,
almost on a monthly basis, sometimes twice that with again
really high spikes. So you know, it's a lot of
businesses that they're paying forty more. In some instances, you know,
they're paying four times as much as they used to pay.
And when electricity is one of your three biggest costs
in your electricity bill quadruples, that has a dramatic effect

(02:16):
on your business.

Speaker 2 (02:19):
Should this be managed? I mean, this is in the
national interest that we have manufacturers who can deliver to
their market. Without our exporters, we're stuffed, basically, So is
it in the national interest to have government interfere with
what is basically supply and demand and should be pure market.

Speaker 3 (02:44):
Is it in the nation of Yeah, I think that's
one of the really important issues that for questions we
need to be asking ourselves. You know, we know what
the elevated price is at the moment. A lot of
it is driven by scarcity of gas and the fact
that our hydro lake levels are really low relative to
what they usually are. But that's not the full picture.

(03:07):
You know, the Electricity Authority, who's the market regulator, sort
of two to three years ago, did a review of
the wholesale market and they couldn't explain about a quarter
of the price. They just didn't know what was driving it.
And there's been no work done looking into what's actually
behind that, So we don't actually know the full set
of drivers behind the elevated prices that we have. So

(03:28):
we've got to really understand it before we decide what
are the solutions to the problem, because at the moment
we don't fully understand the problem.

Speaker 2 (03:34):
Interesting. I was told by and I suppose it would
be by the companies that they are investing huge amounts
in alternatives and that's where a lot of the profits go,
and that's where a lot of the money goes. That
they get for producing, but we've got five years of
increasing prices for residential customers as well. They can't just

(03:55):
keep demanding money for renewables that are going to be
sometime in the future, don't know when.

Speaker 3 (04:01):
Yeah, And that I think is one of the most
critical questions that we need to be asking ourselves as
a country. I mean, we all want lower emissions. What
we haven't really grappled with is that that comes at
a cost. And the international experience is that it's a
dramatic increase in electricity costs. So in Germany, for instance,

(04:21):
when they got rid of the needsular and they went
much more into wind and solar, you know, their electricity
price increased by fifty percent. And that was before Russia
invaded the Ukraine and that flowed through.

Speaker 2 (04:33):
I was just going to say that, of course we
had Ukraine and from the back told are yeah.

Speaker 3 (04:38):
And the California, United States sort of did a similar
journey in terms of ramping up their renewables and their
price increase was five times the national average in the US.
And it's not that wind and solar are funda mentally
really expensive to generate, because they're not. What it is
is you've got to build so much infrastructure and other
sources of generation in and around them to make sure

(05:01):
that the lights are always on because you know, in
New Zealand it's dark roughly half the time. Soldar at
a minimum is not giving you anything half the time.
And wind utilization rates, you know how productive they are,
are usually around twenty five maybe thirty percent, so they're
only actually generating electricity twenty five to thirty percent of
the time. So you need something else that's always there

(05:23):
that you can rely on. And that's where gas is fundamental,
because as long as you've got to supply gas, you
can literally flick a switch and the electricity is there.
And so we've got to make a really tough decision
in terms of what are the trade offs we're willing
to tolerate, because you know, some of the analysis where
we've seen and heard this year is the cost to

(05:45):
households of getting to you know, our net zero by
twenty fifty, just in terms of electricity is if you
average that cost out across households, it's five hundred dollars
a month for every household in the country, and you
still have to pay for the electricity you use on
top of that, and so many households in New Zealand
just can't afford the cost associated with the transition. So

(06:09):
we're in that really difficult space. We want the transition,
but we can't afford it.

Speaker 2 (06:14):
Have we been unrealistic in the past in the last
few years in terms of how we get there and
when we get there?

Speaker 3 (06:25):
I think we've been We've been very ambitious, is how
I would put it. And you know, there's there's nothing
wrong with ambition, but what we haven't asked is what's
the cost and what's the cost that we can actually
bear as a country. And that's what's really coming to
sort of home right now is there's no you know,
silverablet or easy way through this. So if we want

(06:47):
that really highly renewable future and we all kind of do,
it comes at a really really high cost.

Speaker 2 (06:55):
Thank you so much, Really enlightening, John Harvard, Major Electricity
Users Group.

Speaker 1 (07:00):
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