Source: EMA
The EMA says the government’s response to today’s Frontier Economics report announcement on the electricity market was almost predictably underwhelming, given a number of recommendations in the report were never likely to go ahead.
The government has rejected eight of the 10 recommendations from the much anticipated and delayed release of the report, commissioned in the wake of the significant price spikes in electricity pricing during last winter.
“Options such as selling off the remainder of the government’s share in the gentailers and then investing, owning and running a ThermalCo (combining coal, diesel and gas assets), to provide the firming options to back new wind and solar generation, were never likely to fly,” says EMA Head of Advocacy Alan McDonald.
“Nor was it likely to force the 29 electricity distribution companies to amalgamate into five entities (Three Waters anyone?), although some voluntary consolidation in that sector is often raised but yet to materialise.
“Renewed interest in a liquified natural gas import terminal will provide some relief, if it gets off the ground, but that requires infrastructure investment in a new import terminal and the landed gas will likely be nearly twice the price of what it is now.
“However, possibly providing some government investment or incentives to the existing generators, to provide thermal backing generation investment (most likely diesel and coal in the shorter term), may help underpin and back greater supply of renewables such as wind and solar.
“The theory behind deep-bore geothermal supply sounds very promising, and we should get on with that, but new hydro generation, another renewable option, seems to have been ruled out as too environmentally difficult.”
McDonald says, longer term, the government and the generation sector were already taking steps to address a current generation market that sees the supply v demand equation kept right on the margin, with prices set by the most expensive generation option – Huntly coal.
“That’s one reason for looking at the regulatory regime, also included in the Frontier Report but rejected by government. Consolidating the roles of the Electricity Authority (EA), the gas industry regulator and the involvement of the Commerce Commission in the market could have helped reorient the market dynamics.
“Under the current market settings, we’ve gone from attracting international business with low electricity costs to de-industrialisation and the closure of our own businesses as a result of higher domestic electricity pricing. Internationally, our pricing is reasonable but that’s no help to local businesses experiencing price shocks of 30%, 50% or more, as they seek to renew supply contracts.
“Industry moves to shore up coal supply and keep the ageing Rankine engines on stream at Huntly for another 10 years provides some certainty around ongoing thermal (coal) backing for new renewable supply.
“Elsewhere, the fast-track consenting regime, which probably needs to move faster, will bring more renewables such as solar and wind on-stream. Meanwhile, continually improving battery technology provides better storage for those renewables when there’s no wind or little sun.
“The fast-track regime also needs to apply to connecting new generation to the Transpower-operated national grid and the new RMA is also addressing connection issues. Transpower needs to be more efficient and faster at providing new grid exit points to better connect new generation to growing demand centres.
“At least one new gas find is being brought on-stream, and predictions are a major gas user will exit the market in the next 12 months freeing up more supply. Also, at least one new gas exploration company has applied for access to potential gas reserves for drilling, with another possibly having a closer look.
“The short-sighted ban on gas exploration, without a fully prepared transition plan, continues to bite industry when many other jurisdictions are using gas as the transition fuel of choice.
“New Zealand’s choices seem to be either more coal or diesel, with the opposition stubbornly clinging onto reintroducing the ban if re-elected. This continues to have a cooling effect on gas exploration. It will take time to bring on new supply, if found. But if you don’t look, you certainly won’t find any new gas.”
