The State of New Zealand's Electricity Generating and Supply System.

The State of New Zealand's Electricity Generating and Supply System.

                                          An opinion.

Twenty years ago, ten even, NZ had some of the cheapest electricity in the world.

This was a source of comparative advantage.

Now in NZ, electricity costs users as much or more than in other countries.

This seems strange, as more than 60% of our supply still comes from hydro- and heritage hydro at that, long since amortised. How come NZ homes businesses and farms can't now buy electricity at world competitive prices?

And how come we're now also facing uncertainty of supply- having to live in hope each year that enough rain will fall at the right times in the South Island's main catchment areas?  Have we run out of hydro sources and can't afford other options?

And how come South Island generated electricity is cheaper in Auckland than it is in Dunedin- when the line losses in transmission from the Waitaki to Auckland are in the order of 15%- by what rort is this being subsidised for North Island end users?

And how come, in the Ashburton District alone, there are at least ten 1MW and larger diesel gensets connected to the grid "to alleviate line overloads and temporary shortfalls"- all burning imported oil at a cost per kw-hr of $0.40 and more? (hydro, coal, gas and geothermal all cost less than $0.10/kw-hr, even wind is only around $0.15).

The reasons lie in failures of policy- purely and simply, Labour screwed up big time:

Partly through naivety, power companies were too clever for them.

Partly because the ideological fog surrounding them prevented consideration of useful options.

Partly even because they wanted to save the planet by making electricity hard to get.

But mainly because they had their sticky fingers in the till and were reaping huge dividends and taxes from the power companies- which they could then use to buy our votes. No doubt every time a Govt minister started having second thoughts about the damage to NZ the electricity rorting was doing, someone would whisper in their ear "but where are we going to replace this money from?"

Of course, they won't ever admit to these failures- so what excuses do they put forward?

For a start, they say that electricity isn't too expensive now- but that it was previously too cheap.

The first part of this is blown out of the water by international comparison of course- it IS too expensive in NZ now- as evidenced by countries like Singapore, where all generation is from imported gas, oil and coal, with no component coming from cheaper sources such as the hydro and geothermal that NZ has. 

That "it was too cheap before" is explained by saying that the pricing then hadn't made allowance for investing in future capacity.  This is like a farmer saying- 'I'm going to charge you more for this sheep because I want to buy a bigger farm'. Get lost! In any real world, new projects aren't financed by applying a surcharge on top of an already above average rate of return (power company profits have been at the upper end for years) but by investors who believe that whatever they put in will bring them as good or better return than alternative opportunities.

After these excuses have been disposed of, their last-ditch reason for high prices is that it's just the way the market is- 'sure electricity generating and distribution companies are rorting consumers, but this is not our fault. Usually Max Bradford gets mentioned about now.

As for why generative capacity is lagging demand; Officially it's not apparently, officially we've just 'experienced a few unusual seasons'.  But we all know that weather is always being 'unusual', and that capacity IS marginal, and we know that one of the reasons for inadequate new capacity is that the resource management act makes new power stations expensive to build and uncertain of consent even after large sums have been expended on the application process. And we know that it's also in the best interests of generators to limit supply and not install new capacity- because, by artificially restricting supply, they can charge us more for what they have.

And as for why South Island electricity sent to Auckland is subsidised but North Island electricity (mainly from gas and oil-fired thermal stations) sent South isn't- the answer given is that this isn't true; line losses are averaged out over all consumers, North and South.  Yeah right- but because the flow is overwhelmingly northward, there is in practice a substantial subsidy of North Island consumers by South Island consumers.

I doubt that there can be even one NZer who doesn't hold Labour's mis-administration responsible for this appalling mess- unless they're blind, deaf and dumb.  The electricity sector is of national importance and appropriately therefore has a crown minister overseeing it and its own special laws and regulations with statutory regulatory bodies to ensure its effective and efficient operation. That it isn't operating efficiently, isn't even operating effectively, is because of Labour government failures.

Behind these failures lies Labour's anti-development bias- manifested as failure to provide the central government leadership, by way of enabling legislation where necessary, that will always be required if major infrastructural projects are to proceed. 

Yes, NZ does have significant new hydro sites capable of economic development, but far from their having received encouragement, they have instead been subject to tacit government opposition- culminating in Labour's most recent policy initiative of requiring all future such schemes to price in the cost of restoring the sites to original condition.  Just how stupid is it possible to be? And as an extra ideological extreme, they then actively moved to prevent most other realistic choices by effectively banning any consideration of additional thermal capacity.

Perhaps this wasn't all entirely ideologically driven though-there was also an element of Labour hoping to pull some voters from the Green party- voters for whom burning fossil fuels or damming rivers would be a defining issue, notwithstanding that Labour knew that such developments, when adequately planned and executed, would have majority support from NZers and be overwhelmingly in the national interest.  The overbalancing weight that the RMA and MMP have given to nimbies might also have swayed Labour thinking.

Ideological, strategic or addicted to the money they've been sucking from power companies?  It doesn't matter much which, the result is that we've had huge amount of talk from Labour about alternative energy sources such as solar, wind and even tidal- when none of these, except for wind, has any chance of being significant in the next 20 years or more- and even wind can only ever make a minor contribution. And at the same time, we've had equally voluminous rhetoric from Labour about the need to use less electricity.  This is rather like their policy of not building adequate roads for NZers, because "roads just encourage cars"- which are "bad".  But during their nine years in office there has been no progress towards practical economic generation that can ensure NZ's cost competitiveness and security of supply into the future.

As a consequence, it's now likely that NZ will have to add new thermal stations burning imported gas and oil (the worst choices by any standards) within the next few years because better options cannot be developed in time to bridge coming shortfalls.

Three things need to happen now we have a new lot on the treasury benches.

Firstly, and urgently, the failures listed above need to be corrected as far as is now possible. In particular, power companies (line and generator) must be made to reign in their executive pay scales and operate in the national interest.

Secondly, there must be a return to sensible policies that override nimby pressure where necessary and repudiate destructive ideologies.

And thirdly, those responsible- Parker et al, need to be held to account- held up to the public ridicule they so richly deserve so as to discourage such policy failures in the future.

Why am I not holding my breath in anticipation of prices coming down then?

Because this new lot will also have someone whispering in their ear; "but how are we going to buy votes without the money the power companies are bribing us with so that we'll let them continue their rorts?"

                                    Peter Lynn,  Ashburton, October '08