Speaker 1: Kyoda. I'm Chelsea Daniels and This is the Front Page,
Speaker 1: a daily podcast presented by The New Zealand Herald. Back
Speaker 1: in May, on the Front Page, in the wake of
Speaker 1: warnings about overuse of the power grid, we discussed what
Speaker 1: challenges faced the Energy Center for the winter ahead. Over
Speaker 1: the last few weeks, those challenges have become more and
Speaker 1: more apparent, with diminishing supply sparking rising power prices across
Speaker 1: the country. It's prompted the government to this week announce
Speaker 1: it is fast tracking a new liquefied natural gas import terminal,
Speaker 1: amongst other measures. So what's behind this latest energy crisis
Speaker 1: and what can the government do to stop it? Today
Speaker 1: on the Front Page, we're joined again by the Major
Speaker 1: Electricity Users Group chair John Harbord to analyze this latest crisis. John,
Speaker 1: let's start with the obvious. What's going on with the
Speaker 1: power prices at the moment.
Speaker 2: It's a combination of two things. One is longer term
Speaker 2: we actually don't know. In the shorter term, it's very
Speaker 2: clear that we have a scarcity of energy with which
Speaker 2: to make electricity, so our hydro lake levels are low.
Speaker 2: We've got less gas available than we thought we did.
Speaker 2: And partly just because it's winter. You know, solar generation
Speaker 2: is down just because of the number of daylight hours
Speaker 2: we have in winter. And we've had sort of periods
Speaker 2: where wind levels in the places of the country where
Speaker 2: we generate wind electricity have also been down. And when
Speaker 2: something gets incredibly scarce, the price goes through the roof,
Speaker 2: and that's seen wholesale prices go from you know, three
Speaker 2: four hundred dollars a mega wad hour, you know, going
Speaker 2: up one thousand dollars a Mega white hour. The longer
Speaker 2: term issue is we had an outage at the Papakurr
Speaker 2: gas field back in twenty eighteen. So when the gas
Speaker 2: field went down, the wholesale electricity price jumped from around
Speaker 2: seventy five eighty dollars a Mega white hour to almost
Speaker 2: twice that. But when the gas field came back online,
Speaker 2: the price stayed up, and it stayed up for the
Speaker 2: last six years. So that price has been averaging around
Speaker 2: one hundred and fifty to one hundred and sixty dollars
Speaker 2: a Mega white hour for the last six years. And
Speaker 2: the electricity authority had a look at it probably three
Speaker 2: years ago now and they couldn't explain why the price
Speaker 2: had stayed up as high as it was now, I
Speaker 2: think there's a legitimate question or criticism that they didn't
Speaker 2: do anything about that. They just sort of made a
Speaker 2: finding and carried on. So lots of people have different
Speaker 2: theories on why the price is high, but we don't
Speaker 2: have a really rigorous examination of it, which is why
Speaker 2: I say we don't actually know.
Speaker 1: What does this crisis mean generally for the average Keiwi.
Speaker 1: Is it simply that their bills are going to Yeah.
Speaker 2: I think it's important to note that most Kiwis are
Speaker 2: on fixed term retail plans with their electricity retailer. So
Speaker 2: while their current contract is in effect, they're probably not
Speaker 2: noticing too much right at this very moment. But the
Speaker 2: next time their plan gets renewed, you know, households could
Speaker 2: be in for a bit of a shock. But ultimately,
Speaker 2: the high wholesale prices do get passed on to households
Speaker 2: to a degree. We do know that the Big four
Speaker 2: Gen Taylors have been running their retail arms at a
Speaker 2: loss deliberately, and that has shielded households from a lot
Speaker 2: of the impacts that larger manufacturers are experiencing. Shane Jones
Speaker 2: is accusing the big power companies of profit tearing as
Speaker 2: big firms layoff workers.
Speaker 3: The energy prices at the moment offered by Gen Taylors
Speaker 3: are the highest in the western world. The gent tailors
Speaker 3: have promised for so long that they can boost energy security.
Speaker 3: The shar shows.
Speaker 2: That they've failed.
Speaker 3: We've got to a point where not only a deep dive,
Speaker 3: but the time for talk is over.
Speaker 1: The words price gouging have been thrown around a lot
Speaker 1: in this crisis, so those accusations fair.
Speaker 2: I think what I would say is there is a
Speaker 2: basis on which to make those allegations. So if I
Speaker 2: unpicked that. Back in two thousand and nine, the Commerce
Speaker 2: Commission reviewed the wholesale market and found that prices were
Speaker 2: higher than they would be in a competitive market because
Speaker 2: the big four generators had market power and they were
Speaker 2: using it to keep prices higher. And I want to
Speaker 2: stress though, the Commerce Commission also found there was nothing
Speaker 2: unlawful happening, so there's no no one's breaking any laws
Speaker 2: or anything like that. And there were a suite of
Speaker 2: independent studies that followed that that all found pretty much
Speaker 2: the same thing. The Electricity Authority itself again in that
Speaker 2: same piece of work two or three years ago. They
Speaker 2: also found that same thing, that the big four generators
Speaker 2: have some market power and prices are higher because of that.
Speaker 2: MUTE itself commissioned some work around analyzing the level of
Speaker 2: economic profit, and we certainly found that in some cases
Speaker 2: there's evidence of that of very high levels of economic profit,
Speaker 2: but it wasn't across all generators, So I think we
Speaker 2: also need to be careful that we don't make blanket
Speaker 2: allegations across all generators.
Speaker 1: The phrase gen Taylor's, and you've mentioned it once now
Speaker 1: it pops up a lot during the coverage. What is
Speaker 1: a gen Taylor?
Speaker 2: Yeah, so it's basically referring to the four big companies
Speaker 2: we have that do both generation and who do retail.
Speaker 2: So you just combine gen with Taylor from retail, and
Speaker 2: we mash it together to make a single word. It's
Speaker 2: a recognition that they make electricity and they sell it
Speaker 2: to households.
Speaker 1: So how have these Gen Taylors responded to all of this?
Speaker 1: You mentioned they're actually running at a loss.
Speaker 2: They've been running their retail arms at a loss. Their
Speaker 2: generation arms over the last few years have certainly been
Speaker 2: making very high levels of profit. Some of the Big
Speaker 2: four have been running you know, almost all time record
Speaker 2: profits year after year for some of the recent periods.
Speaker 2: So there's like I said, there is certainly a basis
Speaker 2: on which to make those allegations. But equally, we haven't
Speaker 2: had a really rigorous analysis, like from say the Commerce
Speaker 2: Commission into that issue. So like I said, there's there's
Speaker 2: certainly a basis to make those claims. There's certainly evidence
Speaker 2: of it, but I just think you also just need
Speaker 2: to be a little bit careful that, you know, we're
Speaker 2: not applying that allegation equally to everybody. Some of it
Speaker 2: could just be you know, a combination of fact is
Speaker 2: almost sort of beyond the control a little bit of
Speaker 2: some of these companies. So you know, if you are Meridian,
Speaker 2: for example, and I'm not using them to shine a
Speaker 2: light on them, this is in the sense of, you know,
Speaker 2: a lot of their generation assets were built back in
Speaker 2: the nineteen sixties, you know, the big hydro dams in
Speaker 2: the nineteen seventies and nineteen eighties, and they've been built
Speaker 2: to a very high standard, so you know, they haven't
Speaker 2: had to spend a lot of money on new generation
Speaker 2: until more recently. So because they're not spending that money
Speaker 2: on new generation, then kind that looks like their revenue
Speaker 2: is higher as a result of it. That's not to
Speaker 2: say they're doing anything unlawful or anything dodgy. It's just
Speaker 2: the fact of, you know, the assets that as a
Speaker 2: business they inherited. But there's no doubt that some gen
Speaker 2: taylors have been earning very high levels of profit in
Speaker 2: recent years. And it's particularly concerning in the sense of
Speaker 2: electricity is in the truest sense of the word a
Speaker 2: public good. You know, we can't have modern life without it.
Speaker 2: Our households don't function without electricity, and our demand for
Speaker 2: it is highly anelastic. And by that I just mean
Speaker 2: you don't have a lot of control over how much
Speaker 2: electricity you use. You've got to have showers, you've got
Speaker 2: to cook your meals, you've got to heat your home
Speaker 2: unless you just simply can't afford it. There's not a
Speaker 2: lot of discretion in there around how much electricity you use,
Speaker 2: so you've kind of got a captive consumer market. So
Speaker 2: it's important that people can have confidence that the price
Speaker 2: they're paying is fair. And I don't think the government
Speaker 2: or the regulators could say hand on heart at the
Speaker 2: moment that prices have been fair for the last six years,
Speaker 2: let alone in the current situation.
Speaker 1: A review of the performance of the electricity market is
Speaker 1: being jointly conducted by the Commerce Commission and the Electricity
Speaker 1: Authority At the moment, what do you think that might reveal.
Speaker 2: We haven't seen the terms of reference for it, so
Speaker 2: I'm not entirely for exactly what they're looking at. But
Speaker 2: if I assume it's a general review of electricity market regulation,
Speaker 2: then I think on the basis of past work, we're
Speaker 2: likely to have a finding that prices are higher in
Speaker 2: New Zealand because of a lack of meaningful competition in
Speaker 2: the generation space. Now we hope that changes over time
Speaker 2: with more generators entering the market and from the announcements,
Speaker 2: distribution companies can potentially start generating as well. But it's
Speaker 2: also a reflection of New Zealand's a small country. We
Speaker 2: don't have a lot of operators in that space, so
Speaker 2: you know, regardless of the finding, not much might change
Speaker 2: in that space. But you've also got to unpick how
Speaker 2: we arrive at the wholesale electricity price. So the current
Speaker 2: market settings are very good at pricing short term scarcity
Speaker 2: or short term availability of electricity. What it's not very
Speaker 2: good at is taking sort of a longer run view
Speaker 2: of pricing. So our prices tend to be high because
Speaker 2: everyone in the short term seeds risk, whereas if you're
Speaker 2: taking a longer term view, risk sort of gets evened
Speaker 2: out over time. So I would hope that we've come
Speaker 2: to some things that would end up with the market
Speaker 2: taking a longer view. There's also a really important question
Speaker 2: around how we arrive at the wholesale price. So at
Speaker 2: the moment, if you're a generator and say you're generating
Speaker 2: wind or hydro electricity, because roughly speaking, supply of electricity
Speaker 2: matches the demand for that electricity. Genuinely speaking, if you're
Speaker 2: generating electricity, you know you can kind of sell whatever
Speaker 2: you're making. So what it is is you price up
Speaker 2: to the most expensive form of electricity. So in New Zealand,
Speaker 2: the most expensive form of electricity is coal fired electricity
Speaker 2: because almost half the cost is from the ETES. But
Speaker 2: if you're making wind electricity, you're not paying any ETES costs.
Speaker 2: You just make a massive profit at the expense of consumers.
Speaker 2: So I would hope that it would look at what's
Speaker 2: the regulation around renewable electricity versus thermal electricity, and do
Speaker 2: you sort of decouple the two. So renewable generators aren't
Speaker 2: making excess profit at the expense of consumers because they
Speaker 2: don't have to pay etes costs. Equally, I think one
Speaker 2: of the things that the current crisis has really highlighted
Speaker 2: is the market is very poor at taking an nz
Speaker 2: INK approach or perspective. So individual generators, you know, they're
Speaker 2: looking at what's the new generation we can build, and
Speaker 2: often that you're looking at wind or solar if for
Speaker 2: no other reason, then you've got a chance of getting
Speaker 2: those consented. But people aren't looking at, well, who's going
Speaker 2: to be say the gas or qualified peaking plant we're
Speaker 2: going to continue to need for the next say ten years,
Speaker 2: because you'd never get it consented. And Equally, a lot
Speaker 2: of companies don't want to be seen to be building
Speaker 2: through more generation because social license and as a country
Speaker 2: we're not particularly keen on emissions. We need some way
Speaker 2: for the market to identify what generations actually required and
Speaker 2: then to incentivize that generation. So I think there's a
Speaker 2: really interesting role there potentially for transparers the system operator
Speaker 2: to do that analysis around what generation mix do we
Speaker 2: need and in what amounts, and then whether it's through
Speaker 2: going to market for contracts to supply that generation, or
Speaker 2: through another mechanism you go back to the market for
Speaker 2: the provision of that generation. But there's no sort of
Speaker 2: coordination at all in the market in that respect.
Speaker 1: The government this week announced a liquefied natural gas import
Speaker 1: terminal will be fast tracked. First of all, what in
Speaker 1: the world does that mean?
Speaker 2: The shorthand version is we just pay for someone to
Speaker 2: send the ship to New Zealand carrying LNG and they
Speaker 2: just sail into port, they hook up to a pipe
Speaker 2: and they pump the gas into our existing network. That's
Speaker 2: fundamentally it. So it's just the means of getting natural
Speaker 2: gas from a means other than our own gas.
Speaker 1: Fields, right, And so LNG is that natural gas? How
Speaker 1: will that help the crisis that we're facing now.
Speaker 2: Well, one of the big constraints we've got at the
Speaker 2: moment that's exacerbating the crisis is we just don't have
Speaker 2: a lot of gas available now. Methods has acted very
Speaker 2: responsibly in ceasing manufacturing of methanol for a few months
Speaker 2: and just basically selling their gas directly to genesis and
Speaker 2: contact to make electricity with. But you know that's not
Speaker 2: a long term future for Method X because then they're
Speaker 2: not actually making any product, So they can't do that indefinitely.
Speaker 2: And until we can unlock more of the gas that
Speaker 2: we know is in our existing gas fields, we need
Speaker 2: sort of a short term solution, and so the government's
Speaker 2: decision will just make it a lot quicker and easier
Speaker 2: for us to bring ships in with LNG and put
Speaker 2: that into our existing system.
Speaker 4: LNG liquefied natural gas is hailed as the magic solution
Speaker 4: to a lot of our problems. In Europe that's getting
Speaker 4: much less gas from Russia. It's supposed to keep the
Speaker 4: lights on. In Asia, it's supposed to do away with
Speaker 4: dirty coal, and in the US katar in Australia, where
Speaker 4: most of the stuff is coming from. It's supposed to
Speaker 4: make a lot of people a lot of money. When
Speaker 4: all a said and done, LNG remains a fossil fuel.
Speaker 4: If we are serious about slowing climate change, we need
Speaker 4: to dig it. The sooner the better, and every terminal
Speaker 4: we build makes that harder.
Speaker 1: The government's blamed a lot of this crisis on labor
Speaker 1: for canceling oil and gas exploration. Labor has responded by
Speaker 1: saying that the part privatization of Gen Taylor's under Sir
Speaker 1: John keyes National, either of them or both of them.
Speaker 2: Right, If we take the first one, the offshore oil
Speaker 2: and gas band, I think that's been a contributing factor.
Speaker 2: It essentially scared off investment and maintenance into our existing fields.
Speaker 2: So because we haven't had that maintenance and we haven't
Speaker 2: had sort of the fresh exploration of existing fields, So
Speaker 2: not even talking about finding new ones, but just ongoing
Speaker 2: exploration of our existing fields. The question around the impact
Speaker 2: of the partial privatization of three of the Gen tailors,
Speaker 2: as I mentioned earlier, you know, the Commerce Commission found
Speaker 2: there were issues with excess pricing in two thousand and
Speaker 2: nine before the partial privatization happened. So I don't think
Speaker 2: we can be as clear cut on the partial privatization question.
Speaker 2: Having said that, though the independent work that the Major
Speaker 2: Electricity Users Group commissioned a couple of years ago into
Speaker 2: the levels of excess economic profit certainly showed in one
Speaker 2: case that the level of economic profit being earned certainly
Speaker 2: started to pick up quite dramatically following the partial privatization
Speaker 2: but that's just looking at one generator, not across the
Speaker 2: whole market, So I think that's still a bit more
Speaker 2: open to debate.
Speaker 1: And John, with winter ending, is this crisis likely going
Speaker 1: to come to an end for the foreseeable future and
Speaker 1: what can be done in the next twelve months to
Speaker 1: stop this happening next winter. I suppose that's a conversation
Speaker 1: we have every year.
Speaker 2: I think it's really important that we recognize that the
Speaker 2: current crisis we're in hopefully sort of the level of
Speaker 2: crisis diminishes, but we're stuck in this situation for a while.
Speaker 2: This is not a short term issue, so the risk
Speaker 2: of rapidly escalating household prices, for instance, is one hundred
Speaker 2: percent still there. And I think, you know, the announcements
Speaker 2: to the government made this week will certainly help in
Speaker 2: the longer term. You know, if we can secure a
Speaker 2: ready supply of gas to supplement our own domestic production
Speaker 2: of gas to make electricity with, that will help, giving
Speaker 2: distribution companies the ability to also generate how tricity. That
Speaker 2: just means potentially we've got more electricity being made. That
Speaker 2: will take some of the pressure off, though that's a
Speaker 2: longer term thing. If we can get the market settings right,
Speaker 2: that will certainly help restore confidence in the market, because
Speaker 2: the confidence is really low. But there's a really crucial
Speaker 2: state that we're in with the electricity system as a whole.
Speaker 2: It's essentially the transition to sort of a lower emissions future.
Speaker 2: And what I mean by that is as we become
Speaker 2: more and more reliant on renewable electricity, particularly wind and solar,
Speaker 2: which is what most of the new generation being built is,
Speaker 2: we have to recognize that they are both highly intermittent
Speaker 2: sources of generation. So an efficient wind farm is making
Speaker 2: electricity about forty percent of the time, and solar generation
Speaker 2: is making electricity even less so for all the time
Speaker 2: when the sun's not shining and the wind's not blowing,
Speaker 2: you need other sources of electricity to fill in the
Speaker 2: gaps for want of a better term. Now, usually we
Speaker 2: rely on the hydro lakes, but often the hydro lakes,
Speaker 2: you know, it seems like every couple of year, every
Speaker 2: two or three years, the hydro lakes are a bit low,
Speaker 2: and so you don't have a lot of options to
Speaker 2: fall back on, which is why we're going to continue
Speaker 2: to need gas and coal for the foreseeable future. I
Speaker 2: think we all hope that we use less and less
Speaker 2: of it, but we're still going to need it. The
Speaker 2: point I make there is the cost of becoming more
Speaker 2: reliant on wind and solder is massive. And that's not
Speaker 2: to say that the cost of building that generation is expensive,
Speaker 2: because it's not relatively speaking. It's all the work you
Speaker 2: have to do to the infrastructure around distribution and the
Speaker 2: rest of it that's really really expensive, because you need
Speaker 2: to shore up all that wind and solar with other
Speaker 2: forms of generation that you have to build, and you
Speaker 2: need the infrastructure to move all the electrons around. So
Speaker 2: there's a real trade off that we're going to have
Speaker 2: to make at some point around affordability and how renewable
Speaker 2: we actually become. And that's in the context of New
Speaker 2: Zealand is either the second or third most renewable electricity
Speaker 2: generation in the world already, so you know, we're all
Speaker 2: ready a world leader. So I don't think we need
Speaker 2: to sort of castigate ourselves too harshly. We're doing a
Speaker 2: pretty good job, so we can always obviously do better.
Speaker 2: There's a balance to be reached about how renewable we
Speaker 2: go and how much sort of thermal firming or peaking
Speaker 2: we keep in the system, and I don't know if
Speaker 2: we've got a really clear picture on that yet, but
Speaker 2: that's a debate or a trade off that's rapidly coming
Speaker 2: towards us, and until we get an answer to that,
Speaker 2: then that's just going to get worse, not better.
Speaker 1: Thanks for joining us, John. That's it for this episode
Speaker 1: of The Front Page. You can read more about today's
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Speaker 1: with sound engineer Patty Fox. I'm Chelsea Daniels. Subscribe to
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