Mood of the Boardroom: Genesis Energy calls for a national energy strategy

Operating a 100 per cent renewable energy system in New Zealand is just not plausible, says Marc England, chief executive of Genesis Energy.

"The problem for electricity is that as you become more renewable, you become more dependent on the weather, and the weather doesn't always play ball."

England says electricity was presently 84-85 per cent renewable in New Zealand but overall the energy system (including gas and coal) was about 40 per cent renewable.

"We believe the new builds announced in the last year or so will get us to 95 per cent renewable. But we haven't had the honest discussion with government over how we make sure that 95 per cent renewable electricity is stable and ensures energy security. There are lots of interdependencies across the energy system. The interdependency between gas consumption demand and supply versus coal demand and supply; the interplay of the dynamics of different renewable; and how do we use electricity that is very renewable already to decarbonise other sectors — and get New Zealand on the trajectory to a lower carbon energy system overall.

"Too often in my mind, electricity and energy are conflated and confused. We think the sector has a lot of heavy lifting it can do for the country as we decarbonise.

"But we've got to be allowed to have discussions and get the right strategy and settings."

England says there have been lots of consultations and lots of things put out there for discussion. The electricity sector's view matters and "I think in the last few years, at times that view has been disregarded. We need an orchestrated review and an energy strategy."

Genesis Energy has a goal of becoming more renewable. "We are committed to enabling more renewable electricity in the sense that we have science-based targets," he says.

One target is reducing 1.2 million tonnes of annual emissions between 2020 and 2025, as well as gigawatt hours.

England says over the past 10 years energy back-up has been disincentivised. People can point to the decisions the electricity authority took eight to 10 years ago that have made it harder for thermal generation economics to stack up.

"One of the sub-debates around energy strategy is how do we make sure the market settings are correct for thermal back-up. As we go through this transition, we can make sure we do it in a stable, reliable way for the economy."

England says the electricity market as it is designed today is an energy-only market. "We only get paid for a megawatt hour when we are generating the electricity, not getting paid for having a megawatt available for back-up. As we become more renewable, we are going to use our thermal back-up less.

"But we need it to be there. The problem today is the market setting that encourages and enables the back-up to be available is not there because you are not getting paid if you are not running.
"The outages on August 9 were a warning sign of what could come if we don't get things right," he says.

England suggests that discussions on an energy strategy should include location of new hydro storage schemes — for example, the Lake Onslow project in Central Otago, estimated to cost $4 billion and storing 5-7TWh (terawatt-hour) for use in the dry years, instead of using coal and gas to fill the gaps in energy supply.

"Apart from the fact that it's very expensive to build, the idea that you put so much dependency on South Island generation when most of the demand is in the North Island is a single point of failure for the market. We need more energy storage in the North Island. "

England talks of a Catch-22 situation when it comes to attracting and retaining skilled staff.

There are short-term solutions like enabling easier access across the border and visas, and hiring talent from overseas, he says. "We are a relatively small market and if we can bring people in, then it's easy to solve the short-term problem.

"But I suspect we are looking at a longer-term issue globally and we need to be incubating and developing people here in New Zealand to play those roles in the future."

Offering larger pay packets is not the ultimate solution, England says. "We will likely have to do that to retain some talent in the short term. But then it just becomes an escalation — everyone doing the same thing and it doesn't grow the resources."

Genesis is digitising its retail business, and England says: "It feels like pretty much every company in New Zealand is embarking on a digital transformation and we need to hire lots of people — and they are just not there.

"We are having more of our technical abilities poached from us, and we are seeing, potentially, huge wage inflation in those areas."

There is a pyramid or hierarchy of job roles, says England. "Companies like us are having people poached to consultancies and then charge back to us at higher prices. Those consultancies, and ourselves, are being poached overseas such as Australia who have higher purchasing power.

"Also, post-Covid, companies are happy to have people sitting in New Zealand working for them remotely. So moving is no longer a barrier to applying for a job in Australia when they can work behind a computer screen in New Zealand — and earn more.

"That kind of hierarchy is evolving. It's real. We can't fill all of our vacancies right now and that's the first time in five years to us," says England.

And there's another irony. A part of Genesis' digital transformation is being negotiated by a party who will be providing some of the resource from overseas. "There's no reason why it shouldn't be here but it can't be because the talent doesn't exist," England says.

Marc England's three issues

• Opening the borders and learning to live with Covid.

• Decarbonising the NZ economy.

• Addressing housing affordability by building capacity to plan, consent and build.