Colin James: Power urgency too little too late

No sooner will the Government get its highly controversial changes to the Resource Management Act through than it will be back on the job - this time to add energy efficiency as a national priority.

As we head towards cold showers, this may prompt a wry comment or two.

The change, which Energy Minister Pete Hodgson foreshadowed in February, is linked to another designed to discourage local authority politicians blocking wind power and other renewable energy schemes for aesthetic and other reasons. Hodgson wants wind farms and is doling out Kyoto "promissory notes" to get them.

Once on the books, of course, the amendment may develop a life of its own. It may just apply some leverage elsewhere on the demand side of the electricity equation.

In September 2001, the Government trumpeted a 10-year energy efficiency and conservation strategy. This was part of its drive for a greener country - and fitted into, though did not fulfil, the objectives of the Green Party on which it depended for a parliamentary majority.

But it also followed the power cuts of the 2001 winter.

Media files of the time are peppered with exhortations to improve energy efficiency. And wrapped up in the argument was the Government's determination to sign up to the Kyoto protocol on climate change.

The country, it seemed, was to be transformed from a gross wastrel into a lean and efficient enterprise, from the meanest household to the fattest corporation.

The Energy Efficiency and Conservation Authority (EECA) had already been beefed up and produced the strategy, a complex set of documents setting out goals and programmes ranging from informational to facilitative to arm-twisting and regulatory.

It included subsidised energy audits, sectoral studies and world-best practice benchmarking data, training for businesses in energy efficiency, mass and glazing optimisation guides, a water heating technology including solar panels, energy rating, new mandatory energy standards, new voluntary design standards and a code of energy practice for buildings, retro-fitting (for example, insulating) lower socio-economic housing and studying the health effects of energy-inefficient houses.

But since the initial fanfare there has been no visible urgency. When the long-term electricity supply constraints edged into ministerial consciousness late last year, the strategy was nowhere to be heard amid mutterings about market failure and denials of crisis.

Ministers' focus was on the supply side. Only recently, as the short-term prospects turned really nasty, have they put real weight behind savings - with the result that, announcing targets last Monday, ministers looked close to panic.

Of course, a strategy is by nature long term and cannot fix short-term problems. Reviving 2001's public relations enthusiasms would have done nothing for this winter's shiverers.

But the focus in March was heavily on getting supply up, not getting demand down. The Cabinet's primary concern over electricity was to keep industrial production going. In doing this, it was behaving as a traditional Labour Government.

True, lowest practicable prices to consumers and other end-users are at the core of its competition policy and drive some of its recourse to utilities re-regulation. But in the crunch, the Cabinet is more concerned with production.

To this Cabinet, the economy is less a means to consumers becoming better off (though that is not unimportant) than a means to achieving traditional Labour redistributive ends.

So when Comalco and others turned off machines when the spot price spiked in March, the Cabinet - and especially the Prime Minister, who had long held serious doubts about the supply-side efficacy of the market - were disturbed.

The Cabinet wants the machines running to earn foreign funds. We are to shiver in showers to ensure that - though one energy analyst says some will stay warm because some retailers can no longer enforce ripple control on water heaters.

The Cabinet got even more disturbed when ministers realised periodic power shortages and spot price spikes might deter future investment in productive capacity. Energy was suddenly added to the agenda of Michael Cullen's "hard infrastructure" group, which was addressing roads, rail and water for exactly that reason.

Now that Carter Holt Harvey chief executive Peter Springford has bluntly stated that the company's investment plans are on hold until the Government produces an energy strategy, Cullen's challenge is not only complex but urgent.

This begs the question of whether energy-guzzling investments are automatically in the national economic interest if we are heading towards a high-technology, high-wage economy. Logs must be processed as an article of faith.

It also begs the question of whether it might be cheaper overall to buy Comalco out - pay it to shut down - for this winter, as in the big 1992 dry.

And it begs the efficiency and conservation question.

Business New Zealand's Simon Carlaw last week demanded action on "demand-side participation" - a market exchange to allow end-users to sell back unused power.

The EECA published a booklet on this in December and reported in March that only the largest industrial consumers could afford to monitor market prices and adjust load at trigger levels, while smaller industrial and commercial consumers felt disadvantaged - even though, if electricity retailers made it more accessible, "demand response could deliver a reduction in use of between 250 and 900 megawatts for a range of short periods" and "the value of the resource could be as high as $100 million".

So far only Meridian has set up such an exchange.

Carlaw wants a general demand exchange to allow more businesses, many of which already have time-of-use meters, to participate. And he wants the Government to instruct state-owned "gentailers" - generating companies which are also retailers - to provide incentives to domestic consumers to install time-of-use meters and allow them to sell back unused power.

He also wants the Government to force "gentailers" to put on the hedge market a proportion of the electricity sold on fixed contracts to households so that business is less at the mercy of the thin and volatile spot market.

Why has this not been done? And why do businesses still ignore energy efficiency options, even those with paybacks as short as 12 months? Why, for example, is Stephen Tindall - planning a warehouse in Queensland that will not have air-conditioning but still be cool - still a standout?

The easy answer is that the Government hasn't put real weight behind the EECA's earnest endeavours to persuade and advise businesses about efficiency and conservation.

But can it do more? Hodgson sketches his defence by way of a rising diagonal line on a 10-year chart and marking off the 18-month point we are at. He says it will take time for the strategy to really work. Recent changes to the building code, for example, will take years to bear real fruit in more energy-efficient new buildings.

Hodgson's line should probably be a parabolic curve, flat in the early years and steepening with time. The strategy is characterised by pilots and trials which are just beginning or are in their early stages and will translate into full programmes only in 2004 or 2005.

But is that a real defence? If some of the supply-side fixation of the past few months had been directed over the previous year to the demand side and backed with incentives, subsidies and tough talking with state-owned generators and retailers, part of Cullen's infrastructure work might have already been done for him.

* Email Colin James

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* Fran O'Sullivan is overseas for six weeks on a European Union journalism fellowship. In her absence, Colin James will write a column on business, economics and politics.