KEY POINTS:
Investment in renewable generation, especially geothermal and wind power, is already a better economic proposition than gas-fired plant, so a ban on the latter is not needed, Contact Energy says.
Its public affairs manager Bruce Parkes, appearing before the finance and expenditure select committee yesterday, said that also appeared to be the view of the sharemarket. Contact's share price had risen when it announced it was going to concentrate its investment on renewables and had shelved plans for another gas-fired plant at Otahuhu.
As the largest generator from gas, Contact understood "inside and out" the costs of gas as well as geothermal and wind power, he said.
"Renewables are by far the most economic proposition, especially geothermal. But the cost of wind and baseload gas is roughly equal with a carbon price of $23 and gas at $7 a petajoule, which is around the current price." But the upside risks were much greater for gas, he said.
While the country did not need any more baseload gas-fired generation it did need fast-start peaking plant and Contact planned to build 200MW of such plant at a cost of around $250 million.
"It is needed for dry years - we wish we had it this year - and we also see a market opportunity as the system becomes more volatile with increase in generation from wind."
Market observers have noted that the cost per megawatt of Contact's new gas plant is about what combined cycle baseload plant costs, and wonder how it can get an adequate return on capital in a "peaking" role.
Parkes said after his select committee appearance that Contact expected to run the new plant about half as much of the time as a baseload plant.
Contact believed New Zealand could meet the Government's target of 90 per cent generation from renewables, he said. National's environment spokesman Nick Smith asked him why he was so confident when the proportion of renewable generation had declined steadily for years.
Parkes said natural gas prices had trebled as the Maui field nears depletion, but that had only been in the past few years.
"Our estimate is a $20 carbon price will trigger a sea change in behaviour."
But Todd Energy's Richard Tweedie was scathing about the emissions trading legislation, which is now before the select committee.
The risks to the economy had not been adequately explored, he said, and it involved an inequitable cross-subsidy to the rural sector.
It was being rushed through, with ad hoc amendments like those announced this week, when it would be better to wait until Australia's scheme was known.
The ban on building any more baseload gas-fired power stations threatened the viability of the gas sector, its exploration end in particular, and would, if anything, increase the likelihood of having to import liquefied natural gas, Tweedie said.
Because of the immaturity of world carbon markets Todd was concerned about potential volatility in the carbon price, Tweedie said.
So far the high exchange rate had sheltered motorists from much of the increase in oil prices. "When the dollar falls it will highlight how vulnerable the economy is to world oil prices," he said.
