The energy shortage is forcing manufacturers to cut production to keep power flowing to households. Will more renewable electricity fix the problem for the future?
Opinion by Shane Te Pou
Shane Te Pou (Ngāi Tūhoe) is a commentator, blogger and former Labour Party activist.
Energy prices soared last winter amid record-low hydro-lake levels, a lack of wind and sun, and what was described by the Government as an inadequate supply of natural gas.
It’s time to put a stake through the heart of the gentailers that are draining New Zealand’s economic lifeblood.
Otherwise, we won’t have much of an economy left - and more and more families will shiver through winter.
We are experiencing an energy crisis inthis country. Electricity used to sell wholesale for less than $100 a megawatt/hour (10c a kilowatt/hour). But that price has been ramping up since the partial privatisation of the gentailers. Now, today, it’s as high as $370 a MWh.
We’ve already seen hundreds of jobs lost in our big manufacturers that use a lot of electricity, such as the pulp and paper mills. If prices stay high, we’ll lose more and more manufacturers, leaving an economy dependent on tourism and dairy exports.
Households are going to start to feel the pinch, too, as retail prices go up. Even with Labour’s Winter Energy Payment, more families are going to find themselves unable to afford heating.
The crazy thing is, New Zealand has heaps of electricity generation potential but we’re just not building enough. A lot of projects are consented but are being left to languish by the gentailers - because energy shortage is good for their profits.
Take Castle Hill in the Wairarapa, north Wellington. Genesis said the area “represents one of the best wind energy resources in the world for wind energy generation”. They gained the consent for that in 2013. A decade later, nothing had happened. They got an extension to 2031. Still nothing is happening.
It looks like how the supermarket chains used covenants to lock each other out of neighbourhoods. Here, in my view, the gentailers get resource consents for prime wind farms and effectively block anyone else from building.
The truth is, the electricity shortage works for the gentailers.
If the electricity market was working properly, there would be a flood of new construction.
The Electricity Authority says building and running new renewable electricity costs around $90 per MWh of production. Currently, the wholesale price for electricity is $370 per MWh and the futures market says it’ll stay over $200 for years to come.
The situation is only going to get worse if new electricity supply doesn’t keep up with rising demand from electric vehicles and data centres.
So, if there’s lots of new generation capacity, rising demand, and the price is high – how come we’re not seeing new wind and solar farms popping up everywhere? The number of new projects being built is weak at best and the people who trade in electricity futures clearly don’t think it’s going to put a dent in the supply shortage.
The truth is, the electricity shortage works for the gentailers.
When there’s not enough renewable generation, they can run their expensive gas and coal plants. The way the electricity market works is everyone gets paid the price of generating the most expensive unit of electricity.
So, the best situation for gentailers is most of their power comes cheap as chips, through hydro dams that the taxpayer paid for decades ago and wind farms, but they get paid like it’s all coming from gas peaker plants.
It’s this set up that’s allowed the generators to make $7.6 billion in profits over the past decade, according to Council of Trade Unions analysis, and pay out over $10b in dividends. That’s right, the current situation is so lucrative for the gentailers that they are taking on debt, not to build new power plants, but to pay out as dividends.
'The best situation for gentailers is most of their power comes cheap as chips, through hydro dams that the taxpayer paid for decades ago.'
More supply would end that. The expensive power plants wouldn’t need to run, the price of all electricity would come back down.
We need political leadership to fix this. The current model – set up by Max Bradford in the 1990s and partially privatised by John Key in the 2010s – is not working in the 2020s. Even the Auckland Chamber of Commerce is now saying we need change.
Which party is going to be bold enough to break up the gentailers and allow real competition?
Which party will force power companies to either build the projects they have consented or lose them to a government-owned company that will build them instead?
Which party is going to fix the broken pricing system that sees power companies get paid huge money to run free water through taxpayer-funded dams and also incentivises them to keep polluting fossil fuel plants running as much as possible?
Politicians can’t leave this in the too-hard basket any longer. We need political leaders with the courage to ditch what isn’t working and accelerate the construction of cheap, renewable electricity to power our economic growth and lower the cost of living for families.
My prediction: the political party with a serious plan to take on the big electricity companies will have voters flocking to support them at the next election.
