Gerry Brownlee: Uncertainty over energy future hinders progress

Cold showers this winter will be the first taste many New Zealanders have of power rationing, not just this year but for the next few winters.

The reason has nothing to do with whether it rains or the electricity market. It is because Government policies are creating uncertainty and blocking much-needed investment in new generation. The Government has been warned constantly, but has sat on the reports and ignored the warnings.

The result will be lower economic growth which will affect jobs, wages and, ultimately, the quality of health and education services the country can afford.

Faced with a growing mess of its own making, the ninth floor of the Beehive is likely to take more control of the electricity industry, leading to greater uncertainty.

In the first three years after the electricity market was introduced, almost 1200 MW of new generation was built. Since then a meagre 270 MW has been built, well short of what the Energy Minister since 1999, Pete Hodgson, says we need.

The problem is not that New Zealand has suddenly run out of fuel sources. We have hundreds of years of coal supplies and even with the decline in gas available from the Maui field there is plenty of gas in undeveloped fields to meet our needs for many years to come. In fact, plans for 1600 MW of new generation now lie stalled.

Last week Contact Energy said it could have a new power station commissioned for next winter, but identified uncertainty created by the Government and long-term gas supplies as presenting major obstacles.

The problem is that Government policies have turned off the generation investment switch, and this has been compounded by the uncertainty created by the Prime Minister's statement that major changes lie ahead for the electricity industry.

New Zealand has a crisis this year because the lakes are low, and no amount of control from the Beehive will change that. But more could have been done a lot sooner to avert the crisis.

Last November, National and others within the sector warned that we were facing a crisis this winter. The Government chose to ignore those calls, but had conservation measures been brought in sooner, some of the pain and hardship this winter might have been averted.

The Government has had plenty of time and opportunity to get things right. Indeed, it owns 70 per cent of the power generation in New Zealand, as well as the national grid company, Transpower.

When it took office, it held a major inquiry into the electricity industry. It then led the country into the 2001 energy crisis and subsequently received numerous reports warning of the need to better manage the social and economic disruption of a dry year like we now face.

Instead of heeding the signs, the Government blundered ahead, making some extraordinary decisions which threaten supplies for at least the next three years.

It was a major blunder to ratify the Kyoto Protocol ahead of our trading competitors and partners regardless of the consequence and adequate cost-benefit analysis. New Zealand is not a big emitter of carbon. In fact, our forestry sector plays a large role in helping to offset those emissions, to such an extent that we are hugely in credit.

But the act of ratification commits us to restricting carbon emissions and introducing carbon taxes. What the Government has failed to do is inform anyone how much this will cost or the extent to which it will apply to coal or gas.

This has created huge uncertainty for those who want to invest hundreds of millions of dollars to build new power stations. They cannot make informed choices about the type of fuel they will use or what it will cost. Without that, investment risks are too high.

Uncertainty has also been increased by the Resource Management Act and Local Government Act, which add layers of complexity, delay and costs to planning approvals.

And where the Government could act, such as enabling a hydro power station to be built on the West Coast, they have steadfastly refused to do so. This adds to the pressure to draw on gas or coal supplies sooner. And it sends alarming signals to potential investors in generation.

We have no confidence that more Government control through Cabinet's infrastructure committee will solve the problems we face. Helen Clark, Michael Cullen and the bureaucrats know even less about what to do and will create only more uncertainty.

National has a four-step plan to provide more certainty and get more new power stations operating:

* We must reduce the barriers to new generation. A clear policy on Kyoto costs should be spelled out. The Resource Management Act should be amended to reduce unpredictable delays and costs to approval processes. The Dobson hydro dam on the West Coast should get the green light.

* We would adjust the electricity market to ensure there was sufficient opportunity to buy contracts for power at a given price - one, two, three or more years out. This would enable price-sensitive businesses to insure against sudden dry-year shortages while providing price signals for new generation to be built.

* We would ensure new fuel supplies of gas and coal were opened up to power new generation. Removing the Kyoto uncertainty would help this significantly by enabling trade-off between the development of gas fields or use of coal to be clearer. We would also ensure there was more competition in gas exploration and remove significant barriers to exploration and development of gas fields.

* We would develop a long-term energy conservation strategy.

These measures would avoid the need for major disruption to the industry, send clear investment signals and reinforce confidence that New Zealand does business like the rest of the world.

The last thing we need is power control from the Beehive's ninth floor. That will just make things worse.

* Gerry Brownlee is National's energy spokesman.