The Government is considering a ban on fossil fuel generation. Photo / NZPA
The Government is considering a ban on fossil fuel generation. Photo / NZPA
Officials questioned why the outgoing Government was bothering with a ban on new baseload fossil-fuel electricity generation, noting that fossil fuels had become so expensive that it was incredibly unlikely anyone would bother building a new generator that ran on them.
The proposed ban, which is currently out for consultation,will almost certainly fail to take effect, as National had promised to axe it.
The Government said the ban would “send a clear message that fossil-fuel electricity generation has no future in Aotearoa”, while National says that message is coming through loud and clear through higher emissions prices.
In 2022, the Labour Government promised a ban on new baseload fossil-fuel electricity generation as part of its emissions reduction plan.
Baseload can be a woolly term, but Ministry of Business, Innovation and Employment (MBIE) officials used the term to mean power stations that run “continuously, except for maintenance, up to the maximum capacity allowed by their water, steam, or fuel supply”.
The term also extends to the coal- and gas-powered Rankine units at the Huntly Power Station and combine-cycled gas turbine (CCGT) plants such as Contact Energy’s Taranaki Combined Cycle Power Station.
These do not run continuously, but are designed to operate for long periods of time without interruption.
In a Regulatory Impact Statement (RIS) on how to progress with the ban, MBIE officials said a ban was unnecessary as fuel prices and Emissions Trading Scheme (ETS) costs meant burning fossil fuels for electricity generation, particularly baseload generation, was expensive and uncompetitive.
Electricity generation is fully exposed to the ETS, and the price of emissions in the ETS is only likely to rise.
The RIS said that both MBIE and the Electricity Authority believed it was “very unlikely any investments will be made in new fossil-fuel baseload electricity generation”.
National's energy spokesman Stuart Smith said his party would not proceed with the ban.
Officials said the last major fossil-fuel baseload plant to be built was Genesis Energy’s Huntly Unit 5, commissioned in 2007. But even that plant required the Crown to underwrite its gas purchase risk in order for the investment to proceed.
Since then, the only fossil-fuel-fuel plants that have been built are peakers, according to the RIS.
Officials warned that the ban could deter investment in these peaking plants, which are used when the grid needs to manage periods of high electricity demand like cold winter nights.
“The ban on new fossil-fuel-fuel baseload generation may deter investment in fossil-fuel-fuelled peaking plant, as the restriction is seen as an indicator of a future unfavourable environment for fossil-fuel-fuelled electricity generation investment in general,” officials warned.
They said another risk is that peaking plants could be constrained by the new rule at moments of low electricity supply, which is when they would most be needed.
“This may be an issue, particularly during a security of supply event (such as low lake levels),” they warned.
National’s energy spokesman Stuart Smith said the ban was a pointless exercise in “virtue signalling”.
“Every action the Labour and Green parties have taken shows they don’t understand the Emissions Trading Scheme at all. Banning things is pointless,” he said.
Smith said fossil-fuel generation would be needed to manage the intermittent nature of renewables like wind.
The ban went out for consultation with a raft of other proposed changes in August. Energy Minister Megan Woods said at the time the “future of energy in New Zealand is renewable”.
“This will give New Zealand a leading economic edge as people demand more sustainability in the products and services they buy, and help New Zealand meet its climate change commitments,” Woods said.
“Achieving this will require the energy transition to be made in a way that keeps the lights on, keeps power bills affordable, and keeps our economy growing,” she said.
National also plans to overturn the ban on offshore oil and gas exploration, which is likely to be far more contentious.
Thomas Coughlan is Deputy Political Editor and covers politics from Parliament. He has worked for the Herald since 2021 and has worked in the press gallery since 2018.
