Search for fuel means being realistic on climate change

By BRIAN FALLOW

All consumers want is the cheapest possible power consistent with keeping the lights on. Is that too much to ask?

Lately it seems to be.

Over the past two years, electricity prices have risen by around 17 per cent, yet in two of the past three years we have faced shortages requiring public save-energy campaigns.

So even before Meridian Energy pulled the plug on Project Aqua this week, it was evident that these are challenging times for the electricity sector.

The Government faces the challenge of ensuring that its policies are not standing between us and a secure electricity supply.

The power companies face the challenge of showing that the market model, to which they owe their existence, is not failing.

Energy Minister Pete Hodgson put them on notice this week: come up with some serious generation-investment plans in the next two years or face the heavy hand of intervention by way of the new Electricity Commission.


The higher prices consumers face arise from the transition from an age of plenty to one when the industry is scrambling to find fuel.

Two-thirds of our power comes from hydro schemes whose fuel - water - is effectively free and whose upfront capital costs have long ago been paid by the consumer.

Most of the rest comes from gas-fired power stations running on gas from the giant Maui field, which is running out sooner than expected.

Think Big era contracts kept the price of Maui gas low and crowded out alternative gas supplies. A couple of offshore gas field were discovered, and are now being developed, but they were consolation prizes in the search for oil.

The Government is now looking at whether to offer oil and gas explorers a sweeter deal.

But the risk at the moment is that the generators will not invest in new gas-fired plant in case a new gas field is not found, and not invest in coal-fired plant either in case one is.

The axing of Aqua, meanwhile, illustrates the difficulty facing renewable energy sources. The local environmental impact of renewables, per megawatt of generating capacity, tends to be greater than for big thermal power stations.

Even those without competing claims on the Waitaki's water regarded without joy the prospect of a long stretch of that river being reduced to a trickle.


Fortunately there is a moa-sized bird in the hand, in the form of vast coal reserves. This option should not be ruled out by uncertainty over the level of the proposed tax on the carbon content of fossil fuels.

Being a lonely beacon of restraint in a wicked world is too high a price to pay for the growth-retarding, job-costing effects of a hand-to-mouth outlook for electricity supplies.

In the absence of a gas find, electricity security means developing coal.

Climate change policy is already pragmatic enough to allow major energy users to negotiate an exemption from the carbon tax if their competitiveness would otherwise be at risk. Small electricity consumers deserve the same break.

Maybe these are times when the Energy Minister and the Climate Change Minister should be at loggerheads - not the same man.