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You’d think I’d be feeling more positive about the future this week; after all, Adrian Orr, governor of the Reserve Bank of New Zealand, cut the official cash rate – the OCR – this week.
The Reserve Bank says it expects annual inflation to fall, and that price pressures were waning hence the rate cut. That’s got to be good news for those who were struggling to keep up with rising mortgage payments.
Instead, though, I find myself once again asking “Who’s accountable for the mess we’re in?” I’m talking about the electricity crisis, something I cannot believe isn’t a bigger story dominating newspaper headlines and TV news bulletins.
Hundreds of staff at the country’s pulp and paper mills face either losing their jobs or having to deal with temporary shutdowns because wholesale electricity prices have leapt from – get this – about $100 per megawatt hour in September 2021 to about $700 last week.
Not surprisingly, some firms just can’t meet those costs. At Oji Fibre Solutions in Penrose, for example, 75 staff returned from a scheduled maintenance shutdown to a bleak announcement: The proposal is to shut the plant because of the cost of doing business. Chief executive Dr Jon Ryder says dramatically rising electricity costs were contributing to the business losing money.
Pan Pac Forest Products has also suspended pulp production, as have Winstone Pulp International’s two central North Island plants. Pan Pac managing director Tony Clifford says the plant is energy intensive and they have no choice but to cease production.
He says the move would have a negative flow-on effect for the local economy, shops and small towns in the area. Clifford’s right. Without security of supply, GDP goes backwards fast. We need growth in the economy, so shutting down production has come at the worst time.
Electricity supplier Octopus Energy’s Margaret Cooney says the wider situation was entirely predictable, adding that those currently exposed to spot pricing were hurting, but soon households would also feel the pain, because the energy component of power bills had doubled in price.
Cooney says increases of up to 40% are possible. We’ll see those bills in our inboxes in the coming months.
It’s not wrong to say people are shivering inside their homes and being laid off in their jobs because the price of power has shot up and it’s unaffordable to have the heater on or keep the business open.
You expect this in outer Siberia or North Korea, which is infamous for rolling blackouts. It’s an uncomfortable comparison, isn’t it?
And it’s the last thing we need as we try to climb out of what seems to be a deeper recession than even the Reserve Bank had picked. Here’s what the pile-up has looked like: first, it was Covid; then inflation, high interest rates, and falling house prices; a cost-of-living crisis; mass public sector redundancies followed by rising unemployment; and now this – an energy crisis that has really come at us as some kind of curveball.
We haven’t planned, built and completed enough projects that generate power. Apparently, according to the experts, there is a pipeline of work under way, but it could take five years to complete. In the meantime, we’re left with the very real possibility of lights out.
No one I spoke to could say if power prices would fall as a result of these planned investments. How has this happened?
The answer takes us back to the late 1990s when the National Party’s Max Bradford, then Minister of Energy, broke up the Electricity Corporation of New Zealand (ECNZ) into smaller companies because he figured competition would bring lower prices.
And while it can get you a better price when you shop around, the theme for 20 years has been ever-increasing power prices. And fewer than 10% of people switch. In the meantime, those power companies have made record profits to the extent that Shane Jones, Associate Minister of Energy, says they’re excessive and it’s profiteering.
It’s hard to disagree. If the hefty profits guaranteed supply, it would be an easier pill to swallow. But it’s a triple whammy – high prices, big profits and possible blackouts.
What we really need – needed, long before now – was more of those profits returned to the grid, more generation planned sooner and the barriers to building eased. After all, it’s not like your neighbour putting in a small fence; these are projects that sustain life and are of the utmost public importance. Hopefully, the government’s fast-track bill helps generators recommit to NZ, but they are a bit gun-shy.
Would a rain dance to fill up our hydro-dams make any difference? What is there to lose, because it’s now true that we can’t produce enough power gas to keep the lights on and the factories chugging.
This is not a loose prediction; it’s happening on our doorstep this week, last week, and my prediction is we haven’t seen the last of it. It’s a cock-up and all of our own making – no blaming market forces internationally – this is on us.
Some things simply shouldn’t be a nice-to-have; some things are vital and need to take priority, otherwise we contract, starve, shiver, and die. So, here’s the choice: NZ 2024, a modern and confident, forward-looking economy or an anxious one where the Reserve Bank flip flops, where power generators can’t keep the lights on, and where our workers are sent home from work because of it?
It’s time to stop the chin stroking and the opposition, we simply need to build, baby, build. The alternative is too scary to contemplate.
