KEY POINTS:
The Government is to direct state-owned electricity generators not to build any more fossil fuel-burning power stations and is considering extending the ban to private sector generators as well.
Unveiling its energy strategy yesterday, Energy Minister David Parker said the Government's view was that all new generation should
be from renewable sources, except to the extent needed to ensure security of supply.
He would be writing to the SOE generators making it clear the Government expected them to follow that guidance.
Because competitive neutrality between the private sector and the SOEs was important, the Government was considering legislation to limit new baseload fossil fuel generation over the next 10 years, he said. It would decide by the end of the year.
That would curtail investor-owned Contact Energy's rights to build another gas-fired plant at Otahuhu, as well as state-owned Genesis Energy's plans for one at Rodney. Contact already has resource consents for Otahuhu.
It has said it intends its next $2 billion of generation investment to be renewables, but has warned that it might need to go ahead with Otahuhu C if it continues to suffer delays in getting resource consents.
Contact has called for greater use of the Government's powers to "call in" nationally significant projects under the Resource Management Act and direct them either to a special purpose board of inquiry or to the Environment Court - speeding up the consent process.
Parker said the call-in power was there to be used. "I expect more projects to be called-in in the future".
Genesis has just completed a 400MW gas-fired plant next to its old 1000MW coal-fired plant at Huntly.
It plans a similar 240MW machine at Rodney by 2010 and another at the same site by 2015, allowing it to progressively move the coal-burning plant to a reserve role.
By frustrating Genesis's plans for more gas-fired capacity the Government risks keeping Huntly's emissions-intensive plant operating harder for longer.
"It's a fiction that building more thermal power stations reduces your long-term emissions," Parker said.
"It's better to take longer to retire existing thermals and replace them with renewables."
Parker also rejected the idea that this sort of regulatory intervention could be seen as a vote of no confidence in the emissions trading regime the Government plans for the electricity sector from 2010. "We are in a transition and we want to be certain we are pointed the right way. We don't think it will impose any additional cost on consumers," he said.
Cost curves in the energy strategy document indicate the Government believes up to 3000MW of geothermal and wind power capacity is available at prices competitive with gas-fired generation, assuming a gas price of $9 a gigajoule and a carbon price of $25 a tonne. That carbon price would add 2c a kilowatt/hour, or 10 per cent, to the retail price of electricity.
If gas prices were to move higher than that, towards the cost of imported liquefied natural gas, or if carbon prices rose in the longer term towards $50 a tonne, renewable generation would be cheaper than gas-fired generation, it says.
But Major Electricity Users Group executive director Ralph Matthes said the market should be allowed to determine whether renewables were cheaper or not.
"It's pretty draconian. Not so much a strategy as a green wish list."
Genesis chairman Brian Corban said it was helpful to know the policy framework the company would have to operate in.
And it was proper for the Government as shareholdler to set parameters for strategic direction and major capital invetsment.
"So I have no problem with it. In fact it gives us greater certainty."
Government plans
* The Government has set a target of meeting 90 per cent of electricity demand from renewable sources like hydro, wind and geothermal steam. It is about 70 per cent now.
* It will tell the three State-owned generators not to build any more fossil-fuel plants for everyday baseload purposes. Some might be needed as peaking or reserve capacity.
* And it is considering legislating to extend the ban to private sector generators, in practice Contact Energy.
