Electricity should be one of New Zealand’s competitive advantages.
Most of our power already comes from renewable sources: hydro, geothermal and, increasingly, wind and solar.
Yet in recent years, electricity has become a liability: rising prices have forced manufacturers to close and have added to the cost-of-living crisis.
We have two weaknesses.
Every few years, the rain, wind and sunshine fail us. A cold winter then means shortages.
The second weakness is politicians whose U-turns have destroyed cost-effective dry-year solutions and created investor uncertainty.
After the 2024 dry-year price spike, the coalition Government commissioned international consultants Frontier Economics to report on the electricity market.
We did not learn much that we didn’t already know. Dry-year price spikes cause economic damage and hurt household budgets. Policy reversals prevent the market from finding solutions.
We already know gas is the ideal dry-year back-up fuel. It produces about 40% fewer emissions than coal, and gas-fired stations are relatively cheap and easy to start up.
What we don’t know is how much gas New Zealand has. Twenty-five sedimentary basins have been identified; only one, Taranaki, has been fully exploited. We may be sitting on enormous undiscovered gas reserves.
For at least the next 20 years, gas remains the cheapest, cleanest and most practical solution. But even if exploration resumed tomorrow, it could take a decade to rebuild the capability and infrastructure that have been dismantled.
Gas is needed not only for electricity generation but as a direct industrial and household fuel. The Kapuni urea plant, for example, produces about 260,000 tonnes of urea per year, which is vital for New Zealand agriculture and will close without gas.
The Government has accepted the consultants’ recommendation for an LNG import terminal, which could be a cost-effective bridge until new gas discoveries are made. In time, it might even become an export facility.
An even better solution would be to use the Electricity Authority’s new regulatory powers to require all generators to collaborate on a credible dry-year solution. LNG may be part of it, but it need not be the only answer.
There are practical, workable solutions to dry years.
Our second weakness, politicians, is the harder problem.
Frontier’s report found that three of the gentailers have under-invested in new generation because their majority shareholder, the state, has demanded dividends rather than development.
The Minister of Finance’s letter to the gentailers last week, offering Government “support” for new investment, is an admission that successive Governments have held the sector back.
The letter is nuts. The Government is running an increasing deficit; any public investment would have to be borrowed.
Frontier’s sensible recommendation was that the Crown sell down its stakes in the gentailers. Repaying debt would be better for taxpayers and the market.
The idea that dry-year security needs yet another government entity can only come from those who have forgotten history.
I lived that history. As minister in charge of generation, the national grid and local lines, I found irrational, expensive, inefficient projects.
The Motunui gas-to-gasoline plant and the Clyde Dam are two examples.
Motunui cost more than $2 billion, roughly $6b or so in today’s dollars, and produced petrol at twice the world price.
The Clyde Dam, originally estimated at less than $200 million, ended up costing more than $2b and delivered power to the wrong end of the country.
Anyone who thinks today’s politicians will make better investment decisions should examine Labour’s record of gesture politics.
Officials advised the ban on offshore exploration would cause electricity prices to rise, increase coal imports and increase emissions. They were right.
Labour then set the “aspirational” target of 100% renewable electricity by 2030 while opposing the only practical zero-emissions dry-year technology: nuclear power.
Labour has no realistic plan. The proposed Lake Onslow pumped-hydro scheme is a hugely expensive fantasy that would take years to build.
Labour’s threat to reimpose the exploration ban is economic sabotage.
We should tell National to get the Government out of generation and focus on fixing the nation’s books. And tell Labour to abandon gesture politics and get some practical policies.
Energy projects are inherently risky. The gas-to-gasoline plant looked brilliant when petrol prices were forecast to stay high. The Clyde Dam was built for an aluminium smelter that never eventuated.
Ministers and officials lack the expertise to make such bets. The private sector, guided by price signals and accountable for losses, is better equipped to take the risks.
If we want secure, affordable, low-emission electricity, the Government should stop meddling and let the market work.
Catch up on the debates that dominated the week by signing up to our Opinion newsletter – a weekly round-up of our best commentary.
