John Carnegie: The need for energy diversity

Demand for electricity is set to grow with the move to electric vehicles. Photo / NZME

OPINION:

Prime Minister Chris Hipkins has indicated he will reprioritise the Government’s policy agenda and zero in on the cost-of-living pressures facing New Zealand.

The energy sector should not avoid such scrutiny. Some have already suggested the controversial $4 billion Lake Onslow pumped hydroelectricity scheme is up for consideration. If we hope to maintain an affordable and reliable energy system through the transition to a net zero emissions economy, the project should be shelved. Least‑cost solutions need to be back on the table.

Not a day goes by when we do not flick switches, press buttons or tap at screens to receive a flash of light in instant response. Access to affordable and reliable energy is so intertwined with our daily lives that we take it for granted.

But if policymakers get our energy policy settings wrong, we could be left with expensive, unreliable energy that is characterised by sustained high prices and blackouts. Europe’s current energy challenges, while caused by a unique set of circumstances, are a cautionary tale.

New Zealand is fortunate to have a largely renewable electricity sector. The hydro-lakes and geothermal do the heavy lifting, generating about 55 per cent and 18 per cent of our electricity respectively. Wind makes up most of the balance of our renewable mix, generating about 6 per cent of our electricity, and this is set to increase. Solar generation is currently marginal, at less than 1 per cent, though this will grow too.

But there are always going to be times when the lakes are low, the sun isn’t shining, or the wind isn’t blowing. Lake inflows are currently low with forward electricity prices rising dramatically to reflect this risk. That’s where natural gas plays a key role. Fast-start gas-fired generation can be brought online quickly to help meet spikes in electricity demand when renewables are either at capacity, or unable to perform due to poor weather conditions. Without natural gas acting as a backstop, our largely renewable electricity system would not be reliable for thousands of Kiwi households and businesses. Gas still meets over 10 per cent of New Zealand’s electricity needs.

We have also been using imported coal from Indonesia to generate electricity. This is a poor choice for our environment as it has much higher carbon emissions than natural gas. Nor can it meet the changing needs of our electricity system.

John Carnegie is chief executive of Energy Resources Aotearoa. Photo / Supplied

Right now, there is more pressure on New Zealand’s electricity system than ever before. The way Kiwis use energy is changing. Increasingly we are adopting electric or plug-in hybrid vehicles, public transport is becoming electrified, and Wellington has led the charge with the first fully electric ferry in the Southern Hemisphere. By electrifying processes, Kiwis are moving away from traditional fuels such as petrol and diesel and placing further demand on the electricity system.

Normally, that would not be such a problem. Much like Uber surge pricing, when demand for a product is high its price increases as a signal to encourage more of that product to be made available, until prices eventually fall back to near where they were. But right now, public policies are a handbrake to bringing more energy online to keep prices affordable.

For the past few years, the Government has been toying with the idea of building the very expensive Lake Onslow pumped hydro scheme, in the far reaches of the South Island, to replace the back‑up role of natural gas and coal. Conservative estimates show the project would take more than 10 years and cost taxpayers at least $4 billion – perhaps much more – to complete. The gargantuan project has not yet got off the ground, but its prospect has spooked energy generators who are wary of committing to their own projects while the Government is flexing its muscles in the sector.

The electricity sector has presented an alternative suite of options that would deliver better outcomes across affordability, reliability and sustainability – all at lower cost to our economy and consumers. We should think long and hard before betting it all on one project.

Politicians and officials should be mindful that different energy types have different roles to play in meeting Kiwis’ energy needs. A country with all its energy eggs in one basket will be left far too susceptible to weather events or other shocks.

In the lead-up to the next election, expect all sorts of rhetoric from politicians about their preferred types of energy or why certain energy projects need Government funding. It pays to bring it back to basics: rather than picking winners and trying to regulate or subsidise our way to prosperity, we need stable and predictable policy settings so that energy firms can invest with confidence. It’s critical they do so, because they’re putting their shareholders’ money on the line to make sure we have reliable energy at our fingertips, at the least possible price to consumers.

New Zealand needs more energy to maintain our lifestyles and power the economy. The best way to do that is with boring, predictable policy that supports significant new investment, rather than grand, expensive projects and subsidies that crowd it out.

John Carnegie is Chief Executive of Energy Resources Aotearoa, New Zealand’s peak energy advocacy organisation.