Power price rises to hit big users hard says expert

By CHRIS DANIELS energy writer

The days of cheap power are over, says one of the Government's top energy advisers.

Mike Lear, head of the Ministry of Economic Development's resources and network branch, told an Auckland utilities conference yesterday that New Zealand was in a major transitional period.

The era of cheap energy was gone, he said, which would have a big impact on energy-intensive industries set up specifically to take advantage of this cheap power.

Lear spent some time talking about the availability of natural gas, which was critical to new generation plant being built, as it was the cheapest fuel available.

There was only limited scope for new hydro-electric schemes, he said, apart from Project Aqua, in which Meridian will build power stations along the lower reaches of the Waitaki River.

Lear outlined some of the options available to the Government to change the wholesale market system to ensure better security of supply.

It could separate generation from retail, allowing companies to have either one or the other, not both as they can now.

The idea behind this plan, favoured by the major energy users, is that it would provide better pricing signals to consumers - meaning prices would go up for more consumers when generation is running short.

Lear said this would have an unclear effect on security of supply and could reduce the viability of new projects.

The Government had made no decisions, and a lengthy implementation process was likely, especially since law changes might be needed, he said.

The critical importance of gas to the security of electricity supply was echoed yesterday in Auckland by Energy Minister Pete Hodgson.

In a speech to the Gas Association of New Zealand's annual meeting last night, he defended the Government's actions on encouraging exploration for new gas fields.

Finding new gas is important for encouraging the construction of power stations. Plans for at least two gas-fired stations have been shelved due to a lack of long-term natural gas contracts.

Hodgson said the development of a gas market, in line with the Government Policy Statement (GPS), was important.

"I wish to say at the outset, though I hope not threateningly, that the Government expects much faster progress on the gas GPS than we have had on the electricity GPS."

Unlike his actions in the electricity sector, Hodgson has not sought what he describes as a "legislative backstop" from Parliament - meaning if he is unhappy with progress in the gas industry, he cannot step in and impose a governance structure.

While focusing on the wholesale market for gas and consistent standards and protocols in the industry, he said the gas companies should not underestimate how important it was to keep good relations with residential customers.

"The residential gas market is the 'public face' of the industry and consumers will be quick to call for regulatory control if they believe they are not getting a fair deal."