Big rethink needed on electricity

By JOHN BLAKELEY*

As we enter summer, the prospect of winter electricity shortages may seem a long way off. But the New Zealand Energy Conference in October was told that one of our key challenges over the next few years lies in maintaining secure electricity supply.

Demand is continuing to increase, the Maui gas field is running down and there is an ever-present risk of water shortages in our hydro-generation system in a dry year.

Over the next two years the output from Maui may start to diminish significantly and it could run out about three years after that.

In fact, the output from Maui is starting to decline and it is losing the capacity to supply large amounts of additional gas for electricity generation in a dry year, such as we experienced in 1992 and 2001.

The replacement for Maui will be several smaller gas fields, but the rate of discovery of new gas in the past few years does not give much confidence that new fields will be able to fully replace Maui in the longer term.

If electricity demand continues to increase, coal may have to be considered as a substitute for natural gas in thermal power stations. The consequences would be an increase in carbon dioxide emissions for each unit of electricity generated, and other environmental issues to be remedied.

One obvious step for the Government would be to take a more active leadership role and seek to limit, or even reverse, increases in electricity demand which have averaged 1.5 to 2 per cent annually over the past decade.

This would have an immediate national benefit of limiting price rises, since we are often told that the price of all electricity will have to rise before any generating company builds the next big power station.

Major industries processing and adding value to farming and forestry products have often said that significant price rises will help to destroy an international competitive advantage that New Zealand has in relatively low energy costs.

At the energy conference, the Energy Minister, Pete Hodgson, said that most businesses could cut their energy costs by 20 to 30 per cent through efficiencies. The same is true for owners of domestic houses, especially if they were prepared to install a solar water-heating system.

If the Government were to actively promote a national campaign for zero increase in electricity demand, there might be surprising benefits. But that presents a conflict of interest because the Government owns three of our four major electricity companies and thus has a vested interest in seeing these companies grow and generate increasing profits.

The situation is further complicated by our ratification of the Kyoto Protocol, under which we must seek to limit greenhouse gas emissions. One obvious way to do this is to more actively promote conservation and more efficient use of energy and more renewable energy generation.

In October, the Government set a target for additional renewable generation by 2012 equivalent to 30 times the amount of electricity used annually by a city the size of Nelson. At the time, Mr Hodgson said the target was challenging but within reach. But it may not be achievable with present Government policies.

Renewable energy projects are often smaller ones, such as wind farms or smaller hydro or geothermal developments. These tend to be promoted by smaller, innovative companies. Large generating companies favour major projects.

Until the Government deals with the conflict it has between wanting to receive increasing profits from its large generating companies and wanting to limit electricity prise rises, maintain security of supply and meet its commitment to the Kyoto Protocol, we will not be heading towards a sustainable energy future.

A first step towards resolving this conflict might be for the Government to state that, unlike its other wholly owned businesses which are expected, as cash cows, to increase their sales and profits and give a good return on investment, the three electricity companies have a different set of objectives.

Perhaps these could be to take some responsibility for maintaining security of supply, to try to reduce electricity sales by active promotion of conservation and efficiency, and to require that these companies' new investments in generation use renewable energy.

Unless and until such action is taken, it will remain easy to think that the Government's commitment to the Kyoto Protocol is based more on possessing large carbon credits from pine forests than a genuine commitment to reducing greenhouse gas emissions.

The Government's thinking must change. Generating and retailing electricity should no longer be seen as a free-market activity such as producing and selling baked beans.

It is a vital national service that must soon face up to four big challenges: maintaining an electricity price that is comparatively low internationally, so our export industries retain a competitive advantage; responding to the running down of the Maui gas field; maintaining security of supply, especially in a dry winter; and committing to the Kyoto Protocol to reduce greenhouse gas emissions.

Greater emphasis on the need for more conservation and efficiency in electricity use is at the heart of a solution to all these challenges.

* John Blakeley, a research fellow at Unitec, is convenor of the Sustainable Energy Forum.

Herald feature: Environment