Emissions trading will raise power prices, warns Contact chief

David Baldwin. Photo / Mark Mitchell

A carbon emissions trading scheme would raise electricity power prices by around 4 per cent, Contact Energy chief executive David Baldwin has warned.

Appearing before the parliamentary select committee reviewing the emissions trading scheme on Thursday, Mr Baldwin said even though half of Contact's generation was from gas-fired plants, the company supported an ETS, which underpinned the more than $2 billion of renewable energy projects it has in advanced stages of development.

"If there was a carbon price of 13 [$30] that would translate into a 4 per cent increase in retail prices," Mr Baldwin told the MPs. Current carbon prices are around $25 a tonne.

He laid out how Contact sees the country's generation portfolio developing out to 2025, compared with projected demand.

"New Zealand will be thin on generation capacity over the next 10 to 15 years," he said.

The forecast assumes carbon pricing will relegate the only coal-fired power station, Genesis Energy's 1000MW plant at Huntly, to a back-up role by 2014.

"The ETS is critical to whether Huntly is baseload or substituted by geothermal. Our position is it should be [replaced by geothermal generation]," Mr Baldwin said.

Genesis itself told the committee that to have faced a carbon price of $30 a tonne in its 2007/08 financial year would have cost it $150 million. Even on a declining pattern of use of Huntly's coal-fired units it would still face a cost of around 4100 million a year.

Unlike trade-exposed industrial emitters, the ETS gives power companies no free allocation of units. It is assumed they, like oil companies, will be able to pass their carbon costs on to consumers.

Genesis disputes this. "Electricity prices are determined primarily by the cost of new capacity - all renewable in the near term - not the running costs of existing generation, which for thermal plants will now include carbon costs."

It wants the ETS amended so that:

- The stationary energy sector does not have to fully comply until 2012, not from the start of next year as the current law requires.

- Yet-to-be-specified environmental restrictions on the kind of internationally traded carbon credits which can be imported are dropped.

- Provision is made for a price cap, as in the Australian scheme, to guard against "unreasonable" volatility in prices.

Emitters are able to "borrow", that is, defer some of their carbon liability to future compliance periods.

The country's largest electricity consumer, Rio Tinto Alcan, which owns 80 per cent of the Tiwai Pt aluminium smelter, wants changes to the rules for the free allocation of units to trade-exposed emitters.

It says basing allocation on emissions in the arbitrary year of 2005 fails to recognise early efforts to reduce emissions.