Nearly $1 million was budgeted by the Government for the independent deep dive into New Zealand’s electricity market, including $200,000 for two separate peer reviews.
Energy Minister Simon Watts’ office won’t say exactly how much was spent on the 270-page Frontier Economics report into the market and the two peer reviews of that report, citing contractual agreements.
However, after an open tender process, there was an estimated budget of roughly $810,000, excluding GST.
This broke down to an estimated spend of $550,000 for the Frontier Economics report, up to $60,000 for a local expert to advise Frontier on the New Zealand market, and $100,000 each on two separate peer reviews.
The package of actions the Government announced on Wednesday went nowhere near as far as what Frontier suggested. Its top recommendations included setting up a new entity to deal with thermal generation and divesting Crown shareholdings in the gentailers, both of which were rejected by Cabinet.
Instead, the Government opted to launch a procurement process for a liquefied natural gas facility, reassure the gentailers that capital was available to support investment and request more information from the sector about ways to kickstart projects that will boost supply. There were other technical actions announced.
Speaking to the Herald on Thursday afternoon, Watts said the review process was “absolutely” worth the cost.
“This is a complex and challenging industry and sector and it has a massive impact on New Zealand’s economy and its economic growth,” he said.
“As a result of that, I think New Zealanders expect that if governments are going to take actions to undertake reform, that they need to be very well informed.”
He said having essentially three different perspectives – the Frontier report and then two peer reviews – gave the Government “confidence that we have done robust analysis around the problem, but also the solutions”.
Watts highlighted there were actions recommended by Frontier that the peer reviewers were “very critical” of.
“The fact that we haven’t implemented all the recommendations by Frontier is because we took on board their feedback and the international peer review and then made a decision off the back of it,” he said.
“It’s important because these are really big decisions and they have significant consequences, and we want to make sure that we get it right.”
Dr Megan Woods, Labour’s spokeswoman for energy, said spending money on coming up with a plan to fix the energy system wasn’t “inherently a bad thing”, but her concern was the Government only taking up a small number of its recommendations.
“The things that the Government have elected to do are things they could have cracked on with two years ago when we started going through our first dry winter.”
She questioned why the report was done and why time was spent waiting on it, only for the Government to “decide what they were going to do anyway, [which] wasn’t going to come out of the report”.
“There are some bold recommendations in there but the Government has shown it has the inability to make difficult and bold and big decisions.”
There were questions yesterday about whether the Government writing to gentailers to reassure them capital was available to support investment in new generation would actually lead to anything.
Economic Growth Minister Nicola Willis said the gentailers had told Frontier their investment intentions had been curtailed by the perception they wouldn’t be able to access capital from the Crown.
Willis said the gentailers welcomed the signal the Government was sending and she was confident “there will be plans being taken out of drawers and reimagined that would otherwise be gathering dust”.
She said the gentailers hadn’t reached out to the Government previously to ask about capital.
“Let’s get real here. How realistic do you think it would have been for one of those major companies to go to [former Energy Minister] Megan Woods or [former Finance Minister] Grant Robertson and say, can we have some cash to build a coal plant?”
Woods told the Herald on Thursday that wasn’t fair. She said the gentailers’ concern about Crown capital support wasn’t something she had “heard strongly” before but acknowledged the current ownership model constrained the gentailers’ ability to raise capital. The Crown has a legally mandated 51% stake in the companies.
“Capital constraint was not one I’d been hearing as the impediment for us building out at the rate we needed to. But if all the Government has got is that it is going to become a pen pal to the gentailers, it could have cracked on with that two years ago.”
She said, when Labour was in power, the gentailers had been “really excited” about the electrification occurring through the Government Investment in Decarbonising Industry (GIDI) fund and money going towards transmission and distribution upgrades.
“I think the gentailers knew that there was a very open door. They also knew we were willing to listen to ideas. They knew what our policy was in terms of no new oil and gas exploration and what that had done was excite them about cracking on with building new renewable generation.”
The Government’s energy announcement yesterday was highly anticipated, with speculation running rife for months about what direction ministers would end up going.
The reaction was ultimately mixed, with one of the gentailers, Meridian, calling it a “bold” move that provided “clarity”. The willingness on the Government’s part to participate in equity capital raising would add momentum to development, the company said.
The BusinessNZ Energy Council called the package a positive step, welcoming the Government’s decision not to create uncertainty in the sector.
Others were critical of a lack of ambition. The Major Electricity Users’ Group said there were “helpful elements but no bold actions” and it didn’t see how it would “materially support struggling businesses in the short term”.
The Employers and Manufacturers Association also considered it underwhelming, but recognised it was always unlikely the Government would have taken more radical steps such as selling off the Crown’s shares in the gentailers.
Asked for his assessment of the response, Watts first pointed the Herald to the market reaction. Share prices for Meridian, Mercury, Genesis and Contact all increased.
“The markets are a good signal of well-informed commentators and investors looking at what’s done and making a call. That was a very positive response and that’s good.
“I think it’s fair to say there was a high degree of expectation in the market driven by a number of areas within the market leading up to this announcement.”
He believed the Government’s actions would “deal with the problem”, but acknowledged there were some who had a “different view”. The minister said “everyone has a different vested interest”.
On the matter of high expectations, the Herald asked Watts if he thought his associate Energy Minister Shane Jones had added to them with his rhetoric.
Jones has called for “bold” ideas and has said he doesn’t want to be a politician that doesn’t do enough to address structural issues with the sector. Notably, Jones refused to respond to multiple requests for comment after the announcement.
Watts didn’t give an assessment on his colleague’s language, but noted Wednesday’s announcement reflected the Government’s position and the Cabinet paper taken was a “joint paper between Shane and I”.
“We worked really closely together through the drafting of this plan and I had full support from my Government and our Government of this plan.”
He was “confident” the package would lead to downward pressure on energy prices, saying there is a premium currently built into power bills reflecting the concern over dry years. If the Government can address those concerns, Watts believes households will feel the benefit.
Woods, however, said the energy package was a “huge missed opportunity” and argued there is “public appetite” for change to the country’s “broken energy system”.
Labour doesn’t have an energy policy yet – though it will reinstate the ban on new offshore oil and gas exploration – but Woods said the “fundamentals of what’s not working at the moment” needed to be addressed, such as bringing more generation online.
“We also have to have an answer to the question around how do we affordably store for the dry year and also for our peaking capacity through a normal winter. That has been very much in our thinking as we’ve gone away and developed a policy.”
Jamie Ensor is a senior political reporter in the NZ Herald press gallery team based at Parliament. He was previously a TV reporter and digital producer in the Newshub press gallery office. He was a finalist this year for Political Journalist of the Year at the Voyager Media Awards.