Minister Shane Jones with a mug reading "Matua of Mining" – a birthday present. Photo / Thomas Coughlan
Senior NZ First minister Shane Jones wants his party to consider re-nationalising the gentailers as part of a massive energy market shake-up.
Jones has drafted a memo to his party leader Winston Peters on the state of the energy market in New Zealand and potential fixes.
The 21-page paper, seen by the Herald, warned that if nothing changes, the “least-worst” trajectory of the economy would be the “managed decline of our gas sector” and higher prices for industrial users, leading to the deindustrialisation of New Zealand.
The last two years have seen a slew of firms shut up shop, blaming high energy prices.
The paper said “gas is crucial for New Zealand’s stability and growth”. It warned that despite the coalition Government overturning the offshore oil and gas ban, Labour and the Greens’ promise to reinstate it was deterring investment.
Jones said the country was “at a crossroads in terms of securing a future in which gas continues to play a part. We need to shore up supplies of gas within the next 12 months”.
“Now is the time for urgency and for bold ideas. As the Government, it is incumbent upon us to make decisions necessary to ensure New Zealand is resilient by securing our gas supply until more production comes online,” he said.
The paper noted re-nationalisation of the gentailers may be needed to “enable generation infrastructure to be built where and when it is needed to prioritise and enable productivity and economic growth rather than maximising shareholder profits”.
This was not Jones’ favoured option. Instead, the paper focused on changing regulatory settings to allow industrial users greater access to gas and potentially encouraging the construction of a new coal-fired power plant. Another option is to get the Government to ink long-term contracts with the gentailers.
The interventions were designed to suppress prices by bringing on more electricity generation.
Speaking to the Herald, Jones said that his party had wanted the energy portfolio in Government but had been unsuccessful. Jones has been a part of discussions on the Frontier Economics report into the electricity market, which is currently on ministers’ desks.
Jones’ paper to Peters suggests NZ First is not confident the Frontier report will spur dramatic reforms of the sector.
He said a key problem was there was no one clearly responsible for ongoing energy security in New Zealand.
“The gentailers exist for net profit after tax, and their profits depend on constantly shorting the market. We’re fools to think they are going to deliver on energy security,” Jones said.
He wanted some form of regulation to ensure market participants were investing in net new generation to bring down prices.
“Energy security is a public good,” Jones said.
“Without energy security and affordable prices, we are going to deindustrialise.”
He said the gentailers had done “nothing to ensure the long-term energy security of New Zealand”.
Jones said the status quo of part-privatisation and competition was not working.
“The four market players are regarded as evidence of competition, but that is demonstrably not true. Competition is meant to lead to more efficient pricing equations and in actual fact we have an oligopoly which is creating a bunch of energy outcomes which is negative for the economy,” he said.
Another option, splitting up the gentailers, is also in the paper.
The Greens currently have a Members Bill in the ballot that would do this. Jones said he would be unlikely to support this bill, but reckoned Labour, the Greens, Te Pāti Māori and NZ First might be able to support a separation of the generation and retail arms of the gentailers.
“But I’m in a coalition agreement – I have to show fidelity,” Jones said.
He admitted National and Act were yet to back his ideas.
Jones’ paper is particularly concerned with deindustrialisation. A few New Zealand manufacturers use gas, but these manufacturers are struggling to keep the lights on as more electricity generation takes gas away from those industrial users.
“If we don’t get new gas to market or displace gas from electricity generation, we will see decreasing volumes of gas available for industrial, commercial or domestic use and none available from 2029,” Jones wrote in the paper.
Jones told the Herald “electrifying New Zealand is going to require a whole host of firms and manufacturing enterprises to transition on to new forms of energy. The difficulty is if they are going to go on to the electrical grid system is that the future electricity is such [that manufacturers] tell me they can’t afford to pay those bills".
“For those that want to go on to bioenergy, they cannot afford the capital costs,” he said.
Jones proposed a number of fixes to the energy market.
One involved substituting the gas currently used for electricity generation with coal, which has higher emissions.
This would allow industrial users a greater supply of gas, but increase the overall emissions of the energy sector.
“This will mean, in the short term, that more coal will need to be imported from overseas. Huntly has already built up a large stockpile and in my opinion more should be used to power the Huntly plant,” Jones wrote.
“Until Huntly has the ability and the supply of alternative fuels such as biofuel, it is imperative that it is kept going by the use of coal – imported in the short term and supplied domestically in the medium term."
Jones’ other solution was to build a new coal power station, potentially with Government support.
“It will be necessary, in my view, to build a new coal-blended power station with capacity of 300MW [megawatts]. The test will be who takes the risk.
“If Genesis builds it at Huntly, it will want guarantees, which will not come from other gentailers. If the Crown underwrites this development to boost security of supply, we must control the price to avoid more gouging.”
Another option, considered by Jones, would be to change regulatory settings to encourage the burning of gas with higher emissions content.
“The Kaimiro and Māui East gas fields in Taranaki have gas reserves that are not being utilised because the gas has high CO2 content,” Jones said.
“There is about 30TJ [terajoules] per day available at Kaimiro, and a smaller amount at Māui East, approximately 10-15% of total supply,” he said.
He warned that actually bringing this gas to market might require changing the Emissions Trading Scheme to exempt the gas, which Jones said made domestic gas less competitive than imported gas.
He said an exemption “may just tip the business case for production and distribution of domestically produced CO2″.