An energy expert has warned that there is unlikely to be any significant relief in New Zealand’s electricity prices any time soon as processors roll off old contracts onto new ones that are more than double what they were paying three years ago.
Jonathan Pooch, the managing director of energy consulting firm DETA in Christchurch, warned that the current environment is likely to be the new normal, and New Zealand is paying the price for not having a clear national strategy on energy generation and use.
His caution came as the latest spot energy prices leapt over 50% in a week while South Island hydro lake storage continues to shrink to less than 50% of the five-year average.
The surge in prices comes as primary sector processors are poised to enter their peak energy demand period for milk and meat processing.
“There is nothing fundamentally in the market that will see prices fall in the next 18 months,” Pooch said.
He emphasised the power cost surge goes deeper than simply a dry winter depressing hydro lake levels and is more like “the holes in the Swiss cheese lining up”.
Those “holes” comprise the move to not go ahead with the giant Onslow hydro battery project, a lack of gas supply, lower lakes, and the Tiwai aluminium smelter continuing operations.
If anything, gas shortages are underpinning the strong price rises that are unlikely to abate.
“The gas shortage is setting the price as it is the incremental energy source. We have always expected, and had, hydro lake volatility, but this is not that.”
He said the last Labour government’s decision to ban gas and oil exploration had had some effect on that shortage, but even without that exploration NZ’s existing reserves had proven to be over-estimated.
Data provided by the Ministry for Business Innovation and Employment show there was a 20% reduction in NZ’s proven and probable reserves in the past year; 30% of that was due to reserves being downgraded, and others removed altogether as companies better understood that they held less than expected.
To rectify that there have been discussions about NZ importing containerised liquid natural gas, which would cap the price of natural gas.
“It would still be more expensive but could be one response. Another longer term one is to build an LNG terminal, but that of course takes time.”
Biogas generated through crop, food and landfill waste is also a viable option, but dependent on location.
Bioenergy Association director Brian Cox said estimates are that biogas could supply about 10% of NZ’s renewable energy and could be easily piped into the national gas grid. He said estimates are ultimately that, by 2050, 40% of NZ’s fossil fuels could be replaced by biogas.
Biofuel has been a go-to option for some large processors as they move out of coal, but even this has lacked a clear direction, and consolidation among suppliers to help bring down the cost of the fuel sources.
“So it becomes a bit of a chicken and egg situation,” said Pooch.
He said biogas and biofuels have suffered from the country’s lack of clear strategy.
There are, however, processors who took a riskier position when securing their electricity contracts and who were now getting profile for the impact it is having on them.
Politically the high electricity prices will start to have an impression if processors have to lay off staff. Pooch noted that responses to crises can often be better than planning ahead, but NZ’s reactive response to this one will always cost more than being proactive years earlier.
“This is really just indicative of the lack of infrastructure investment in general.”
Large amounts of money are going to have to be spent to get NZ in a better position.
“Whether that is third party finance, private public partnerships, overseas investment, there are good options, but none can be done without good vision and foresight.”
Greater generation capacity, more storage to enhance the limited hydro storage, and a more interactive market where pricing reflects users higher or lower daily load demands are all components of a revised system, he said.
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Skyrocketing power prices are hitting farmers and processors hard. Senior reporter Richard Rennie says it looks like a challenge that will be here for some time as there’s no obvious fix on the horizon.
Meat and dairy processors, orchardists and irrigators are all grappling with the problem and many are looking for efficiencies and ways to trim costs in other areas.
