Analysts from the world\u2019s foremost economic forum have rebuked the Government\u2019s plans to import liquefied gas and spark a renaissance in domestic fossil fuel production.<\/p>\n
In its annual economic survey of New Zealand released last week, the Organisation for Economic Co-operation and Development (OECD) warned many of the Government\u2019s energy policies were unlikely to achieve their desired effect.<\/p>\n
While the criticism of the planned liquefied natural gas (LNG) import terminal garnered headlines, the analysts urged for a far greater rethink of the electricity system, saying any reliance on long-term fossil fuel use was imprudent.<\/p>\n
\u201cGas supply could be increased through domestic production and the Government\u2019s decision to contract for an LNG import facility intended to backstop dry\u2011year risk. However, a prudent strategy under high uncertainty is to reduce electricity\u2019s structural dependence on gas by progressively replacing gas peaking with batteries and expanding non\u2011gas seasonal firming generation (eg pumped hydro), supported by greater demand\u2011side flexibility,\u201d the analysts wrote.<\/p>\n
Instead of positioning energy security, affordability and sustainability as the traditional \u201ctrilemma\u201d \u2013 each tugging in a different direction from the other \u2013 the OECD said New Zealand could achieve stable supply and lower prices by getting off fossil fuels.<\/p>\n
\u201cAffordability will remain elusive without breaking the gas\u2013electricity price link by scaling non\u2011gas long\u2011duration firming, expanding demand response and strengthening competition,\u201d the forum found.<\/p>\n
It said the major problem in the electricity system was the lack of new firm generation (power stations that can switch on or off when needed).<\/p>\n
After several decades of stagnant growth in power demand and supply, New Zealand has recently begun building large amounts of new solar and wind. At the same time, gas reserves have begun to run dry far earlier than expected.<\/p>\n
The confluence of the two means there is less gas available to firm \u201clumpy\u201d generation from renewable sources that rely on wind, sun or rain.<\/p>\n
These are not new observations \u2013 they were identified in last year\u2019s Frontier review of the power sector and have long been the standard industry understanding. The Government and opposition alike broadly agree on this diagnosis of the problem.<\/p>\n
Where the OECD has diverged from the Government\u2019s view, and that widely held in some parts of the energy sector, is in identifying that new fossil fuels are not the answer.<\/p>\n
LNG, it found, should be used, if used at all, as a short-term transition tool to meet dry-year seasonal firming needs only.<\/p>\n
\u201cPublic sponsorship of LNG risks locking\u2011in fossil dependence and weakening incentives for alternatives such as biomass, pumped hydro and demand response. The conflict in the Middle East underlines that introducing reliance on LNG would exacerbate New Zealand\u2019s already high vulnerability to imported liquid fuels shortages. In addition, it would create a single-point-of-failure risk because there is only one viable port of entry in Taranaki.\u201d<\/p>\n