Among those who felt the brunt of escalating costs were industrial companies, who have experienced a 34% increase in prices over the past two years, the Major Energy Users\u2019 Group (MEUG) says.<\/p>\n
MEUG, which has among its membership Fonterra and NZ Steel, said the 150% jump in wholesale electricity prices over the past eight years had harmed the country.<\/p>\n
\u201cAs consumers, we are constantly told that we should trust the market to work it out. The problem with this is the market created the situation we are in,\u201d MEUG chair John Harbord said.<\/p>\n
He says the big generators only build new power projects when prices are high, and when demand for increased generation already exists.<\/p>\n
This results in a market that is always on the edge of a shortage and perpetual scarcity pricing, he told the Herald.<\/p>\n
\u201cIt\u2019s not a question of whether the market is \u2018broken\u2019 or not, it\u2019s a question of whether the market is delivering the outcomes we need, and it is not,\u201c Harbord said.<\/p>\n
\u201cWe do need something around firming.\u201d<\/p>\n
In energy, \u201cfirming\u201d ensures constant supply of power to the grid, regardless of conditions at the time.<\/p>\n
\u201cIn the big picture, the system is becoming more reliant on intermittent renewable generation – solar and wind – and we need something to effectively pick up the slack for when the weather is not co-operating,\u201d Harbord said.<\/p>\n
\u201cThe theory is that as you build more solar and wind, you displace a bit of hydro, and the more water can be left in the lakes to be used for some of that firming.<\/p>\n
\u201cWhat we would like to see more of is lakes being used as that sort of \u2018battery\u2019 storage by providing some of the firming going forward – effectively keeping more water in the lakes rather than running them down.<\/p>\n
\u201cBut we do need the backstop of thermal firming and the issue there is outside of Genesis – no one wants to do it.<\/p>\n
\u201cSo the system fundamentally needs it, but almost no one wants to do it.\u201d<\/p>\n
The market has already gone a long way towards backing up Genesis Energy, which runs the coal and gas-fired Huntly Power Station, which backs up the grid.<\/p>\n
Genesis and the three other big power generators have signed agreements to establish a strategic coal reserve centred on Huntly.<\/p>\n
MEUG has welcomed the arrangement, but wants to see still more security built in.<\/p>\n
\u201cThat\u2019s something that we would expect the Government to do – to either make it easier for Genesis to expand the firming that it currently has – or to do something else to ensure we have firming going forward,\u201d Harbord said.<\/p>\n
Genesis has been building its coal stockpile at Huntly and the company last week struck a two-year deal with BT Mining to supply 240,000 tonnes to the power station.<\/p>\n
\u201cWe have the stockpile, but the reality is that the stockpile we have now is the same as it was this time last year, so to speak,\u201d Harbord said.<\/p>\n
Next year there will be less firming if, as expected, Contact Energy\u2019s ageing gas-fired Taranaki Combined Cycle is retired at the end of this year.<\/p>\n
While MEUG was supportive of the deal between the big four, Harbord says the entire electricity system is \u201cfundamentally reliant\u201d on Huntly, which plays a key role when the hydro lakes are low or when the wind stops blowing.<\/p>\n
\u201cFrom a resilience or security perspective, I think that\u2019s not enough,\u201d he said.<\/p>\n
\u201cWe should have a second firming and peaking plant somewhere.<\/p>\n
\u201cWe can\u2019t have a system where all our eggs are in one basket because if something bad happens at Huntly, then the entire system potentially falls over,\u201d he said.<\/p>\n
\u201cThat\u2019s a vulnerability that we should not have, because the market is very good at pricing and risk.<\/p>\n
There were many \u201crisk points\u201d that needed to be reduced in order to bring prices down, he said.<\/p>\n
\u201cThe long-term price they need in order to generate a good profit is around the $90 to $100 a megawatt hour point mark. <\/p>\n
\u201cAnd over the last seven, eight years, the price has consistently averaged $150, $160 a megawatt hour, and for prolonged periods, it\u2019s been well above that.<\/p>\n
\u201cAnd even in periods this year when we\u2019ve had ample rainfall and the rest of it, it hasn\u2019t dropped it down to that point.<\/p>\n
\u201cSo even when we\u2019ve had an abundance of energy, the price is still not actually as low as people tell us it should be.\u201d<\/p>\n
Harbord says it comes back to scarcity pricing.<\/p>\n
\u201cWe\u2019ve got to figure out why is our price higher than it should be?<\/p>\n
\u201cThe market has perpetual scarcity pricing and a lot of that is around building generation and utilising it.\u201d<\/p>\n