Shane Jones, an Associate Energy Minister, has threatened a “Soviet” intervention in energy markets, which he argued incentivises corporate profits over energy security and affordability.
The senior coalition minister made the comments during and after a speech at the Local Government New Zealand conference in Wellington on Thursday.
While his speech was primarily focused on the regional investment fund, he went off topic to comment on high wholesale electricity prices.
“Just a final thing on the question of energy: I’m not going to back down,” he said.
“You and I, as New Zealanders, have ended up acquiescing and tolerating an energy system that is making our economy poorer. If we are not careful, it is going to hollow out parts of provincial NZ, because it's no longer internationally competitive to run businesses or invest here with the current trajectory of power prices.”
His comment was met with applause from an audience consisting mostly of councillors and mayors from around the country.
In a Q&A session following his speech, Jones was asked whether the regional investment fund could support businesses forced to close due to high energy costs.
He said it was not possible to use the fund for that purpose, but added that Cabinet was seeking advice on how to assist those firms and was preparing a policy to address energy prices.
Energy Minister Simeon Brown was likely to make an announcement within the next few days, showing that the government was being “very vigorous" in reducing the cost of energy.
Jones said his preference was to fix the systemic problems which were driving the unaffordable prices.
“It's not lost on me that we are on a trajectory like Mount Everest, up and up and up. But sadly, there has been a historical unwillingness to change the rules and regulations [of energy markets],” he said.
The rules allowed generating retail companies, or gentailers, to profit from scarcity and didn’t give priority to energy security or energy affordability.
“It gives priority to corporate profit. And, I don't care if you think that I sound like a Soviet saying that; I don't like that system, if it's driving New Zealanders into hardship,” he said, to further applause.
Jones said energy companies had had a long time to prepare for a dry winter: “In my view they are buggering up rural New Zealand”.
Green solution
Scott Willis, the Green Party’s energy spokesperson, said Jones was correct that the structure of the energy market was not incentivising sufficient new development.
He has drafted a Member’s Bill which would force big electricity companies’ to operate their generation and retail businesses separately, to prevent cross-subsidisation.
“Since [Minister Jones] is making such promising noises, here's an opportunity for him to prove that he's willing to take action,” he said.
“My bill isn't going to solve everything overnight, but it is going to be a key part in bringing the energy system into the 21st century for cheaper, cleaner, smarter electricity”.
A common criticism of the electricity market is that gentailers are incentivised to limit supply in order to keep wholesale prices relatively high.
Extra profits made from generating electricity could plausibly be used to subsidise any losses incurred by the retail arm.
The Commerce Commission said, in an internal memo, that the market structure makes this behaviour possible, although it didn’t investigate whether it was actually happening.
Advocates for the gentailers say the market has delivered well for consumers overall and making changes to its structure could upset supply investments which are underway.
Willis said separating retail and generation would help to incentivise retailers which are innovating with distributed energy systems, such as solar panels and demand response technologies in private homes.
The proposal could also drive more large-scale investment in renewable energy, as it would encourage all retailers to support new entrants capable of offering lower wholesale prices.
Members’ bills are drawn at random for debate in Parliament or can be introduced if supported by 62 non-executive MPs.
77 Comments
Has Jones been reading the gentailers annual results? Genesis reported today, pretty poor results. Mercury, pretty average too. They have not been profiteering.
The blame lies with government as far as I'm concerned - they set up the market how it is, they fluffed around with Rio Tinto leaving gentailers unsure for years whether 15% of their demand would disappear in the next year or two, and to top it all off, the coalition cancelled the NZ battery project designed to solve the dry year problem.
Ironically, the gentailers are now making huge investments as the future is more certain. The reports this week show roughly double the companies profits last year has been invested in new generation, with investment only speeding up. Prepare for the government to screw up this good progress with unhelpful regulation.
Great comment.
Jones is between a rock and a dry place - idiocy meets ideology. But you can bet your bottom dollar the rich will come out better off, and the poor will be made to shoulder yet another layer of debt.
'showing that the government was being “very vigorous" in reducing the cost of energy.'
That's nonsense - energy underwrites money, and the EROEI average of global energy is decreasing. The only levers they have are debt, and rationing (again, bet your bottom dollar the bottom-end would get hammered).
Willis has his head around 'renewable' energy (better called 'rebuildable') but he's a techno-optimist, where we're going he's liable to squander the last shot we have, on something unmaintainable. Not that every other politician won't do that...
100% agree
not knowing what was happening with Tiwai caused all sorts of inaction. Also all the attempts to develop other generation in the last 20 years stopped, some people need to have a hard look at themselves.
now with a record dry year and having imported 100s of thousands of new people to live here, all using electricity, we have a problem - anyone surprised?
The gentailors aren’t perfect but they are just following the rules.
Agree but you really need to add the detail as to why. If only to educate readers who do not understand. The biggest part of that flawed system is the legislated dividend to government that is required.
I am starting to believe that for NZ this industry should never have been privatised and should be set up to be a no loss - no profit model with the proviso of ongoing investment in infrastructure and capacity.
I think we have gone past the point of re nationalising. The dividends the governments get are income - lose it and it has to come from somewhere else.
With shares in the gentailors held by literally every kiwisaver account in NZ as a portion good luck telling people they are taking a hit.
We need to look at the pricing system and also make sure the uber large contracts to Tiwai are not left in limbo to the last minute. Somehow we need to have these with a 3 to 5 year renew or end clause so the market can see what is happening.
There is still a need to work out dry year emergency supply to keep prices in check. I don't understand enough about Onslow etc but we need to start to realise we are a very small country in a big Ocean (full of sharks happy to eat us) and we need to make sure what industry we can do isn't crucified in the name of a free market - no one else does this - just look at the billions being spent in the US, China and Europe by Governments.
I'll give the goverment credit for making clear there were not going to be any more $30m John Key handouts to the smelter, and investing in lines upgrades to allow more of the manapouri power to head north.
Calling their bluff probably incentivised them to commit to a 20 year contract. Used to be they would do short term contracts and at every election cycle claim they were gonna have to shut down unless the government gave them some more subsidy.
Yes, that's fair. The right decisions were made in the end, but we are still suffering from that delay. Also there has been progress in the fast tracking of generation (expect to see more stories in the press from upset NIMBYs).
However, the government is being naïve if they think sufficient generation should have sprung out of the ground by now. It's coming, but will take a few years.
Pointing out Jones' nonsense; half the 'profit' goes to a Government which - already in debt - went for 'tax cuts'.
Nuts.
But they're going to add layers; more electricity debt, more water debt, more infrastructure debt - oh wait, the bottom end and the middle are already tapped-out.
We need a new model. Not just electricity; the ideology which spawned Bradford, was always fatally flawed.
We urgently need CGT, house price controls and a new all powerful competition commission.
Stuff that will make NZ an attractive place to live and work for in-demand young to middle age graduate kids.
At present our system favors wealthy landlords and big businesses. It's causing a lot of social issues and mass exodus of the very people we need to build our economy and deliver public services.
Many wanted tax cuts and they represented a large part of why nats won.
It's not the amount of money saved.. but the principle of letting us decide how to spend our money (tax brackets creep just feeds inefficiencies in govt spending).
Tax brackets and council rates should be linked to inflation. Govt and local govt should have to learn to do more with what they have.
That was a question with two built-in boundaries (gentailers and now).
That is no way to think. Next thing, you'll be saying they need to make a profit.
No, the whole thing needs onion-peeled. As does the next layer.
For a start, there's the carbon pulse - 300 year max of fossil bonanza, of which we're half way through, so maybe 30 years left (exponential doubling-times; we went from 1/4 depleted to 1/2 depleted in the last 30; the next is to 'all gone').
Then we know we'll be on rebuildables (they're not renewable; dams, windmills, PV, batteries). Nobody has proven that we can build rebuildables, using rebuildables. Musk is trying, but a long way short and we're out of time.
So we can expect to use the existing grid, and dams, longer than their design-life, as per post-USSR Cuba. How long can we maintain that? And will the recipient clusters (cities) still be habitable post fossil energy?
And how do we adjudicate sunlit-acre use? Because that is all we'll have; for food, firewood, timber (all energy harvesting) erosion-control, absorption.
And, of course, the growth-requiring financial ponzi is history, on beyond fossil energy input. So 'paying' and 'profiting' and 'investing' all become somewhat moot.
And your question was? :) Systems thinking takes you to interesting places; well beyond the here and now. Short term, the government should re-create the NZED, and act on behalf of the people, not big business. Not going to happen - so they're out on their ear next election or next after. And competition is bollocks; as I said, the ideology is past its use-by date. The system is broken - it chose to be too fragile to handle increased consumption coupled with decreases water-flows. Trace that to us not 'paying enough'.
The blame here also lies with the impacted enterprises.
They have the ability to hedge/buy futures to insure themselves against price shocks.
Last year, when prices were often $1 per mwh, they would have made out like bandits, this year it goes the other way and its everyone elses fault.
Just a shame its working kiwis often impacted by their shutdowns.
Yes, I think that's a big part of it. Meanwhile Methanex and Tiwai Point are being paid to forego their contracted energy - good planning on their part, and it means they can contribute to the dry year solution. Methanex are making more money sending their contracted gas to Contact and Genesis than they would turning it into methanol, and I'm sure Tiwai Point is being compensated well.
Other companies unable to plan for high prices now turn to the government to save them from their failures.
Correct. Those struggling companies should look at themself why they are not producing higher value products from trees. Scandinavian companies are showing for years how it is done. See: www.upm.com and www.storaenso.com. New Zealand companies are stuck in the last century with their product offerings and their dependancy on lower electricity pricing.
There's a very good investigation of that issue on newsroom. The mills claim the cost of hedges have gone up to point that if they hedged all their power they would go out of business. Overseas competitor can purcahse power far cheaper than what they can get power for on futures contracts.
Mercury disputes that, claiming they will sell hedges at close to the price that Tiwai gets. I presume they mean the most recent contract and not the 3.5cents/kWh of the 2020 contract and/or with the $30M government subsidy that Tiwai got in the John Key era.
https://newsroom.co.nz/2024/08/21/the-power-and-the-story-are-electrici…
Futures contracts here: https://www.emi.ea.govt.nz/Forward%20markets/Reports/KOP4VM?_rsdr=L60M&…
2020 it was <$100 /MWh.
Since 2022 fluctuating between 150-200 MWh.
On a finite planet, there was always going to come a time when hedging had no place to go (no future to offlay onto; nowhere for the Bookie's runner to go).
Approaching that point will be an exponential trip, and a multiply-faceted one.
Hence the sudden appearance of ratepayer debt, decaying infrastructure, shortages, taxpayer inability-to-fund (hospitals, education) all at once. Hedging has to be payed from somewhere; that somewhere was the future - but we over-booked the future.
Interesting times, so to speak.
Could have brought for $150, only a 20% increase in real terms since 2019. Should be rolling off parts of the portfolio regularly.
If you read between the lines (link), most of them were on contracts that came off all at once. They never asked "what if we come off in a dry year or period of uncertainty driving short term futures". They've been doing less sophisticated management than the average NZ mortgaged homeowner.
Conversely, if long run futures remain considerably higher than the marginal cost to build + firming then comcom needs to investigate sure.
The minister should have done his job and started the winter conservation campaign when storage fell under 2000 GWh,which is a significant constraint on forward prices.The reduction in vanity lighting such as External building and bridges is significant with total winter lighting being 12% of load.Implementing it now will see price curves reduce until the new geothermal comes fully online in late September (around 12 GWh a week)
2000GWh was reached in June. By that stage Contact had the CCGT on and Huntly was running 3 units on coal. Tauhara was generating about 130MW about then.
The lighting load is relatively insignificant. You can't see the blip in the graph when lights go on or off. .
2000 GWh was reached in July,the third Huntly station came on around the same time by replacing the turbine with parts from the retired unit,and inflows were near zero and following historical inflow curves,wind fell across July into aug removing 250 GWh over 3 weeks.Tauhara now moving back up,with Te Huka 3 starting commissioning late sept.Lighting is significant which is why it is first mover in grid alert campaign.
Huntly has been running three units not swapping them in and out. There have been some planned outages in that time. - the retired unit G3, was retired about 10 years ago after a motoring incident.
The inflows weren't zero or anywhere near it, They were low, not historically low, but the problems according to the Transpower graphs and comparing them to previous years is there were just no big rain events.
The issue here is terrible energy policy over decades. The bottom line is that we still need fossil fuels, especially gas, but the development and exploration of fossil fuels has been shunned and outright band. We are left with hydro and so-called renewables which are simply not reliable when hydro drops out. New Zealand has got itself into the classic Germany situation through misguided ideologically driven policy and a rushed transition.
The only way out of this will be to embrace nuclear.
Nuclear is becoming an ideology unto itself these days!
The problem is we run out of power half a decade before we could get a nuclear plant consented and built, and much like Lake Onslow, Nuclear would have to be state built and funded and that would see the existing generators basically pull out of any forward investment in anything due to "market uncertainty". So we run out of power.
One nuclear plant could run the whole country, so we wouldn't build two. Then when that plant needs maintenance I guess we all take a holiday in Fiji for a month until the lights come back on?
Just seems nonsensical for a small island nation. There's plenty of big singleton generation options that can meet the whole country's needs with one scheme, whether nuclear, Onslow or Cook Strait Tidal. Just nobody wants to pay that much or wait that long.
I suspect Onslow was canned more because it was a long term play (kind of like CRL) that will be expensive, risky and not necessarily deliver political brownie points to the team that funds it. Why spend $10b of your precious budget if your kids might be in parliament by the time it's finished?
If you went away to look for an idealish solution to the problem we face, something like Onslow is a no brainer. Just modern NZ would struggle to pull it off without it becoming a disaster project.
Of course this is how things like Tiwai and Clyde were done, but our governments only have the attention span for bandaids these days.
I quite liked the idea floated here the other week of using existing hydro as a battery and investing in new generation. Maybe the government should buy back one of the big hydro damns and only turn it on when it is needed, which would signal to the market that more generation is needed in general.
Not quite. There's an investigation going on to put the new design modular nuke power plants into ship again. The big cargo ships could well benefit and these smaller designs have less impact, are significantly safer by design. All still experimental/theoretical so far but rapidly moving along.
https://world-nuclear-news.org/Articles/Regulatory-assessment-of-nuclea…
Meanwhile back in the real world, Murray:
https://www.forbes.com/sites/rogerpielke/2019/09/30/net-zero-carbon-dio…
'So the math here is simple: to achieve net-zero carbon dioxide emissions by 2050, the world would need to deploy 3 Turkey Point nuclear plants worth of carbon-free energy every two days, starting tomorrow and continuing to 2050. At the same time, a Turkey Point nuclear plant worth of fossil fuels would need to be decommissioned every day, starting tomorrow and continuing to 2050.'
Scale, always scale...
What's it to be?
On the one hand we are told NZ do your bit, don't give up because of China/India coal etc etc.
Nek minute its....sorta don't do anything.
So we either do stuff like modular nuke (or forced contraception globally) and go out trying...or we all take a cyanide pill at midnight.
Or we think about living differently. Between you writing that, and me writing this, I've been to a food- resilience meeting - 50 people discussion how to feed a city, in the future...
Pretty amazing collection of skills - that is how to be proactive. The current system is short-term doomed; might as well invent the next.
:)
The NZ power generation system is fatally flawed & is driving NZ businesses & NZ Inc into the ground. Successive govts set up the system & are completely responsible for the mess.
New Zealand’s energy costs have created a spark recently with wholesale electricity prices being the highest in the developed world.
a) Only 4 main power generators with 80% of the market. Straightforward oligopoly.
b) Given the way the market is structured there is no incentive for generators to add capacity using expensive capital. They make more profit from scarcity.
c) In no other market do all market participants get all paid the highest price in any supply period.
d) The existence of gentailers
e) The failure of successive govts to address the dry year issue. Given b) the generators are not going to do it (exactly the reason they squealed when Lake Onslow was raised as an option)
f) There is a direct link between GDP and energy consumption, so we need power prices to be close to the average price if NZ Inc is to be successful, not the marginal price NZ Inc is paying. This can only be achieved with a non-profit SOE which would make the right investment decisions in the right places at the right time, and which would have a marginal price much closer the average price.
g) As shareholder the govt syphons off massive taxes and profits from the generators at the expense of NZ business growth. And the govt spends this money with a lower benefit/cost return. (some govt spending isnt even subject to cost benefit assessment)
h) There are 100,000 households already in energy poverty, with more to come should the proposed $15/month increase go through for Transpower & the Lines Companies.
A non-profit SoE? I know we have some of those, but they're not meant to be...
Remember that money siphoned off from the existing gentailers is in lieu of tax we'd otherwise have to pay. So we could have lower power prices but higher income/sales taxes and maybe not a net benefit to average consumers. Given how we cancelled an anti smoking policy to retain $1b of excise revenue, I can't imagine the govt would give up power dividends without a fight.
Replacing an oligopoly with a state monopoly might not produce better prices. And would disincentivise private generation like installing solar in residential or commercial/agri settings.
As for everyone getting the marginal price, you'll probably find that happens more or less in most price setting markets. A house auction where you're selling off 10 identical townhouses is unlikely to see the price radically dropping as you get through them, so long as everyone knows 10 are for sale. Demand will dictate what they're worth and they'll go for that.
f) There is a direct link between GDP and energy consumption, so we need power prices to be close the average price if NZ Inc is to be successful
Sounds like some serious long term, inter-generational planning is needed now, where decisions must be made with the possibility of little immediate benefit, in order to best preserve the system we have.
I do take issue with b. There is a huge incentive to add capacity now that Tiwai Point has a long term contract and isn't threatening to throw their toys out of the pram. You can see this by reading the gentailer reports - they are all investing heavily in new supply. Then you can look at all the newcomers wanting to stick up solar panels around the country. There is a huge wave of investment that has just started breaking - billions of dollars every year.
b) Given the way the market is structured there is no incentive for generators to add capacity using expensive capital. They make more profit from scarcity.
That's why all the gentailers financial results in the last week have significantly downgraded their outlook for this coming year due mostly to the dry year?
https://www.nzherald.co.nz/business/mercury-nz-lifts-net-profit-159-say…
I think that energy prices are just the latest scapegoat in the “cost-of-living” crisis. Said crisis being nothing more than a byproduct of the Govt’s decision/tactic to use the OCR and inflation to stabilise the economy.
We’re all feeling the pain right now of the “soft landing”. Hold tight for a while longer and soon we’ll all remember why the current electricity market structure was introduced. That is, to encourage competition and new market entrants through… you guessed it - temporary scarcity and higher prices.
Jones is going to achieve the exact opposite. If generators can't charge high spot prices, they will make up for it through higher general prices (they won't reduce their profit). This takes away the market signals to build more dry season generation. They may as well not have a market if they are going to override supply and demand.
Its never a good time to interfere with a market in this way. He needs to remove any distortions (if there are any), not wave a big stick. He may indeed know this, but this kind of stupidity is a vote winner.
Markets should always be 'interfered with'.
On behalf of all who follow, for one.
Markets are short-term, regard all things physical and biospheric as 'externalities', and always try and avoid/transfer real costs. That benefits a small cohort, for a small time. It was a flawed ideology, in the longer term.
Set up a market that prioritises short term profitability over long term investment in what is a public good, and then create a regulatory regime that makes it an expensive nightmare to set up new generation, while discouraging innovation.
Way to go, government, way to go.
Jones is just making noises to keep the sheeple happy to show he might do something. Of a more serious nature is companies going to the wall. As a householder I'd rather see rolling blackouts to keep companies going but that would be politically unpalatable. I'm glad to see LNG is being looked at but this won't solve the current problem for at least three years.
Some have said that those companies that didn't lock in a price should go to the wall. Locking in prices for more than a year could very well put them out of business anyway so between a rock and a hard place.
I still blame Labour even if its nine months after the election. They had six years to sort something out and the LNG report in May23 was far too late and I doubt if they would have done anything.
I understand the National govt are re-looking at LNG it but they have had 8-9 months since the report to progress or say no to LNG. What's taken them so long? Must have been the general election. No time for the real serious issues.
When the marine logistics and economics are properly analysed, LNG will be shown to be impracticable.
New Plymouth is the only feasible port when considering gas transmission issue, and that port is too small to hold two large LNG vessels simultaneously (Floating Storage Regasification Unit and the LNG tanker that is unloading into it)
Marsden Point might be large enough, but gas transmission down to existing gas turbines will be too difficult.
Too in-contention from here on in. They're at the point of blowing up pipelines, and we've been fighting over oil for decades. Who want's to be beholden to that short-term 'solution'?
'As a householder I'd rather see rolling blackouts to keep companies going'
Interesting take - I suspect that in the light of day (or the lack of it at night) you will reconsider. Who are businesses for, if not people? Many folk have lost sight of that.
Indeed. NIWA says "near normal or above normal rainfall is about equally likely for all regions of the country during August-October. An increase in rainfall is possible from mid-August. Monitor NIWA35 for updates.
Despite an expected increase in rainfall over this three-month period, flows will recover gradually. This will continue to affect water availability for some sectors, such as hydro scheme operators and for agricultural applications."
https://niwa.co.nz/climate-and-weather/seasonal-climate-outlook/seasona…
Meanwhile in Europe
Electricity prices in Europe are going negative - and that's bad
Periods of excess electricity production are on the rise thanks to the growth of renewable energy, forcing commercial power generators to sell for negative prices. Unfortunately, this doesn't mean lower household bills
It's probably too far away,if it ever happens, but nuclear fusion would be a sweet solution:
Stacks of distributed solar generation in the meantime could help households and free up some power for the bigger users.
I've been off-grid on PV, for 20 years at the current house, and can add another 5 years on yachts. So no knocker.
But I can tell you that my mid-quality 20-year-old panels, are now at 90%. That's better than the '25 year life' thing that is bandied about, nonetheless it is entropy by any other name.
We have not proven - as I mentioned upthread - that we can produce PV panels using PV panels. So you're advocating a 25-year stop-gap. Is that the best use of the last of the carbon-pulse?
Maybe it is, but it's the question we need to ask as a society. As always, individual choices are Tragedy-of-the=Commons different from society as a whole; I see my PV as stored oil, for when I cannot get it. Storing future energy, in other words. For me, medium term, it makes sense. But for society long-term?
No point in asking society. As I often say, people are morons.
As others on this website have more politely said, people will work in their own self-interests even when it will clearly bite them in the nether regions in years to come. I am as guilty a moron as anyone in that regard. In years past we would have looked to our leaders for sage advice and wise direction but that was then and our current crop (and the ones before them and the ones before them, etc.) don't fill me with confidence.
At least with a 25-year stop gap we should have a much better idea if the nuclear fusion idea is a goer or if we need to train citizens to carry buckets of water from the downstream side of the Clyde dam back up to Lake Dunstan (other daft ideas are available).
Maybe we just need more cats
https://www.amazon.com.au/The-Solar-Cat-Book/dp/0898150183
Wow, 1979, just shows how long the problem, and solutions, have been obvious to many.
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