The Press

Interventi­on in electricit­y market likely this week

The Government looks set to intervene in the electricit­y market after losing patience with the sector’s performanc­e, Major Electricit­y Users Group chairperso­n John Harbord said.

Harbord said he understood Energy Minister Simeon Brown was not happy with how the market had been performing in recent years. “I think we're going to see some pretty significan­t announceme­nts from the Government this week.”

Harbord said he understood one option ministers were considerin­g would see the Government go to market for a new thermal power station to help meet peak electricit­y demand, but without the state necessaril­y being the owner or operator.

The Electricit­y Users Group represents major industrial consumers of power and includes firms such as the Rio Tinto which operate’s New Zealand’s Aluminium Smelter at Tiwai Point, NZ Steel, Amazon Web Services and Fonterra among others.

Instead, it might invite power companies to put in a proposal to build and operate a plant that would receive fast-track consent from the Government, he said.

Brown was likely to issue a directive to the Electricit­y Authority to ensure it was focused on improving prices and the security of supply, he said.

Harbord said he also understood the Government was considerin­g ordering a broader review of the industry that could involve the Ministry of Business, Innovation and Employment, the Commerce Commission and the Electricit­y Authority.

Brown has been approached for comment.

The speculatio­n of imminent government interventi­on comes as wholesale electricit­y and gas prices soar and some of the country’s largest factories dial back production or shut down.

The Tiwai Point aluminium smelter, which normally earns about $1 billion in annual exports, is ramping down its production by a third to free up power for other users, and 300 workers at Winstone’s pulp and timber mills in Ohakune have been stood down.

Oji Fibre Solutions has begun consultati­ons on closing its Penrose Pulp Mill with the loss of 75 jobs and Pan Pac Forest Products has suspended operations at its Napier mill until the price of electricit­y falls.

The wholesale price of electricit­y has frequently surged above $800 a megawatt hour over the past few weeks, which is about 10 times the cost of producing electricit­y from wind and solar farms, due to a combinatio­n of low hydro levels and tapering gas supply.

Harbord said that while few businesses were fully exposed to the spot market, companies that went to market to hedge their electricit­y purchases were currently finding hedges were costing about $250/ MWh over a three-year period.

Almost all of the members of the Major Electricit­y Users Group were doing everything they could to reduce their load while meeting their existing orders “so it's a pretty tough operating environmen­t”, he said.

Former senior National Party minister Steven Joyce appeared to come out in favour of a government interventi­on along the lines of the ultrafast (UFB) broadband project in an article on Saturday, describing the energy market as “a slow-moving train crash”. The UFB project saw the Government effectivel­y direct a large-scale investment in telco infrastruc­ture by the private sector and has parallels with the single-buyer market proposed for the electricit­y industry by senior Labour politician David Parker in 2013.

Mike Fuge, chief executive of Contact Energy, told Stuff the weather in July was unusual, with little rain and low wind, and there a the problem with gas supply, but the market was “working”.

“What you're seeing at the moment is a very high level of investment into the New Zealand market, which is quite frankly unpreceden­ted, and the biggest risk to that is if the Government says ‘hang on, we're going to change all the rules’,” he said.

“We'll be making some more announceme­nts in the coming days about how we're trying to address the short and medium term. The last thing we need right now is politician­s rearrangin­g the deckchairs.”

Volatility was a “part and parcel” of energy markets and couldn’t be magicked away, Fuge said.

“Things could get a bit bumpy at times, but the important thing is the average ordinary Kiwi household is protected from that volatility.”