The electricity crisis is putting New Zealand's international reputation at risk, with at least two international companies pulling out because they lack confidence in the energy supply, an industry leader has said.
According to John Harbord, chairman of the Major Electricity Users Group, the crisis has not only affected exporters, but has also made foreign investors cautious.
“We know that international companies refuse to invest in New Zealand because they don't trust our electricity system,” Harbord said.
He would not name the companies, but says they have told him they do not think the electricity prices make sense and have not seen any proactive government or regulator addressing the issue.
He tells The detail that wholesale prices have been extremely high for six years and that the futures market predicts that they will continue to rise, which will eventually trickle down to household bills. Something needs to be done quickly to change that, he says.
“I don't think we have much confidence that the industry is going to solve this if it has its way, because a lot of the problems that have contributed to our coming in have arisen from the decisions or actions of the current players in the market,” he says.
Many in the industry and government point the finger at the big four gentailers (generators and retailers): Mercury, Meridian, Contact and Genesis. They dominate the energy market and are accused of making excessive profits, not helped by the ineffective regulator, the Electricity Authority.
“I think we need some kind of reset and I think we need government to help with that,” Harbord says.
The electricity crisis is partly due to the gas crisis, with supplies running out sooner and faster than expected. Gas accounts for 10 percent of New Zealand’s electricity supply. Add to that the drastically low water levels of the hydroelectric lakes and the lack of wind to power our wind turbines, and the result is record prices for wholesale electricity.
“On top of that, demand is up about 3 or 4 per cent on the same period last year,” said RNZ business editor Gyles Beckford. “So less fuel supplies, more demand and that means the energy companies are scrambling to get the generation out there to meet everything.”
High gas and electricity prices have put mills under extreme pressure. Operations at Tangiwai Sawmill and Karioi Pulpmill in Ruapehu have been halted and owner Winstone Pulp International is reconsidering its future as energy costs almost triple, Fonterra says high gas and electricity prices are pushing up production costs and meat company ANZCO predicts its electricity bill will double last year.
The gas shortage also has consequences for the government and its contracts for supply to schools and hospitals.
In response to the gas crisis, the country’s largest gas user, Methanex, said this week it would halt production until October and sell its gas to Contact and Genesis. The Canadian producer exports $800 million worth of methanol but had already cut capacity.
Beckford says Methanex has come to the country's aid while making more profits.
“Although they may appear to be generous in helping the country, in fact there is a cold commercial mind behind it that says, 'Look, we make more money selling you gas than we do actually making and selling methanol.'”
Harbord says this is the worst energy crisis he's ever seen.
“What we're seeing now are a number of factors that are really working long-term. If we don't address them, the situation is only going to get worse, for years to come, not just for an hour or two on a given day.”
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