Powerless progress: NZ energy woes continue as winter starts to bite
Our national grid struggles to deliver enough power where and when it’s most needed by households and industry – in cold snaps. Richard Woodd looks at why we don’t have electricity to burn.
New Zealand’s energy sector has entered another tense winter. Householders and business owners reliant on consistent power supply have become accustomed to uncertainty: the past four winters have brought supply crises and price spikes when power is most needed – during cold snaps – with low hydro lake storage levels heading into winter the only constant. This year, the same conditions apply.
Last year, the inconvenience and health risks of the big chill were overshadowed by economics: Winston Pulp International blamed power prices for the closure of two central North Island mills, with 230 jobs lost in already struggling small towns. Some other major electricity users temporarily closed to avoid massive spot price increases in July and August.
At the end of June, another 230 jobs will go when paper production ceases at the Japanese-owned Kinleith Mill in Tokoroa, with Oji Fibre Solutions largely blaming skyrocketing power costs.
And for businesses and householders, power prices keep rising – despite the unreliability. Last November, Consumer NZ estimated electricity bills were placing financial strain on 20% of households. From this month, household bills are set to rise by an average $10-$25 a month, depending on where you live, after transmission network operator Transpower was allowed to raise charges to cover increased costs and improvements to the national grid.
Added to that, the gradual phase-out of low user tariffs (due to end by 2027) is hitting low-income and single-person households and older age-groups hardest, an April report by the Ministry of Business, Innovation and Employment found. And higher energy costs for producers and manufacturers flow on to the cost of food and other consumer goods.
In March, Transpower warned our hydro catchments had had the driest start to the year in 93 years, though by the end of April storage had improved to 83% of the historic mean. Higher gas prices linked to declining gas fields are adding to the pressure, though Resources Minister Shane Jones is adamant there’s enough gas and coal this year to keep the lights on.
Last July and August, as the dry spell extended well into winter, spot prices soared above $800 per megawatt hour, compared with an average of around $180/MWh between 2018 and 2023, before slumping after the rains came. Such spikes impose enormous costs on big electricity users.
Our electricity market, long acknowledged as deeply flawed, effectively incentivises generators to withhold supply so spot prices spike. The Electricity Authority recently introduced changes to address such “scarcity pricing”.
About 60% of our electricity comes from hydro generation, 18% from geothermal, 9% gas, 7% wind and just over 2% coal. With climate change affecting lake levels and gas supply dwindling, we’ve been slow to bring new renewable capacity on stream as demand has grown. Just as our electricity market distorts pricing, it fails to incentivise generators to invest in additional capacity – particularly if it might be needed only at times of peak demand.