Debate heats up over wisdom of new government-backed thermal power station

Thursday, 15 August 2024

The Government is under pressure to set out its thinking on how to avoid an ongoing power crunch.

New Zealand does need a new gas power station to ensure electricity supply can meet demand and the Government may need to provide some form of investment guarantee, Energy Resources Aotearoa believes.

The investment might make sense even if no new local sources of gas could be brought on stream and a new power station had to instead burn imported liquified natural gas, the industry association’s chief executive, John Carnegie, told The Post.

John Harbord, chief executive of the Major Electricity Users Group, which represents large industrial and commercial users of electricity, said earlier this week he understood the Government was considering providing support for a new thermal power station.

Energy Minister Simeon Brown has not so far commented on that claim, saying only that the Government was “considering a range of options on how to address New Zealand’s energy security”.

Labour’s energy spokesperson Megan Woods voiced scepticism, saying it was “not surprising that we're seeing the industry body for oil and gas coming out in support of a gas peaker”.

Energy Resources Aotearoa’s members are predominantly businesses involved in the oil and gas sector.

Woods said she wouldn’t comment on whether government support for an investment was a good idea or not without seeing the detail of what was being considered, but a new gas peaker was not something Labour had considered when in government.

“The advice I had is that it wasn't what was needed for New Zealand's future.”

The suggestion of government support for thermal power was met with incredulity by Earl Bardsley, the academic who first identified the potential in the Lake Onslow pumped hydro scheme.

That would be “unbelievable after all their fuss about the previous government ‘picking winners’ and messing with the electricity market over Onslow”, he said.

But Carnegie said gas peakers were critical to “hold the electricity system together when the lakes are low and the winds are not blowing and the sun doesn't shine”.

The market was currently experiencing a “perfect storm” and all the electricity generators believed new investment in gas generation was needed to ensure peak demand was met — but not the Electricity Authority which was an “outlier”, he said.

The former government’s ban on new offshore oil and gas exploration permits had sent a chill through the sector and “no board” would commit the $250 million or so needed to built a new gas peaker while doubts hung over future governments’ policies, he said.

Labour energy spokesperson Megan Woods says it had a plan.

“Their question will be, ‘what will happen in six or nine years?’ They cannot price in the risk of future capricious government policy changes.”

There were a range of ways the Government could support an investment, including guaranteeing a power station a supply of gas, but all would amount to “something like” an investment guarantee, Carnegie agreed.

Along with the current gas shortage, support from the Government for a new gas peaker would encourage more exploration, he said.

But the Government is considering facilitating the importation of liquified natural gas (LNG), and at current prices, it would even make sense to use imported gas to generate power, he said.

LNG is currently trading at about US$12 (NZ$20) a gigajoule on international spot markets, while the price of New Zealand-produced natural gas has spiked to just under $49/GJ.

A new power station might take about 2½ years to build, Carnegie believed.

Woods said that meant it would not be a quick fix to the current market woes, which have seen a raft of industrial facilities shutter.

It was important decisions were in the “best interests of New Zealand in the long term” and not backwards looking, she said.

“What I don't want to see is politicians making decisions that sign New Zealand up to many years of the most expensive energy that we can produce, which is through fossil fuels.”

There was plenty of scope to move electricity demand away from peak times and to invest in “localised” renewable generation, power storage and alternative forms of “firming”, Woods said.

“The Government needs to front up and tell New Zealanders what is its work programme in terms of firming our energy system. They've told us what they've stopped, but they have yet to tell us a single thing that they have started,” she said.