Energy sector responds to change of minister

Wednesday, 22 January 2025

Simon Watts will pick up the role of energy minister on Friday, inheriting a slew of complex issues that have dogged and divided the sector.

The risk of a winter power crunch and high prices for electricity bought far in advance are two of the biggest issues that will confront Simon Watts as the new energy minister, an electricity retailer says.

Prime Minister Christopher Luxon announced on Sunday he was transferring responsibility for energy to Watts, who is also Minister for Climate Change, as part of a major Cabinet reshuffle that also sees the health portfolio switch from Shane Reti to Simeon Brown.

The switch comes in the midst of a busy work programme in the sector.

The Government last year ordered a broad review of the electricity market in the wake of a winter spike in wholesale electricity prices.

That review, which is due to commence soon, will look at whether the current market and its regulations “support economic growth and access to reliable and affordable electricity”.

Brown had also been due to report back last year on ways in which the Government could help pave the way for imports of liquefied natural gas into the country to reduce the risk of gas shortages.

Another decision that appears set to fall to Watts is whether to continue with the staged removal of the requirement for electricity retailers to offer power plans with capped fixed-daily charges to the half of household that use less than the average amount of power.

The surprise reshuffle was announced on Sunday afternoon.

That policy has already seen fixed daily charges for those households rise from 34½c to $1.38 a day over three years, with another 34½c increase coming in April if there is no change in tack.

Margaret Cooney, chief operating officer of power retailer Octopus Energy, which has become a leading voice for electricity industry reform, said it made sense to have responsibility for energy and climate change policy sitting with the same minister.

“Being realistic, there's always the challenge of coming up to speed as a new minister.”

That shouldn’t be a major concern because the issues facing the industry were well-canvassed, but they did require decisiveness, she said.

Hydro lake levels were very high but there could still be challenges producing enough electricity to meet peak demand this winter, Cooney said.

“We know in the next couple of years we will continue to have quite tight supply and addressing that requires real leadership. We haven't actually seen a real plan for this winter.”

Electricity retailers and large industrial users of power were faced with having to pay $170 a megawatt-hour for electricity bought two years or more in advance, if they wanted to hedge their future costs, she said.

A price of about $100/MW has commonly been regarded as more sustainable.

“Those long term prices are still really high, which for New Zealand households and businesses should be a real worry,” Cooney said.

Despite being blessed with excellent hydro, wind and geothermal resources, the power sector has often seen as challenge to manage.

“One of the focuses needs to be on how we can get competition working as that’s key to unlocking more investment and better prices.”

John Carnegie, chief executive of Energy Resources Aotearoa, expected one of Watts’ priorities would be putting a regime in place to recognise and reward carbon capture.

The association, most of whose members have a direct or indirect interest in fossil fuels, has been promoting the opportunity to capture carbon dioxide emissions from gas extraction and sequestrate them in disused wells.

The Government’s goal should be to ensure “new diverse forms of generation are being built at the right time, place, and cost, and with fuel available to power them”, Carnegie said.

“Minister Brown has established a platform to reset energy policy, scaling back the previous government's interventionist strategies and firmly looking toward a market and private-sector-led approach.

“We hope the new minister will build on this by unlocking investment and reducing the regulatory barriers affecting energy costs. Our economy is struggling, families face high living costs, and our industrial sector faces fierce international competition.”

Bridget Abernethy, chief executive of the Electricity Retailers Association (Eranz), whose members include the major gentailers, said combining the energy and climate change portfolios set the stage for “pragmatic policy solutions for the energy transition”.

“There is a huge amount of work underway as New Zealand and the rest of the world transition to a renewable electricity system.

“Much more investment is required over the coming years to meet rising demand. Eranz members, along with others in the sector, will be investing billions of dollars and the Government has a key role in fostering this investment.”

Watts said he would be receiving briefings from officials and stakeholders over the coming days and weeks in his new roles as Minister of Energy and Minister of Local Government, and would have more to say following his formal appointment on Friday.