This Climate Business: Unwrapping our latest energy package – Professor Barry Barton (edited excerpts)
Listen to the full version here.
Ross
Can you outline the challenges facing our electricity market and what the government's package is meant to do about them?
Barry
Let's start with the challenges. People have got worried about the availability and prices of electricity. And fair enough, we've had some horror stories last year of pulp and paper mills, timber mills closing because of high electricity prices. Nobody wants to see deindustrialisation on account of unduly high electricity prices. We do need more generation capacity built and more competition in the wholesale market. We do need more storage, especially to deal with the dry years like we had in 2024. As to whether the policy package that the government is really the answer to those problems is a very moot question. One of the things that they most focused on was the idea that we need a new LNG import facility. Whether it actually answers our problems is by no means clear. If we need more fuel sources to generate electricity, then that comes up against the fact that we're actually in something of a boom in building new generation facilities. Nearly all of them are solar and wind, being built by the existing generator retailers and by an influx of new companies. In addition, we are seeing substantial shifts being made in different ways to deal with the dry year problem. We get a dry year once every five years or so, when we get less rain than usual, and the hydro leaks dry up faster than we would have liked. And so we are vulnerable to that.
Ross
The last of those dry years was the winter of ‘24 and that was catastrophic, wasn't it, for some major buyers of electricity?
Barry
Well, first thing, the power stayed on, the light stayed on. True. We did not run out of power. There were two plants in the forestry sector that closed down. It may be that it was electricity prices that sent them over the edge. The other thing is whether log and pulp prices were also putting pressure on those companies. So we've got to be careful about reading too much into it.
Ross
I understand that in the three years between in 2022 and this year, the share of renewables in our generation mix has gone from 82 to 90 percent, and it's on its way to 95?
Barry
The companies want to keep building renewables. They want to build solar. They want to build wind. They're scalable. You don't have to build all your turbines or your panels all at once. You can bring them in bit by bit as the market demands. And we're seeing a certain amount of new hydro coming on, too. But none of the big companies or the small companies are queuing up to build big new coal or gas-fired power stations.
Ross
We're actually retiring them, aren't we?
Barry
We are. And that's not going to change. And it's something of an international phenomenon as well. It's not purely a New Zealand story. The price of solar panels has dropped incredibly. We are looking into a renewables future. It will need management in ways that the old system didn't because we've got the day and night variation for solar, and we've got the possibility, well, the inevitability, that from time to time, the wind will stop blowing. So it needs managing in different ways. But we're not going to see a huge new build of coal and gas by power plants.
Ross
Does anybody ever get to 100% renewable?
Barry
I think Iceland does. They've got massive amounts of geothermal and hydro. Who else? You'd be looking at quite small places. Some of the provinces in Canada do. British Columbia, for example, with truly massive hydro dams.
Ross
If we measure it at a global level, the trend is towards renewables, right?
Barry
Yes. In a lot of countries, there is still a good deal of thermal being built, but the renewables are quickly dominating the field. So countries like China have made a big transition. Indonesia, India, not so much. However, the amount of renewables, mainly solar being built, is much more than people had expected even three, five years ago.
Ross
Do we need LNG?
Barry
New Zealand natural gas resources have been running out. Everybody got caught out last year by how fast the declines were happening in pretty well all the fields. So, the decline in gas availability was a big story for 2024. And yes, it constrains the usual way that we have had available to us to deal with dry years, that is, rely on the gas turbines. There have been a number of ways put forward to deal with that. We also have 22% or so of our gas at the present is being used by Methanex to make methanol, which is exported for the plastics industry and so forth. They rely on cheap gas. And I think it's pretty generally understood that they won't be able to operate using LNG, liquefied natural gas, imported from Northwest Australia or something like that.
Ross
LNG is always going to be more expensive than domestic gas, right? And my understanding is that over the last six years, domestic gas production has dropped by about 45% and prices have almost doubled.
Barry
Sounds about right. And the decline last year was pretty amazing. The package that the government announced is very focused on fossil fuels. It's putting money into making money available to gas producers to extend the lives of their fields, to develop them, to find sort of the last pockets of gas. So it's a pity, I believe, that they are so focused on that when, in many ways, the obvious solutions are more cost effective and better for the climate solutions are right there.
Ross
What did the package have to say about renewables?
Barry
In my opinion, it would have been a better package if it had leaned into what is happening, rapid growth of renewables, made sure that the electricity authority was doing everything it could to reshape the industry, the wholesale market, the work of the distribution companies to make renewables come on faster.
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