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Power price spike harbinger of things to come

Power price spike harbinger of things to come

The power spot price spike that surged from three cents to $30 a KWh on the eve of Waitangi Day is a taste of what will happen more often as Maui gas runs out, the Employers and Manufacturers Association (Northern) says.

The end of low cost Maui gas, hence low cost electricity supply, is another blow to hit New Zealand's hopes for better rates of economic growth, said Alasdair Thompson, EMA's chief executive.

"Power price rises in combination with labour and skills shortages are key obstacles to overcome if New Zealand's standards of living are to return to the top half of the OECD," Mr Thompson said.

"Business should brace itself for a volatile year for energy prices. Hydro storage is below average and power consumption up (7 per cent higher in January than last year).

"Time is rapidly shortening if we are not to suffer power brownouts around 2006/7 as no large new electricity projects are yet underway.

"Hence investment decisions on new industrial projects to commence in five years time are being delayed.

"Government is not acknowledging these realities; there are no pro-growth policies in sight, only a mountain of new business inhibiting regulations.

"It's policies are poorly aligned with its stated targets for higher growth as energy prices escalate as a result of:

* Gas supply contracts being stalled over access to the Maui gas pipeline,

* No new gas reserves yet identified to substitute for Maui gas for power generation,

* Time to construct new power capacity under RMA consents is ebbing,

* Energy Minister Pete Hodgson's view stated late last year that power prices have to go up 15 to 20 per cent more within 18 months.

* Kyoto commitments will start lifting prices; expect more fuel taxes.

"On top of these shortfalls, the Iraqi war is sending oil prices soaring.

"Any one of these issues would depress investor enthusiasm for new export and job growth creating projects. In combination they look daunting.

"Investment-led growth is required to lift New Zealand back into the top half of the OECD with consumer debt peaking.

"We're concerned Government may seek to re-regulate the electricity industry which business does not want."

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