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Thermal moratorium poorly considered

Moratorium on new base load thermal generation is a very poorly considered intervention

“The Bill tabled today as part of the Emissions Trading Scheme (ETS) that includes an amendment to the Electricity Act to have a 10 year moratorium on new base load thermal generation is a very poorly considered intervention,” said Ralph Matthes, Executive Director of the Major Electricity Users’ Group (MEUG).

“To keep New Zealand’s electricity prices as low as possible and to avoid blackouts and shortages, we should have as diverse portfolio of generation as possible. New generation, be it wind, water, geothermal, gas or coal fired, of course should be environmentally sustainable as well as economic. Investors in new thermal generation have for some time been mindful that greenhouse gas emissions are likely to attract a price or tax. This is the situation in all OECD countries. The ETS signals the framework that will apply to New Zealand.

“That should have been enough to ensure the most efficient mix of generation investment for the future. If gas or coal fired new investment was lower cost, including a charge for greenhouse gases, then that is indeed the optimal decision for New Zealand and globally.

“The moratorium is a step back to government being wary that market outcomes may not exactly fit their plan and hence a dose of regulation is needed also.

“If New Zealand finds more gas and the price of wind farms becomes more expensive, then we would have the opportunity for low cost electricity using modern, efficient base load gas fired generation even after including a charge for greenhouse gases. That opportunity will be barred by this moratorium. MEUG believes this scenario is highly likely given we have to date been very gas prone. Wind farm costs have also risen recently because of the global sellers market for wind turbines attracting high prices and long delivery times. If this continues then we would want to keep all our options open. Already we are seeing some of the more attractive wind farm sites subject to stringent consenting requirements leading to significantly higher development costs.

“MEUG is very concerned that security of supply will increasingly depend on wind and hydro and approved new stand by thermal generation. The latter have a thermal efficiency typically of 35% compared to modern efficient base load gas fired generation that are about 50% efficient. Not only are we going to have inefficient plant sitting around that consumers will have to pay for when not used, but when the standby thermal plant is used they have a poorer emissions profile than the plant government has banned.

“In addition the transmission network will have to be oversized to cater for wind farms when they are producing at maximum output, but for most of the time will only be partly used. All this leads MEUG to suspect that the preference for renewables and the moratorium is going to be a very high cost option” concluded Mr Matthes.

ENDS

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