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Electricity Market Needs Urgent Attention

Join press release by Auckland Climate Action (ACA) and the Engineers for Social Responsibility (ESR).

What is happening, or rather what is not happening, in our electrical generating system is a very serious issue that urgently needs to be addressed. Two organisations, Auckland Climate Action (ACA) and Engineers for Social Responsibility (ESR) have just contacted all Members of Parliament, to seek action on this.

Despite the need to rapidly reduce our greenhouse gas emissions, and the fact that electricity can often be generated at lower cost from renewable resources than from coal and gas, the Huntly power station continues to produce large amounts of electricity from fossil fuels because of the way the market works.

All generators submit offers to feed into the grid for each half hour period, but those whose bids are accepted all get paid the same price per kwh as the highest bid submitted by a generator supplying the market at that time, which is often Huntly. Other generating companies therefore choose to operate in ways that keep Huntly in the market. For example, more than 10 planned windfarms remain unbuilt, including one behind Huntly that alone could supply up to half the power that Huntly does.

We need to very rapidly phase out the use of fossil fuels, and particularly coal, for electricity generation. For example, the recent IPCC AR6 report calls for coal use to fall 75% below 2019 levels by 2030. Beyond that, the UN secretary-general, Antonio Guterres recently called for developed countries to completely end coal use by that date.

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As a developed country with the necessary skills and resources, and a poor record of emissions reductions so far, there is a very strong argument for us to aim significantly higher than the IPCC reduction figures.

Two simple steps

There are two steps necessary to start rapidly moving away from fossil fuel use for electricity generation.

First, we need to follow the simple step Germany took in 1991, and give renewably generated electricity precedence in entering the market over fossil fuel generation. Huntly will then quickly move to back-up status, and later to complete retirement from fossil fuel use. Between 1990 and 2020 the proportion of renewably generated electricity in Germany increased from around 3.4% to 50.5%, while in New Zealand, based on MBIE figures, it drifted very slightly from 81.0% to 81.1%.

Second, the way the market works needs to change so that the amount electricity suppliers are paid relates back to their generating costs, and not to an arbitrarily high price set by one generator. This will remove the incentive that the current market system gives to keep Huntly generating from fossil fuels, and can also be expected to reduce the electricity prices paid by consumers.

A proposal was put forward in 2013 to address the above issues, by establishing a single buyer in the power market, NZ Power, to purchase the electricity from the power companies for a price that reflected their generating costs, and to prioritise renewable generation and energy efficiency. It was estimated that these changes would reduce the average New Zealander’s power bill by up to $330 a year.

The proposal did not come to fruition, but the need for action is now even more urgent than it was in 2013 – 9 years ago.

In conclusion

The IPCC and many other scientists and experts are saying that rapid action needs to be taken to reduce our greenhouse gas emissions, to protect our civilisation and other living species on our planet. Also, as we move away from fossil fuel use in other areas of our economy, our need for cleanly generated electricity is going to rapidly increase.

The need to reduce our emissions from electricity generation is now extremely urgent. Taking the two simple steps above will start to make this happen.

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