Bracing for rising energy bills, and shrinking international investment

The electricity crisis is putting New Zealand’s international reputation at risk with at least two global companies turning away because they have no confidence in the power supply, an industry leader says.
The chair of the Major Electricity Users Group, John Harbord, says the crunch is not only hurting exporters but it has made overseas investors wary.
“We’re aware of global companies who are declining to invest in New Zealand because they don’t have confidence in our electricity system,” Harbord says.
He won’t name the companies but says they have told him the electricity prices don’t make sense to them and they haven’t seen a proactive government or regulator looking to get on top of the issue.
He tells The Detail that wholesale prices have been extremely high for six years and are predicted by the futures market to keep rising, which will eventually flow into householders’ bills. Something needs to happen quickly to turn that around, he says.
“I don’t think there’s a lot of confidence on our part that industry left to its own devices is going to recitify this because a lot of the issues that have contributed to getting us here have come through the decisions or actions of the current players in the market,” he says.
Many in the industry and the government point the finger at the big four ‘gentailers’ – generators and retailers – Mercury, Meridian, Contact and Genesis, which dominate the power market and are accused of making excessive profits, not helped by an ineffective regulator, the Electricity Authority.
“I think we probably do need some sort of reset and I think we’re probably going to need the Government to help with that,” Harbord says.
The electricity crisis is due in part to the gas crunch, with supplies running out sooner and faster than expected. Gas is responsible for 10 percent of New Zealand’s power supply. Add to that drastically low hydro lake levels and not enough wind to power our wind turbines and the result is record wholesale power prices.
“On top of that, demand is up around 3 or 4 percent from this time last year,” says RNZ business editor Gyles Beckford. “So reduced supplies of fuel, increased demand and that means that the power companies are scrambling to get the necessary generation there to meet everything.”
High gas and power prices have put factories under extreme pressure. Work at Tangiwai Sawmill and Karioi Pulpmill in Ruapehu has been paused and owner Winstone Pulp International is rethinking its future as energy costs have nearly tripled, Fonterra says high gas and electricity prices are pushing up production costs and meat company ANZCO is forecasting its electricity bill to be double last year’s.
The gas shortage has also hit the Government and its contracts to supply to schools and hospitals.
In response to the gas crunch, the country’s largest gas user, Methanex, this week said it is halting production until October and selling its gas to Contact and Genesis. The Canadian-owned manufacturer exports $800 million worth of methanol but had already cut capacity.
Beckford says Methanex has come to the country’s rescue and is making more money at the same time.
“While they’re seeming to be generous coming to the country’s aid, in essence there’s a cool commercial brain behind this which says, ‘Look, we’ll earn more from selling gas to you than from actually making and selling methanol’.”
Harbord says it is the worst power crisis he has seen.
“What we’re seeing now are some really long-term drivers that if we don’t fix them the situation’s just going to get progressively worse and worse for years on end, not just for an hour or two on a particular day.”
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