Real power crisis may be looming
Yesterday’s electricity ‘grid emergency’ was no crisis, but this Government – and any that succeeds it – needs to get ready for the real thing, reports Charlie Mitchell.
Yesterday morning those running the electricity grid shredded some load – namely, hot water cylinders, which take a few hours to cool down – to get through the morning peak. Supply quickly matched demand.
As Energy Minister Megan Woods noted, the system stood up well, in part due to the lessons learned from the last grid emergency, which caused widespread blackouts in the depths of winter.
A brief inability to cover contingencies is not a crisis. A crisis is when the electricity market stops functioning, which is what happened in Australia last week. Its electricity spot market – structurally similar to ours – was suspended and taken over by the market operator, which has since been dictating which generators will supply power and, in doing so, setting the wholesale price (and paying generators compensation).
The Australian crisis is due to an unfortunate confluence of factors; coal and gas prices are high, largely due to the Russian war on Ukraine, and many of Australia’s ageing coal power stations are off the grid for maintenance.
While the symptoms are different, both countries suffer from a similar malady.
Our national grid is anchored not by coal, but by hydro. Hydro is not vulnerable to international markets, but it is highly exposed to the weather, an equally immense and uncontrollable force.
If we have a dry year – one usually comes along every seven or eight years – we risk losing access to the major source of our electricity generation. Two dry years in a row would be catastrophic. Mounting a response would require a high level of coordination in a profit-driven, market-based system, where the players have little incentive to act selflessly in the public interest. What’s happening in Australia would seem mild in comparison.
At the same time, demand for electricity is soaring. Because most of our electricity is renewably generated, an easy way to decarbonise the wider energy system is to get as many things as possible running on electricity – cars, heaters, irrigators, and so on. Transpower estimates electricity demand will be up around 70% by 2050, and most estimates suggest a 25% increase by 2035.
With this confluence of factors, it’s not hard to imagine a serious electricity crisis could happen in the next decade, if we’re unlucky.
This is the bigger problem we must confront. How do we hedge against this dry-year problem?
The Government will this year decide if it wants to go ahead with the Lake Onslow pumped hydro scheme, a mammoth infrastructure project that would turn a small lake in Central Otago into one of the world’s largest batteries.
Onslow would likely make the country’s electricity system 100% renewable, and cause the closure of the Huntly power station. We’d have a buffer against dry years, and could roll out wind farms, knowing that if the wind stops blowing, we have a powerful backstop. It is a neat solution.
But it comes with enormous risk – a multi-billion dollar price tag, a lengthy construction period, and severe impacts on the local environment. It risks becoming a white elephant, and few would fault the Government for saying no, given the risks.
The potential for offshore wind, particularly off the south Taranaki coast, is also significant, particularly when complemented with hydrogen. But, like Onslow, it would be breathtakingly expensive and take many years to get started.
In a planning sense, we are many years behind where we need to be to fully decarbonise the electricity sector. Over the next decade, we’ll be reliant on modest expansions to wind and geothermal generation to get us through, until the bigger projects kick in.
Another aspect to consider here is an economic (and political) one. Much like in Australia, some promises of the 1980s-era reforms of the electricity sector have not come to fruition. Consumer electricity prices have risen 80% since 1990 (accounting for inflation), and since 2000, prices have risen faster than the OECD average.
We have two recent examples of major players in the electricity market appearing to deliberately act in a way that increased costs for all consumers. Many New Zealanders now live in ‘‘energy poverty’’, while the power companies enjoy handsome profits.
And while our share of renewable generation has steadily increased in this market-driven environment, it has not done so nearly as fast as would have been ideal. There has been little increase in wind generation in the past decade, even as some power companies hold resource consents for large wind farms.
In the spot market, there is an economic incentive to keep the more expensive (and therefore more profitable) coal and gas generation in the mix, which suggest a system that is incompatible with the urgent need to combat the climate crisis.
The final – and, potentially, the most contentious – issue here is consumption. Is the expected growth in electricity usage inevitable, or can we change the way we exist in the world to be less consumptive? The solution to our longer-term electricity problems will likely involve a mixture of the above, and many other things.
A landmark agreement designed to ensure multinational companies pay their fair share of tax could fall through, Revenue Minister David Parker has told MPs.
The Organisation for Economic Co-operation and Development appeared to achieve a breakthrough last year when 136 countries, accounting for 90% of the world’s economy, agreed to its plan that would require multinationals pay a minimum rate of tax and for the very largest to spread their tax more widely around the world.
But OECD secretary-general Mathias Cormann announced last month there had been delays negotiating the details of the second element of the plan, know as ‘‘pillar one’’, and it did not expect that to be implemented until 2024, a year later than first envisaged.
Parker told Parliament’s finance and expenditure committee on Wednesday that the entire international tax reform package could be at risk.
Negotiations on pillar one had not proceeded as quickly as hoped, he said.
‘‘It hasn’t been landed yet and that poses some risks as to whether it is ever achieved internationally. If you can’t land that, you might not be able to land pillar two.’’ Parker said last year New
Zealand stood to benefit from the agreement. The Government had been consulting on unilaterally imposing its own ‘‘digital services tax’’ on the revenues of internet, social media and ‘‘gig economy’’ giants before the multilateral approach was agreed.
Pillar one is the more significant and less controversial element of the tax deal, and had been strongly supported by the United States.
It would allow countries where large multinationals are based – often the US – to top up the tax they claim for themselves if a multinational was paying less than 15% in any country in which it operated.
That rule would effectively prevent multinationals from benefiting from tax havens and was expected to result in them paying an additional US$150 billion (NZ$240b) of tax each year, globally.
The pillar two rule, which some European Union and developing countries insisted on as a condition of a deal, would let countries claim a share of any excess global profits earned by the world’s very largest multinationals, even where they only exported products or services to that country and would not normally be subject to local taxation.
That rule was expected to redistribute about US$100b in tax revenue, including to smaller countries such as New Zealand.