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Dr Muriel Newman

The Rising Price of Power

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Many people have been shocked to learn that the Department of Conservation has received more than $8 million dollars in cash payments from state energy companies, in return for withdrawing their opposition to projects with significant environmental effects.[1] While not unlawful, under the Resource Management Act – referred to be some as the Ransom Management Act – such payouts have the look, feel and smell of “back-handers”.

On a world scale, New Zealand has always ranked very highly as a country that is largely free of corruption. But the “soft corruption” inherent in the Resource Management Act has been evident since it first became law.

Designed by Labour, but passed by the National Government in 1991, the Resource Management Act encourages “affected” parties to receive financial compensation to appease their environmental objections. Faced with years of delay, significant holding costs and massive legal fees, many applicants have simply paid the money, kept their mouth shut, and got on with the job. One hopes that National’s review of the Resource Management Act puts a stop to this sort of soft corruption.

The Department of Conservation was paid $175,000 by Meridian Energy in return for not opposing their Project Hayes wind farm development. Estimated to cost up to $2 billion, the Meridian Energy proposal will compromise the Lammermoor Range near Dunedin, an area of New Zealand long termed “iconic”. So while DOC might be expected to object to the building of a dwelling in an area rich in outstanding natural features and landscapes, because of their payout they will not object to the building of 176 wind turbines standing 160 metres tall covering a designated area of almost 100 sq km.

There is no doubt that wind farms are in vogue around the world as governments prioritise renewable energy projects in order to comply with the demands of the Kyoto Protocol. Such “green” energy projects have been promoted by environmentalists as the best way to not only save the planet from global warming, but to create thousands of green jobs in the process. On further investigation however, these claims are found to be spurious. Global temperatures are now cooling not warming, and for each green job created, 2.2 other jobs in other parts of the economy are destroyed.[2]

The pressure to reduce mankind’s dependence on fossil fuels is at the leading edge of a global political attack on industrialisation itself. This battle is epitomised by stunts such as “earth hour”, whereby radical environmentalists ask people to switch off their power for an hour in order to “celebrate” the renunciation of electricity as a symbol of mankind’s commitment to a “carbon free” future. This return to the dark ages is seen by these climate activists as a worthy aspiration for mankind.

Nothing could be further from the truth.

Energy is the lifeblood of modern civilisation. We use it every minute of every day to give us the quality of life we enjoy today. In fact, we should be celebrating the lights shining in our homes and throughout our cities as symbols of human progress and modern achievement, not decrying them as evil, as the green movement would want us to do.

Nor should governments succumb to such political pressure to replace efficient power generation with the inefficient, since such action will not only drive up energy prices putting enormous financial pressures on industry and households alike, but it will also cost jobs – and invariably lives.

New Zealand already has one of the highest rates of renewable energy generation in the world. According to the Ministry of Economic Development, during December last year, 74 percent of the 10,067 Gigawatt-hours of electricity generated in the country was from renewable sources. The breakdown shows that 59 percent of the supply came from hydro-power, 18 percent from gas, 11 percent from geothermal sources, 7 percent from coal, 3 percent from wind, with the balance coming from wood, biogas and oil.[3]

This week’s NZCPR Guest Commentator, energy expert Bryan Leyland, outlines the controversial facts surrounding the use of windpower in New Zealand in his article Windpower: Foolish Energy:

“In New Zealand we are told that windpower is economic compared to alternatives, that the unpredictable short term fluctuations can easily be covered by our “abundant hydropower”, and it helps conserve hydropower storage. Therefore, we are told, we should happily accept destroying iconic landscapes and seriously upsetting people who live nearby. The truth is, as I will show, that windpower is expensive compared to alternatives, hydropower schemes have no spare capacity to back up windpower in a critical dry year and wind power output is lowest in the late summer and autumn when we need it most.

“Furthermore, windpower adds a new source of major fluctuations to power systems that are, anyway, inherently unstable. Constant adjustment is needed to ensure that the total generation in a power system matches the normal fluctuations in load – seldom above 50 MW – on a minute by minute basis. If the fluctuations are excessive, the lights go out. With about 1000 MW of windpower on the system we are likely to see swings of 500 MW in a few minutes. The system operator will find it very difficult – and expensive – to find generating plant that can match these swings. The cost will be passed on to the consumers.

Bryan concludes, “Windpower exists worldwide because of grants, tax breaks and massive subsidies and because, consumers, taxpayers and ratepayers, not the generators, pay for the cost of transmission and backup power stations. I believe that, given the high cost and operational problems of wind power, no responsible Board of Directors of a state-owned or private company could – or should – agree to ‘investing’ in windpower. There are better and cheaper alternatives”. To read the full article click here

A ground-breaking study from Spain backs up this view. The Madrid-based Rey Juan Carlos University has recently published a report that outlines the damage caused by excessive government assistance to producers of expensive wind and solar energy. The result has been a dramatic rise in the cost of power in Spain with electricity rates for large consumers increasing by almost 55 percent last year. This has resulted in a massive loss of competitiveness in Spanish industry with more and more businesses relocating or expanding into countries with lower energy costs. Further, as the growth in the supply of expensive renewable energy increases, so the share of the cheaper and more reliable hydro and nuclear power decreases. This means that power prices will continue to rise into the foreseeable future, harming business and households alike, with no end in sight.[2]

According to Ministry of Economic Development energy price data, in 1995 New Zealand had the second cheapest household power and the third cheapest industry power out of Australia, Canada, Germany, Japan, the UK and the USA. But by 2006 that had changed to being the second most expensive for both household and industry power, with household power rising by 37.5 percent and industry power by 56.3 percent.[4]

While there are many factors responsible for these increases, the $8 million in payouts that the Department of Conservation has received from energy companies to offset environmental impacts and obtain resource consents, is indicative of the massive costs associated with the Resource Management Act that have clearly contributed to the rising price of power.

Looking ahead, with 70 percent of the country’s electricity supplies being generated from the cost-effective renewable hydro-power and geothermal power sources, there is surely no need for the government’s State Owned Enterprises to be saddling consumers with other forms of more expensive renewable generation. As each new windfarm comes on stream and feeds its more pricey power into the grid, so the over

all cost to the consumer will continue to rise.

But if we are honest, the biggest driver of power price increases is yet to come. An Emissions Trading Scheme will effectively impose a carbon tax across the economy, which will adversely impact on businesses and consumers alike. Officials have already estimated that such a scheme will increase electricity prices by at least 5 percent and they also warned that there will also be flow on increases from other parts of the economy as well.

Keeping the cost of power as low as possible so that householders can afford to enjoy the benefits of modern life and Kiwi businesses can be internationally competitive is surely a goal that New Zealand should be striving for.

1.P. F Boller, Presidential Anecdotes 
2.John Key on Tax Cuts: The National leader’s speech 
3. John Whitehead, Looking to and through budget 2009 
4.National’s 2008 Election Tax Policy
5.Treasury, Briefing to the Incoming Minister 
6.Richard Rahn, The Optimum Government 
7.Parliament, Emissions Trading Scheme Review Submissions