Electricity market needs to provide ‘certainty’, and that means

OPINION: If one message has come across loud and clear from the country’s large power companies over the past year, it is that the market needs “certainty”.

I can only nod furiously in agreement.

But what is it that the market needs to be certain of, exactly?

Well, the country will need to make a huge investment in renewable electricity over the next decade to replace the fossil-fuelled generation, reduce the use of gas, and electrify heavy industry and transport.

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Meridian estimates more than $7 billion will need to be invested in green power.

And investment will fall short of what is required unless generators can be reasonably certain that they are going to be able to earn a fair and predictable return on the full amount of that spending.

The Ministry of Business, Innovation and Employment estimates that new wind and solar power plants can produce energy over their lifetime at a cost of about 6 or 7 cents a kilowatt-hour.

Based on that, it would be helpful if generators could be absolutely certain that they will be able to earn a bit more than that, perhaps 7 or 8 cents a kilowatt-hour on those investments.

At the same time, customers – big industrial users in particular – need certainty that they will be able to buy electricity at a reasonable price before they convert appliances, vehicles and factories to electricity.

Thankfully, since about half of the country’s electricity is generated from existing hydro generation, that doesn’t mean they will necessarily have to pay the new-plant price for all their power.

Meridian was content enough for years to sell power to the Tiwai Point aluminium smelter at about 5c/KWh after all, before it was beaten down to about 3.5c/KWh.

It would be optimal if power buyers could be certain they would be able to buy electricity at a wholesale price that reflected the blended costs of production plus a fair profit for generators – perhaps about 6c/KWh once the industry fully weans itself off expensive gas and coal.

Sure, there is room for argument about the exact numbers.

We could also do with much more certainty that the country will actually be able to achieve the Government’s goal of 100 per cent renewable generation by 2030.

At the moment, Energy Minister Megan Woods describes that as an “aspirational” target, which makes it sound a bit like a goal the Government wants, but doesn’t really expect, to tick off.

Finally, we saw on August 9 this year that consumers also need certainty that their power won’t suddenly be cut off without warning.

And as system operator Transpower made clear in its…