Bridges: The market can lower power prices – and save the planet

Energy Minister Simon ridges yesterday demonstrate why he’s something of a Golden Boy in the Key Cabinet.

In front of Parliament’s Commerce Select Committee for his annual estimates review, he ticked off political win after political win across his Energy and Resources portfolio.

And although he is one of the Cabinet’s more free market Ministers, yesterday he also emerged as something of a champion of the battle against climate change.

Indeed, he is putting Ministerial Services’ money where his mouth is by ordering an electric vehicle to be his self-drive car.

But whether it was oil and gas, renewable energy or home insulation, Mr Bridges had a success story ready for the committee, and all of them relied on the market to solve a problem.

Perhaps the most potentially politically difficult area he presides over is the recommendation last month from the Electricity Authority to end national average pricing for electricity transmission – a move that will increase power charges in Auckland, Northland and Ashburton.

The move is designed to have consumers pay the real cost of generating and bringing the power to them.

Generally speaking, the nearer a consumer lives to a major generator, then the less they are likely to pay.

Thus, the South Island is likely to be a major beneficiary.

Since the recommendation was published Mr Bridges has made it clear, he would not interfere.

“The real purpose is that rather than smearing the costs across the country and to put them at a regional level is to deter over investment and over the long term that will have a palpable effect on prices in the right direction,” he said.

However Greens MP Gareth Hughes asked whether he was comfortable that the Tiwai Point aluminium smelter would see its power bill drop by $20 million while Auckland and Northland consumers paid more.

“Yes I am,” he said.

“I don’t view it as corporate welfare.

“I think this is about rational, efficient economic and energy policy about transmission pricing.

“I don’t think its right to have a socialising of costs across the entire country which incentivises the wrong behaviour.”

But power prices are coming down.

One of the reasons for that is the Government’s active encouragement of competition between energy retailers which has seen new entrants like Electric Kiwi and Flick come into the market.

The consequences seem to raise Mr Bridges’ excitement levels.

“You’ve got the retailers literally clawing each other’s eyes out at present; it’s probably the best business blood sport in town,” he said.

As the Minister conceded, it was somewhat convenient that he was able to preview the release planned for later yesterday by the Ministry of Business, Innovation and Employment of data showing that for the first time in 15 years, retail power prices fell by 1.4% in the year to March 2016.

And the CEO of the Electricity Authority, Carl Hansen, told the Committee that the competition among the retailers had led to 417,000 customers switching retailers to take advantage of price offers.

Things were not quite so tidy in the petrol and diesel market, however.

The purchase there by Z of Chevron (owners of Caltex) had reduced competition though  Mr Bridges contended there was still “workable” competition within the petrol market.

But he didn’t sound all that convinced.

“Where Gull is, there is this Gull effect,” he said.

“Like the electricity market a few years ago, would we benefit from more competition?

“We absolutely would.

“Someone should take a petition into Gull to get them moving even more around the country because where they go the prices fall.”

But of course, the Minister has already made it clear that he believes the future is electric vehicles.

He said 99% of our transport fleet is currently using fossil fuels, and it produces 17% of all our emissions.

However he described New Zealand as a “renewable energy superpower” and figures released by MBIE yesterday appeared to confirm that.

For the March quarter, renewable energy contributed 82.2% of New Zealand’s electricity generation, up 5.8 percentage points from March quarter 2015;  generation from coal and gas was lower than last March quarter, falling 54% and 13% respectively.

This resulted in electricity emissions for the March year ended 2016 falling to 4,287 kt CO2-e, a 20 year low.

Meanwhile, Geothermal generation set a new record, overtaking its previous peak in June 2015.

Mr Bridges and his officials are currently reviewing the Government’s energy targets which were last set in 2011.

He said he would keep the renewable target of 90% by 2025 of our electricity being generated by renewable sources.

“But the real game is not 90% renewable,” he said.

“It’s actually 125 or 130% across the wider energy sector, transport and so on and meeting that by transferring that renewable advantage across.

“Wee can be more ambitious in this area to help with our Paris Climate Change goals but also not just see us transition to a lower carbon economy but also to a more productive economy.”

Though Mr Bridges is still happy to talk about the contribution that royalty payments from oil and gas from the Taranaki fields make to the Government’s coffers, the whole focus of his two portfolios has now obviously shifted with both of them being reinforced by his role as Associate Climate Change Minister.

And it was also obvious yesterday that more than many Ministers in the Key Government (Steven Joyce for example) he is willing to have the market provide the solutions to the challenges he faces.

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