The Government wants taxpayers to pay for a new liquified natural gas import terminal, but is promising lower power prices will come as a result.
By Giles Dexter of RNZ
It is estimated the new terminal, expected to be ready next year at the earliest, will save New Zealanders around $265 million a year by reducing price spikes and lowering the risk premiums.
But a new levy will be charged to get it built.
The Government is touting it as a solution to New Zealand's energy woes.
"It will mean that Kiwis will not need to suffer through an endless series of winter bill shocks," energy minister Simon Watts said on Monday.
'Vital part of the overall puzzle' - Energy Resources Aotearoa
Energy Minister Simon Watts has announced a contract is expected to be signed by the middle of the year. (Source: 1News)
The idea is that it will reduce the risk of shortages during a dry year.
Liquified natural gas (LNG) can be imported at large volumes, stored, and then 'regasified' to be sent out for use.
John Carnegie, chief executive of industry body Energy Resources Aotearoa, said the terminal would be a useful insurance policy for when the weather did not play ball.
"LNG will be useful as a vital part of the overall puzzle of New Zealand's energy system security," he said.
"LNG can be expected to take the heat out of the electricity market when renewable fuels like wind, water, and the sun don't turn up when they're needed. It will place downward pressure on wholesale electricity prices and reduce the risk premium in the out years."
Last year's Frontier Report - commissioned to review the performance of the electricity market - warned it should only be used as a last resort.
The report said using it just to meet dry year risk made no economic sense, as the large fixed costs would be spread over a relatively small amount of output.
But Carnegie said LNG provided a "virtuous circle" to support the development of more renewables, and pointed the finger at the previous government's ban on offshore oil and gas exploration as a reason why power prices were spiking in dry years.
"More wind and solar and batteries are great, but also the conundrum is their growth exacerbates the problem of being too weather dependent. So we need a reliable fuel to fill the gaps which domestic gas previously filled. And so New Zealand's energy system, I believe, will be at its most effective when renewable generation and firming fuels like LNG and domestic gas work in harmony."
A separate study by gas company Clarus, along with the four gentailers, found it was feasible but would likely be costly, and only needed occasionally.
Following the announcement, Clarus' chief executive Paul Goodeve said it would increase New Zealand's energy resilience and increase the range of markets it could draw from.
"At the moment, the coal that we import is relatively restricted where it comes from. The global market in LNG is vast and diverse, and appears to be continuing as we speak."
Goodeve was confident it could be financially sustainable, and the Government's involvement in the procurement system made sense.
"It appears as though they've got work done by financial advisors who pointed out the benefits to the overall New Zealand energy system, but particularly the electricity system, of having LNG in the mix."
Details on the shortlist of six were being kept under wraps, but all were in Taranaki.
Port of Taranaki chief executive Simon Craddock said it was a great opportunity for the region, and while the port was not an LNG developer, it was keen to support it.
"The current terminal developments, as I understand it, are all focused on the Taranaki region, and the reason for that is largely proximity to the Maui gas pipeline. But the developers are international companies who may or may not partner with local interests."
Craddock said there was nothing the port had seen that could have major adverse effects on its current trade.
"The port has a number of advantages... the proximity to the pipeline, we're the only deep water port on the West Coast. So this is the sort of thing we do day to day, where our main customer to-date has been Methanex. We also have other petrochemical customers on the port, so it really is within our core business suite."
ACT's energy spokesperson Simon Court said it was a "sad but necessary bookend" to the oil and gas exploration ban.
"Labour promoted the view that gas is something to be ashamed of. It's not. Gas is a practical, reliable option when hydro lakes are low. Gas keeps factories running, heaters humming, and lights buzzing. And the environmental case for gas is strong too, because when we can't burn gas, we burn coal," he said.
'It's cooked' - Green Party
On Monday, Watts said discussions were commercially sensitive but it would cost "north of a billion dollars" to build.
To pay for those infrastructure costs, the Government will charge users an electricity levy of $2 to $4 per megawatt hour.
But Watts was keen to point to the net benefit, with advice showing the facility was expected to cut future prices by at least $10 per megawatt hour.
"So straight away, we're in the money in regards to benefits versus costs, and our expectation of having that certainty of supply takes away the price spikes that we saw, for example, in 2024."
That has not convinced the Green Party.
Co-leader Chlöe Swarbrick said the Government was guaranteeing added costs to New Zealanders, while relying on "hopes, wishes, and prayers" for future savings.
"I think it's absolutely bonkers for power bills, for the planet, for our country's energy resilience. The only people who want this are the fossil fuel industry and, seemingly, the National Party. Whatever claim, whatever remaining claim the Nats have to being economic managers is now, frankly, up in flames," she said.
"Honestly, it's cooked. Christopher Luxon has once again chosen to throw New Zealanders' money at fossil fuels, which is bad for power bills, energy security and the planet. This is Christopher Luxon's New Zealand. Profits are flowing offshore, while New Zealanders are paying handsomely for it."
'Gas tax' - Labour
Labour, meanwhile, is calling it a "gas tax".
Leader Chris Hipkins said households were already struggling with the cost of living, and he did not believe it would reduce power prices.
"I think, if anything, they're trying to make the argument that this will decrease the rate of increase in power prices. There are other ways to do that. A billion dollars would buy you a hell of a lot of solar panels and batteries, which would save households a significant amount of money."
Hipkins dismissed questions over whether Labour would terminate any agreements, or put the costs onto the energy companies and take away the levy on households, as "hypothetical."
The prime minister's assertion it was a levy, and not a tax, was criticised by the Taxpayers' Union.
"You don't make electricity bills cheaper by taxing them. Dancing on the head of a pin over what is a tax and what is a levy is a Labour Party talking point. Luxon should spare us the spin and abandon this folly," said spokesperson James Ross.
Climate change advocacy group 350 Aotearoa was previously one of twenty signatories that sent an open letter to Luxon and Watts, urging against the new terminal when it was first signalled in October.
Following the confirmation, co-director Alva Feldmeier said while she agreed with the Government that New Zealanders were feeling the squeeze with their power bills, the terminal was not the solution.
"Essentially, what they're doing now is putting a new tax on every New Zealander's power bill to subsidise an expensive sunset industry," she said.
Feldmeier said LNG-generated electricity was double the price of new renewable electricity, and the risk of importing and being reliant on international fossil fuels was that New Zealand could also import international price shocks.
"This is a political choice this Government is making. They'd rather kowtow to the fossil fuel and the gas lobbies and keep us hooked on gas for longer, than explore how we're going to get off it, and how we're going to make some tough decisions in the next few months and years."
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