The Government has said it won't be using a levy on power bills to help fund its planned liquefied natural gas import facility.
It also announced new obligations for power companies and increased fines for rulebreakers.
Announced in February, the planned facility will be designed to import and hold LNG for use in dry years – a "backup", as described by Energy Minister Simeon Brown. The Government says this will bring down energy costs, which have skyrocketed, hitting manufacturing and industrial companies hard, with some forced to stop production and lay off workers. The facility was planned for Taranaki.
When the plans were announced, the Government said it would cover the $1 billion price tag with a levy on energy companies of $2-$4/MWh. The opposition quickly labelled it a "gas tax", warning that the cost would be passed on to customers.
This morning, Brown appeared to backtrack on how the facility will be funded, saying it will not be paid for with a levy on power bills.
Brown said he had asked the Ministry of Business, Innovation and Employment and the National Infrastructure Funding and Financing company to "work through the detail" of how the facility will be paid for.
This included engaging with gentailers on a fair funding model.
"Kiwis can be certain of one thing – it will not be funded by a levy on power bills.
“Responsibility for keeping the lights on sits squarely with the electricity sector, and that is the principle guiding our decisions on funding."
Brown also announced the Government was progressing with two providers to a request for proposal to deliver the facility.
The Government intended to sign a contract with its preferred provider this year. The facility was expected to be operational in 2028.
Brown said that while renewable energy sources were "booming", there was "no renewable alternative" that could cover a dry year by 2028, "when the next dry year could arrive".
"Kiwis need a backup source of power when the wind isn't blowing, the sun isn't shining, and the lakes are low. You can't run an energy system on weather forecasts, and without firm, flexible energy to back up our renewables, the next dry year will bring higher power bills, potential factory closures and job losses, and rolling blackouts across the country.
"As New Zealand's indigenous gas supplies run down, that squeeze only gets worse. Without LNG to fall back on, a dry year leaves us with unacceptable choices. Either wholesale prices skyrocket, and power bills climb for every Kiwi household, or businesses are forced to shut their doors and lay off workers as gas is taken from industry to produce electricity.
"This Government is not prepared to let that happen."
He said that since the Government announced its plans for the facility, wholesale electricity prices for 2028 and 2029 had fallen by around $20/MWh, saving $800 million a year.
Labour's energy and resources spokesperson Dr Megan Woods said there was "real uncertainty" about how the facility would be paid for.
"The Government has finally admitted that its initial plan to charge Kiwi households for the LNG was out of touch. New Zealanders deserve to know what they're on the hook for before a multi-year contract is hastily signed."
She said the Government was "rushing into a multi-billion dollar commitment without explaining how relying on volatile international markets will lower costs for Kiwis, or ultimately how it will be paid for".
Instead, the Government should invest more in renewables generated in New Zealand.
Higher penalties for power companies
Brown also announced consultation with the sector on a new Winter Energy Reliability Obligation that will require large electricity buyers to secure back-up supply "well ahead" of forecast dry winters. It will also include requirements that generators have firm fuel available if hydro storage runs low before winter.
The Government planned to increase penalties for "serious rule-breaking" from the current maximum of $2 million to up to $10 million, or three times the commercial gain, or 10% of a company's turnover. "Whichever is the greatest," Brown said.
“Kiwis have been paying the price for an energy system run on the edge through higher bills and greater risk of shortages
"This Government is fixing that by making the electricity sector take real, permanent responsibility for keeping the lights on," the Minister said.
The Government will also amend the Electricity Industry Act to give the Electricity Authority "a clear role" in ensuring dry-year risk is managed across the system.
The Authority will also have to report annually to the Minister on current and emerging supply risks.
Brown said the Government will update the Government Policy Statement (GPS) on electricity "to set clear expectations that the Electricity Authority prioritise dry-year and wider security of supply risks, alongside reliability and affordability".
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