Economic discussion became energised – so to speak – by Meridian Energy’s decision to pull the plug on its plans to build the $1.2 billion hydro-electric scheme known as Project Aqua.
According to one account, nail was driven into Aqua’s coffin by recent geotechnical investigation of soil and rock characteristics in the Waitaki River valley. It seems there had been an intention to use local soil to line the canals in the lower valley, but testing showed it was unsuitable. Other tests showed rock layers beneath the proposed power stations potentially unsafe, or at least insufficiently solid.
These look like powerful reasons for halting the project – or at least causing serious review. Even so, there was widespread impression that the Resource Management Act was the villain which obliged Meridian to scuttle the project.
The RMA has long been high on business leaders’ list of impediments to economic development. recently published Treasury paper raised questions about the RMA too, saying it is causing delays to projects. Giving priority to major projects the Government was considering, however, might delay smaller projects, the Treasury cautioned.
While the RMA was cited by Meridian as factor in its decision to halt Project Aqua, chief executive Keith Turner called for caution. He urged the electricity industry to think strategically and suggest practical improvements to the law rather than simply rail against it as business organisation leaders tend generally to do.
The other spectre raised by Project Aqua’s scrapping was the role of coal in generating electricity. Turner told the National Power Conference in Auckland coal is the most realistic alternative.
“We are inevitably heading towards major coal development,” he said (although his company is focused on renewable energy sources and has no plans to build its own coal-fired power stations). “I say ‘get on with it’.”
Good-oh. Among other reasons for favouring coal, the experts reckon, is the fact that there is enough of it to provide for the country’s energy needs for up to 400 years. Coal reserves are the equivalent of 50 Maui gas fields and power could be produced at low price almost forever, said Solid Energy chief executive Don Elder.
Solid Energy is working on coal-fired power station in Buller and plans to apply for resource consent next year. It is also considering coal-fired plants in Southland and the upper North Island.
But Dr Elder also identified two big snags to the use of coal for power generation, causing investors to be wary: the RMA and the carbon tax the Government intends imposing as key element of its climate change policy.
Because Turner and Elder are the bosses of state-owned enterprises, it is reasonable to suppose the Government has more than modicum of sympathy for what they are saying. But it ain’t necessarily so.
Energy Minister Pete Hodgson delightedly describes himself as an activist minister in an activist government and he is championing the cause of renewable resources. He told the National Power Conference these resources will ultimately meet most of the country’s needs because they are cheaper (and if they aren’t cheaper, he can flex his activist muscle to make them cheaper).
No matter how successfully wind and geothermal power might be developed, however, Minister Hodgson accepts they are unlikely to provide the total answer to the country’s electricity needs. He is putting his money on gas explorers finding new gas fields – “there is no doubt that New Zealand has plenty of gas”, he said. “We just have to drill enough holes to find it.”
Hodgson anticipates more coal-fired stations being built in the next 10 years, but says they will be economically encumbered by the carbon tax to be imposed under his government’s policy of endorsing the Kyoto Protocol. polluter-pays levy, in other words.
The need to think about these issues in the wake of Project Aqua’s demise came hard on the heels of publication of the New Zealand Herald’s Mood of the Boardroom survey of 300 company leaders. Survey respondents want the Government to take action to ensure continued economic growth and investment, saying the country’s fast-diminishing gas fields and the potential for another electricity crisis are concerns for companies at all levels.
Fonterra chief executive Andrew Ferrier sees energy, not red tape and regulation, as the major issue facing his company. But he’s gas man. “We have 29 plants in New Zealand that run on natural gas,” he explained. “If we had to convert those to coal over the next 10 years we would spend huge amount of capital for no real benefit for our farmers whatsoever.”
And so he joins the Minister in hoping for the discovery of more gas rather than digging out the coal we all know about.
Bob Edlin is regular contributor to Management.
