What would you rather?

In their early teens, my kids played this game, “what would you rather?”  It was always fairly awful, like, “what would you rather, eat a sparrow’s poo every day or a plate-load of cow shit once?”

With dire warnings last week that the lights might go out, I was reminded of this game and the trade-offs we face. What would you rather, that we continue with increasingly unaffordable and unreliable electricity or reform the market settings? Would you rather invest in installing 29 million LED lightbulbs or build and pay for more power plants? 

These are the types of choices we should be making right now. Except we are not. Instead, we are slow to adopt efficiencies, look longingly at coal and gas and seem to believe in a market that is not delivering as it should.  

Here’s things we know. Firstly, to state the obvious, winter is cold, and we use lots of electricity to stay warm. Secondly, we are increasingly electrifying which increases demand on our infrastructure. Take your pick – we are electrifying because we cannot rely on fossil fuels as they are bad for the planet, they are expensive and / or they will run out. 

At the Consumer Advocacy Council, we regularly survey residential and small business consumers. They firmly tell us their priority is affordable electricity, followed by a resilient power supply that is also sustainable. Electricity is an essential service so what they want is not unreasonable.

So, what choices to make?  

The big elephant in the room is the electricity market. It’s a market that should deliver the electricity consumers need at a price they can afford. Warnings of power cuts and actual cuts show that the market is not working. Most experts say that the price of electricity will rise, at a time when many consumers cannot afford electricity now. MBIE data shows that 110,000 households cannot afford to heat their homes in winter.   

We are not alone in saying the market is not working well. Marcia Poletti from Octopus Energy in the UK, said “…for the last 20 years in NZ wholesale prices have been 20% higher than needed because NZ doesn’t have a competitive wholesale power market.”  

Our market incentivises shortages in electricity availability, not the building of new generation or storage.  On that cold day last week, when electricity was scarce, the wholesale price of electricity jumped by up to thirteen times compared to the normal trading period price. That could net huge windfall profits for generators.  

We all know that scarcity drives prices higher. And that’s what we have – scarcity and prices higher than we should have when our power is generated by around 87% renewables. That’s good for generator profits but provides disincentives to build new clean generation. 

We need to urgently consider alternative market settings, like treating renewable and non-renewable generation separately. We could pay for thermals – gas and coal, to be available during winter to help ensure security of supply. Thermal generation could then be available as Transpower, the system operator, deemed necessary. Other forms of electricity generation could compete in their own market. That would mean that the cost of thermals would be averaged over all energy consumption, and the higher cost of thermal generation would not be paid to non-thermal generators. This could prevent wholesale price spikes, should prevent electricity shortages, and encourage new green energy sources.

We should also consider how separating the retail and wholesale arms of the big gentailers – Contact, Meridian, Mercury and Genesis – could help drive a more competitive market.

Consumers will ultimately pay for all new power plants and lines.

But building infrastructure should be what we do when we have exhausted all other possibilities.  

Some efficiencies and innovations would give us big wins and mean we do not have to build so much, so soon.  

Solar and wind are great renewable energy sources, but when the sun doesn’t shine and the wind doesn’t blow, we need storage or other forms of reserve. Better use needs to be made of storage such as incentives for batteries. If we incentivised electric car owners to charge their cars off-peak and discharge them into the grid at peak times, that would increase our available battery storage.   

If we converted 29 million inefficient light bulbs with LEDs that would deliver 340MW of electricity network peak winter load reduction. That’s enough to power Hamilton.

And there’s more that could be delivered by innovation and efficiency.

But like, my kids asked, what would you rather?