Running out of energy

By COLIN ESPINER

It is not easy to imagine Energy Minister David Parker attempting a rain dance, but he could be forgiven for a little jig at the prospect of the country finally living up to its pluvial reputation.

News that rain has been falling in the headwaters of the rivers that feed the southern hydro lakes must have been greeted warmly.

While Parker has displayed a remarkably good poker face in recent weeks as the Clayton's electricity crisis (the crisis when you're not having a crisis) unfolded, he and the Cabinet must have been close to panic.

It is all very well counting on the law of averages that, in a country such as New Zealand, it is going to rain sooner or later, but explain the statistical probability to voters facing blackouts in an election year and see how far you get.

So worried about the public's reaction to yet another call for power savings was the Government, it resorted to looking the other way while the electricity industry mounted its own campaign to cut power use, which began yesterday.

Cabinet has judged, probably astutely, that the public is sick of being asked to turn off their towel rails and to only heat the room they are in.

This is 2008, after all, and New Zealand is supposedly a first-world economy.

Asking business to cut its power use is also counter-productive at a time when economic growth is stalling, and hardly likely to engender investor confidence.

However, according to Parker this is a fact of life in a country with an electricity system geared around renewable hydro-electricity generation, topped up by thermal power.

Hydro makes up about 68 per cent of the country's production when things are running normally, but these are not normal times. The Government's climate-change commitments to 90% renewable electricity generation have been temporarily shelved as it burns diesel, gas and coal to keep the lights on.

Precisely how Labour is going to move the electricity system towards a greater reliance on renewable energy when scientists predict an even drier climate is anyone's guess. While it cannot be held responsible for the climate, it is responsible for general policy settings, and the Government has, for some time, been discouraging new thermal investment and encouraging wind farms instead.

The trouble is, the development of wind farms and their progress through the resource management process cannot keep pace with the growing demand for electricity in a wet year, let alone a dry one.

Thermal generators might be having a bit of a chuckle at the moment as the country's largest state- owned enterprise and power generator Meridian finds itself under the eye of the Commerce Commission for potentially misleading advertising over its supposedly carbon-neutral status.

Meridian is currently selling its customers up to one third non- renewable energy, because it is having to buy power from the North Island to meet its supply contracts. All of which makes something of a mockery of the so-called competitive market model introduced by the former National Government, given no one power company can truly operate independently.

Although some lakes have risen about half a metre since Friday, the Government is not out of the woods yet. More rain is needed, but at least it puts off the prospect of more savage cuts by a few weeks. This might allow the Government to turn its attention to the other pressing energy matter confronting it - the price of oil.

The sky-rocketing price of petrol is burning huge holes in the disposable income of low and middle-income families. Labour is perhaps fortunate that Kiwis are by nature less demonstrative than Europeans, who have taken to the streets in protest at petrol prices or blockaded motorways with their trucks.

The pain and anger is nonetheless palpable, however, and it is also pushing up food prices by the week. One oil analyst yesterday predicted oil would hit $US200 a barrel by the end of the year, ushering in the spectre of petrol at $3 a litre just before the election.

Most New Zealanders understand the Government cannot control the price of oil, but they do look to their leaders in times of crisis for some relief or at least direction. When even the ANZ Bank begins suggesting a temporary cut in fuel excise tax, it does seem as if momentum is gathering for an official response.

So far, Finance Minister Michael Cullen has pooh-poohed the idea of cutting fuel taxes, and orthodox economic wisdom is that governments should not play around with their revenue base when times are tough. Cullen has also said fuel excise is needed for the Government's road-building programme.

Yet the sheer rise in the price of petrol might yet render road building unnecessary as drivers abandon their cars and flock to public transport. The price spike, if it becomes a trend, is also likely to push domestic inflation through the 5% barrier and give Reserve Bank Governor Alan Bollard sleepless nights.

Bollard might already be regretting being so bullish about cutting interest rates in September. A temporary reduction in fuel taxes could help smooth the economy through a very rough patch.

The idea is likely to enter mainstream political discourse during the election campaign, whatever Cullen says now. New Zealand First leader Winston Peters has indicated fuel excise could be a bargaining point in any post-election negotiations, and in 2005 National pledged a 5c a litre cut in petrol tax (three years ago, such a cut was considered significant).

Labour was hoping for some clear air this year to claw back its poll deficit. Instead, it is facing the strongest head winds in a generation.