Energy shakeup looms

Reuters

POWER REFORM: The National government could raise billions of dollars by putting three state-owned power companies back together and partly privatising the result, according to energy sector sources.

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The National government could raise billions of dollars by putting three state-owned power companies back together and partly privatising the result, according to energy sector sources.

John Key's new government is also expected to "soften" the impact of the planned emissions trading scheme, with some in the power industry calling for a delay of a year or more and a cap on carbon prices.

Labour's 10-year ban on new gas or coal-fired power stations is likely to be lifted and if National keeps its word, the Resource Management Act will be reformed, which should cut the power sector planning consent process from up to five years to two years, speeding up the construction of new power plants.

National energy spokesman Gerry Brownlee is expected to be the new energy minister.

A senior energy sector source suggested that, faced with a worsening economic picture, the new government could combine state-owned power companies Mighty River Power, Genesis Energy and Meridian.

"I'm not convinced the industry has the scale that warrants the break-up, so there could be a review of the SOEs," the source said. "[Combining them] would release a lot of money in balance sheet terms and may well drive much greater efficiencies."

Combined, the three state companies would be worth at least $12 billion.

Selling 20 per cent of the equity in such a giant company could be worth perhaps $1 billion or more, and shares would be highly attractive to mum and dad investors and the government's New Zealand Superannuation Fund, the source said.

Independent energy consultant Bryan Leyland agreed putting the three companies back together was "sensible when we have no competition" but privately-owned power firms would be likely to object strongly.

Genesis said it would not support a proposal to put the state-owned power companies back together.

Some in the industry thought the power sector had its glory days under the former Electricity Corporation, which was split up in the 1990s.

"We think times have moved on - we would not argue for one central agency," Genesis spokesman Richard Gordon said.

Mr Leyland was certain National would drop the 10-year ban on new gas-fired power stations.

"That is essential and urgent," he said. There was also time to delay the emissions scheme because the world had been cooling, not warming, for the past two years.

The end of the 10-year ban would encourage more exploration and could lead to big gas-fired power stations in the South Island if either of two big gas and oil prospects off the East Coast were found to be commercially viable, Mr Leyland said.

Petroleum Exploration Association executive officer John Pfahlert said they were "pretty pleased" with National's election, but dropping the thermal station ban would not change the fact that world oil prices had dropped substantially since July.

The industry wanted to see New Zealand's emissions scheme move in line with, but not ahead of, Australia, with pragmatic changes to the scheme and a cap on the price of carbon.

Contact Energy said it would continue to focus on geothermal power developments near Taupo rather than reconsider a gas-fired power plant at its existing Otahuhu power plant in Auckland if National dropped the 10-year ban.

"In our view, geothermal is the most economic and strategically important fuel source, and that is where we are focused," Contact Energy spokesman Jonathan Hill said.

TrustPower community relations manager Graeme Purches said the end of the 10-year thermal ban would not have much impact unless there was a new, big gas find.

"It is unlikely anyone will be able to build a gas plant that is viable," he said.

Major Electricity Users Group executive director Ralph Matthes the government needed to quickly get rid of the 10-year ban on new thermal power stations and delay or simplify the Emissions Trading Scheme.

Electricity generation is due to come under the scheme at the start of 2010, but the rules for exemptions have not been considered yet. "It is Mission Impossible by 2010. I think you should be shifting it back, " Mr Matthes said, calling for a delay of at least a year.

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