Future Shocks

Some Private Forecasters Are Predicting A Major Energy Shortage in Less Than A Decade
Listener: 30 November, 1996.

Keywords: Environment & Resources;

Forecasting electricity is far from easy, as Electricity Supply and Demand to 2015 from the University of Canterbury Centre for Advanced Engineering makes clear. There are so many uncertainties: economic growth, the degree of energy conservation, the weather which affects the hydro lakes, what capacity will be built, the size of the Maui field supply of gas, and so on. Yet it seems there may well be a major energy shortfall after 2003 (and possibly earlier if there is a dry year which fails to fill the lakes). This is not just a one-off year of power cuts in a cold winter. The forecasters expect an ongoing shortage.

The shortage arises from three main sources. First there is the remorseless rise in the demand for electricity. The forecasting team, Leyland Consultants, think it will grow 3 percent a year, which implies slow growth or substantial energy conservation compared to past trends. Then there is the fall in the generation capacity as gas from the Maui field runs out, not all of which can be covered by increasing the burning of coal and oil. Third, insufficient new generating capacity is being built. (A fourth complication is that the hydro-power system’s right to divert water may be substantially reduced, as a result of water right hearings. If that does not happen, the energy gap will be put off a couple of years.)

The gap opens dramatically after 2003, but that will be covered in part by new power stations yet to be announced. The worry is that the lead times to put the works into place mean the window for plant construction is closing. This is not just the engineering of building the various stations (which may include new forms of energy such as wind farms). Environmental pressures and protests may delay planning consents.

The report, the third in a series, reflects a major change in economic policy over the last decade. The government administered Annual Energy Plan was abandoned in 1986, when the supplying of electricity was left to market forces. Since then the government has been trying to make the energy market more competitive, in a belief that such a market will meet consumer needs. However, even overlooking the power cuts because of the 1992 dry year, it is not obvious that the market provides security of supply at reasonable cost.

But what is the alternative? The report argues that there is a need to define the overall accountability for providing a reliable electricity supply. “At the moment, no-one has the responsibility for ensuring that New Zealand has a reliable and adequate supply of electricity.” Historically the state electricity supplier and the minister of energy had statutory duties to secure electricity supply. This has been abandoned. In some ways the provision was a bit fatuous. When there was a shortage, the current minister could not really be held accountable, since with long construction lead times any ministerial errors had been made years earlier.

We have not had – at least since the war – any minister with a statutory responsibility for ensuring the security of food supply. Food is as important as electricity. Should the engineers’ recommendation be extended to the security of all vital commodities? But consider the situation where security of food supply in New Zealand was threatened. Certainly the government would take responsibility, which might include organizing the air-freighting and shipping of emergency supplies to New Zealand. (As an aside, it’s interventions would mainly involve market methods – purchasing food, hiring transport, perhaps even selling the food – although there could be some non-market direction, such as using military transport.) There would be difficulties, but hopefully they would be short lived, although a grumbling memory would linger on (as occurs with the 1992 electricity shortage).

In any case if we all knew there was going to be a food shortage next year, we could plant vegetable gardens and stack up the freezer. It takes much longer to build power stations (not least because of environmental consents), and it is much more difficult to store electricity (except in limited capacity hydrolakes). Where the product cannot be imported, cannot be stored, and there is a long lead time to increase production capacity, the market cannot guarantee a security of supply.

So the report suggests that the energy reforms went too far, and left us over-reliant on the market. Even so, by alerting the possibility of the post 2003 shortage, the report will stimulate the market to reduce it. There will be suppliers planning new capacity, and consumers – industrialists and households – thinking about more energy conservation measures. Will they respond fast enough?

Because of the peculiarities of energy supply, I would be more comfortable if the government were to be more actively involved in long term energy planning – or at least thinking about the issues. In the interim the private sector, including privately commissioned reports such as this one, will have to carry the burden.