GasNZ gives its view on Gas Security Response
The Government risks distorting the commercial energy market if it intervenes to secure gas supply for electricity generation for this winter and next, GasNZ says in a letter to the Ministry of Business, Innovation and Employment (MBIE).
In general, New Zealand has not required electricity users to fully value the security of gas supply, GasNZ says.
“This may be in part because the electricity sector anticipates the Government will find a way to secure gas to avoid blackouts of consumer electricity supply.
“This has contributed to the current winter supply uncertainty.”
MBIE is advising the Government on workstreams arising out of the Gas Security Response Group, and although not represented on this group, GasNZ has written to MBIE to advance the gas sector’s perspective.
GasNZ’s key message in its letter is that the markets should be allowed to work.
“The country is facing a shortfall of gas supply against expected and contracted demand.
“The growth in renewable electricity generation has increased our reliance on limited peaking generation capacity, and increased the risk of electricity supply outages.
“Ministers will feel driven to act to ensure ‘the lights stay on’.
“We urge political restraint and minimal intervention to protect the long-term integrity of New Zealand’s complex and interlinked energy markets.
“If additional measures are considered necessary (e.g. to protect vulnerable consumers or particular gas users), they should be market-based measures, not market-distorting interventions.
“To the extent the government wishes to intervene, it should primarily be to encourage innovation and facilitate the discovery, development and implementation of market solutions – not to favour one solution over another nor to impose particular solutions.”
GasNZ says gas-fired generators and major electricity users should be fully aware that they need natural gas to meet peak electricity demand, and this need will likely grow as variable renewable electricity generation grows; and that current gas supply is constrained by New Zealand’s declining gas field production.
“If gas production falls short of demand, generators will need to purchase gas from another user with more secure supply or more flexible demand, at a negotiated price.
“We consider that it is up to generators and other participants to manage this risk and its cost as they see fit.
“The uncertainty of this risk is increased whenever a government intervenes in the face of impending supply problems because it insulates participants from genuine market dynamics, undermines market innovation, and perpetuates supply insecurity.”
The letter notes that in 2021, the Gas Industry Company’s Gas Market Settings Investigation Report recommended developing commercial arrangements for gas to support increasing electricity security of supply risks.
The GIC report noted the lack of incentive for electricity generators to ensure they have contracted fuel supply.
The GasNZ letter says that in its view, there are no grounds for the Government to intervene other than to encourage and facilitate such commercial discussions and market innovations.
“For the energy market to send signals and generate a commercial response in the long term, governments must resist the temptation to intervene in the energy market when faced with apparent short-term shortages.”
There are many ways New Zealand could achieve greater gas and electricity security, GasNZ says.
“We look to the Government to ensure it does not deliberately, or unintentionally, ‘pick winners’ but instead supports market discovery of, and rapid investment in, the best solutions.”