The Future is Electric

Jokers to the Left, Clowns Even Further Left

After nearly a decade of stagnant wage growth, there’s lots of people looking for a quick fix. This election is going to see lots of proposals from politicians who say they can solve voters’ problems if only they had a little more money and power.

We’ve seen a proposal to put a 1.75 per cent tax on every urban property (and a 0.5 per cent tax on every farm). The amount would be due every year.

We’ve seen a proposal to buy the Bank of New Zealand. In a few years it could be pursuing more woke policies thanks to its Labour-appointed directors and losing money hand over fist. Think Air New Zealand without the planes.

They say they’d merge it with Kiwibank, so there would actually be less banking competitors. There’s also the small matter that BNZ is owned by a company that might not want to sell it, unless of course they are rinsing the New Zealand taxpayer. We could go on.

Part of the ACT Party’s role this election will be to put forward new ideas, but stopping bankrupting insanity could be even more important.

The Future is Electric

Today David Seymour gave a speech to ‘Electrify Queenstown.’ As Parliament’s only electrical engineer, he put forward ideas to improve energy investment instead of kill it.

Speech to Electrify Queenstown

Thank you for having me, and please forgive me for giving a speech like a short engineering memo.

I come from a family of engineers and I believe I’m the only electrical engineer ever elected to Parliament. Depending on how I go, I might be the only one they ever elect, so I’m doing my best for the profession.

I’ve got ten minutes. I’d like to get across five points that I believe must be surfaced if we’re to create the abundant electricity that electrifying Queenstown will require.

1. Energy policy will attract attention this election because we are at an inflection point that will affect our standard of living.

Our country was blessed with rain, hills and gravity. That was the first miracle that gave us abundant energy.

The second miracle was the discovery of abundant gas to cover those years when the rain didn’t fall.

These endowments have helped make us the second richest country in the southern hemisphere, and third isn’t even close. It is impossible to be first world without energy abundance.

The end of gas, setting aside the causes of that momentarily, means we need another substitute for dry years.

Without such a substitute, our standard of living is suffering. Residential power bills and sawmill closures are some of the most visible evidence.

Addressing this issue is now one of, if not the, collective challenge New Zealanders face in 2026, and it will be a key election issue.

2. The energy market is working, and the generation build-out currently underway proves it.

The build-out shows the electricity market is working. ASX futures now show falling prices for the forecast period through 2029. Prices rise, supply responds, prices fall again.

Unlike Think Big, this build-out is occurring without a cent of taxpayer money. We are not going to get an over-time and over-budget dam at the wrong end of the country, but if we did the taxpayer wouldn’t be paying for it.

It’s happening now because there is certainty about some big questions that haunted investment for the last decade. Will Tiwai Point stay or go? Will the Government spend $15 billion on a pumped hydro scheme at Lake Onslow?

Those uncertainties killed investment, but now they are settled and investment is back.

3. The biggest danger to energy abundance is clumsy policymaking, just as generation build-out is finally happening.

Just as the market is working, hapless politicians are promising to bugger it up.

The Labour-New Zealand First-Green ban on oil and gas exploration scared that industry out of New Zealand, and now there are simplistic proposals with the potential to slow or stop the current progress in electricity.

One such proposal is to separate gentailers into generators and retailers. Another is to put price caps on retailers’ supply. There have also been suggestions of the Government starting a new thermal generator, and I am sure there are more similar ideas to come.

The people behind these ideas should consider a story we learned at engineering school. It’s called The Frog and the Bicycle and it goes like this:

You can pull apart your bike and lay it out on the garage floor. Admire every sprocket, washer, spindle and cable, then put it back together and ride off down the driveway.

A frog, on the other hand, can only be disassembled once.

Some systems have finite elements, others are infinitely complex and can’t just be pulled apart.

In this sense, electricity markets are more frog-like than bicycle-like.

Politicians with little knowledge can do enormous damage to electricity markets.

Would stand-alone retailers have the balance sheets to insulate residential customers from the wholesale market? As a former Flick customer, I have my doubts.

If you followed the Flick story, they promised to charge retail customers wholesale prices. Being a nerd with disposable income, I signed up.

Then the wholesale prices really rose, and they fixed the price. Lesson one, consumers need insulation from wholesale prices.

Then they couldn’t carry the losses and got acquired by Meridian. Now I’m a Meridian customer. Lesson two, you need a big balance sheet to buy wholesale and sell retail.

The price ceiling idea is equally naïve. How would gentailers control the wholesale market without illegal collusion in auctions; if they couldn’t, how could they meet a fixed price?

These kinds of ideas are destructive and would set back the electricity abundance people here seek.

4. Line charges are the missed opportunity, both because of recent increases in weighted average cost of capital (WACC), and the role of transmission and distribution in supporting new generation.

So much of the recent politics has been focused on generation and retail. Little attention has been paid to transmission and distribution.

I find this odd because line charge increases have contributed more to the increase in power bills than actual energy costs in the last two years.

The Commerce Commission increased WACC in line with inflation and interest rates in the wider economy, and that’s led to faster increases than energy costs.

Transmission and distribution are also key to ensuring that the build-out of generation capacity continues. Too often, it is connections that hold back generation projects, and I believe we can do better at removing that roadblock.

I’m not announcing ACT’s energy policy today, but we will have more to say about this when we do release our policy towards the election.

So far, I’ve said that:

1. finding a substitute for indigenous gas is necessary,

2. the market is working to do it,

3. the most important policy priority is to reject silliness, and

4. transmission and distribution have contributed most of the recent price rises and are on the critical path for more generation capacity.

That doesn’t mean there’s nothing else to be done about replacing indigenous gas on the generation side.

5. There are still things we can do that will improve the situation without reducing current investment, here are three examples:

5.1 While it will be controversial, the LNG terminal is the best option for replacing indigenous gas in the next two years. Those who say otherwise need to explain how their alternative can match its energy potential by the winter of 2028.

5.2 In Australia and the US, there are markets for frequency correction that have helped fund their battery build-outs. New Zealand policy should be moving faster in that direction, both to make a system with more alternative generators work, and to help fund the battery build out.

5.3 Last time I was here in Central Otago, I launched the Ministry for Regulation’s Sector Review for residential and small scale commercial solar installation. We should be the simplest place in the world to install solar, and already the Ministry has identified multiple procedures that are not needed. We’ll be able to report in a couple of months with a hitlist of rules to change. Then we’ll change them and achieve our goal of being the easiest place in the world to install solar.

Conclusion

I mentioned I am Parliament’s only ever electrical engineer. Perhaps because I know a little more than most, I am also the most cautious. Electricity markets are far more frog-like than bicycle-like. If you try to divide it in half or reduce its oxygen intake, or force feed it a different diet, you’ll make it very ill and perhaps kill it entirely.

The ACT Party will have more to say when we release our energy policy closer to the election, and we look forward to expanding our contribution to a future of abundant and affordable electricity.