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Opinion: Govt energy strategy to change landscape in more ways than one

By Melanie Carroll of NZPA

Friday 19th October 2007

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The Government's attempt to wean the country from fossil fuels, part of its strategy to cut greenhouse gasses, will change the landscape in more ways than just putting legions of wind turbines on the horizon.

There will be the losers -- energy companies whose generation comes from gas, coal and oil -- and the winners, those which use renewable sources of power such as hydro and geothermal.

One of the early victims, state-owned generator Genesis Energy, probably welcomed the strategy through gritted teeth as its planned gas-fired power station north of Auckland now looks unlikely to get approval. The future of its plans to import liquid natural gas also looks grim.

"The renewables are in the listed space, the gas companies aren't. This is a significant wealth movement from one play to another that may happen over a period of time," said Nigel Scott of brokers ABN Amro Craigs.

"This is not instantaneous -- there are huge capital costs involved and a lot of planning, environmental court to go through."

The new rules will force companies to join forces or evolve. Fewer than half the country's power companies are listed, and the Government owns over half the generation capacity.

The Government is easing competition regulations preventing electricity distributors from generating power, to encourage lines companies to invest in local renewable energy projects.

One lines company that has been actively pursuing opportunities is listed firm Vector, which has a 19.9 percent stake in windfarm builder, New Zealand Windfarms. The pair and state-owned generator Mighty River Power are exploring ways of co-operating over the distribution of wind powered generation.

"Vector-NZ Windfarms-Mighty River tie-up -- that's huge, that's an SOE looking to do a tie up," Scott said.

"Clearly they must have some areas they're looking for work together on wind farms. It's a quantum change to where we were."

NZ Windfarms recently struck a deal with electricity and gas distributor Powerco to build new transmission lines connecting its half-owned Te Rere Hau wind farm in the Tauraruas to the grid.

An industry shakeup would have the New Zealand Exchange licking its lips at the prospect of a sharemarket listing from the state-owned generators.

Half Australian-owned Contact Energy generates around a quarter of the country's energy, and is the NZX's third-largest listed company. Meridian Energy generates nearly one third of the country's energy, and even a partial listing would provide much needed bulk to the worryingly skinny capital markets.

NZX chief executive Mark Weldon has argued that large SOEs like Meridian Energy make up a large proportion of the economy but do not live up to their potential growth and so act as a drag on the economy. He has said the Government could keep control of a listed SOE by, for example, selling a stake well below 50 percent or creating different share classes.

The Government has effectively banned new fossil-fuel burning power stations for the next decade unless they are crucial to the security of supply, but is happy to allow companies explore for oil and gas around the country as it is largely exported. Never mind that global warming doesn't discriminate according to where the fuel is burned.

The Petroleum Exploration Association says the strategy will lead to a long-term decline in the local oil and gas exploration industry. The ban on SOEs building new gas-fired stations could halve the size of Taranaki's oil and gas industry over the next 20 years, and placed too much reliance on unreliable wind and hydro energy sources.

"The people who are in the element of the gas market, they're simply not going to have new plant to sell it to so they're a little bit capped," ABN Amro Craig's Scott said.

Opponents to the Government's strategy say it is draconian, will lead to higher power prices, lower investment, and endanger security of supply.

Increasing the energy generated from renewable sources by over a quarter, to 90%, also raises the spectre of more bitter battles with communities already up in arms over the prospect of wind farms at close quarters.

The Government has so far resisted "calling in" large energy projects such as Meridian's planned Project Aqua, which the company canned after huge community objections about the effect the hydro scheme would have on the Waitaki River.

A minister calling in a project would speed up the process, and bypass local and regional government bodies.

Contact Energy hopes the Government will call in its planned 650 megawatt, multi-billion dollar wind farm to be built south of Port Waikato which the company expects to be running by 2010.

Contact says landowners it had consulted were happy about turbines on their land, but the company is wary of "spurious" appeals, having waited for seven years for re-consent of its Wairakei plant at a cost of $15 million.

It might not offset our burden under the Kyoto Protocol, but energy companies have found that New Zealand's people power is eminently renewable.

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