In summary: 

• It’s great that the Government has committed to renewables as the destination via a market-led solution.
• LNG is a bit like picking the least dirty t-shirt from the washing basket. We don’t think it’s needed, but at least electricity users won’t be paying for it via a levy.
• Nothing has been signed so there’s a chance the industry could convince the Government LNG is not the lowest cost option.
• The Government should let the sector determine the least cost pathway to provide dry year backup, not force in LNG. Forcing the gentailers to pay for LNG still puts the cost on electricity users and customers should get the lowest cost dry year solution.
• Government needs to recognise that renewables, treated differently, absolutely can manage dry year risk in the longer term without burning fuels.
• The Sapere report shows there is a cheaper alternative that offers diesel as a shorter-term back up and helps businesses off gas. Other experts say LNG is not needed for the dry year. 
• LNG is a bridge to nowhere for gas users because it will lock in expensive fuel and may need to be subsidised in the future. The money should be spent to help businesses electrify. 

Rewiring Aotearoa Mike Casey says it's good to see that renewables are the destination, but he is disappointed the Government couldn’t bring itself to move away from an LNG import terminal, despite a whole range of experts pouring cold water on it as a dry year solution and as an option for gas users.

"It’s a bit like needing a shirt and picking the least dirty one out of the washing basket," he says. "But we’ll also claim a small victory because we, like many others, have said electricity users should not have to pay ‘north of a billion’ through a levy to fund it and that now looks to be off the table. That made the idea even more unpalatable so it’s good to see this changed.”

Casey says the LNG terminal was always positioned as a dry year solution for electricity, but big gas users were also asking for it.

“This was also about finding ways to keep gas flowing given domestic gas is running out and limited discoveries have been made. But, as we have said from the start, if gas users did want LNG, they should have to pay for it. And then if it was needed for electricity, it would be built into the price.”

Casey says the fact that no contracts have been signed yet means there is still room for the industry to convince the Government that there are better, cheaper options available.

“Rewiring Aotearoa commissioned Sapere to look into this issue and the report was released last week. It clearly shows LNG is not required to deal with the dry year price spikes in 2024, and many others have said it isn’t needed. We’re still going through the details, but it seems as though there’s still a chance the large generators can convince the Government that it isn’t necessary.”

Renewables will solve the dry year problem eventually, but in the meantime, the report says we could get the same results with a diesel back stop.

“That is a fuel we already import and are already increasing storage for. Some safeguards to protect customers from overly high spot wholesale prices could be implemented. The Government should let the sector determine the least cost pathway to provide dry year backup, not force in LNG. Forcing the gentailers to pay for LNG still puts the cost on electricity users and customers should get the lowest cost dry year solution.”

Energy Minister Simeon Brown also announced a new policy called the Winter Energy Reliability Obligation, which will require “major power companies and large electricity users to secure enough back-up energy ahead of a dry year”, with the threat of “real consequences when they fall short”.

“While we need to take what the gentailers say with a grain of salt, some of them have said publicly that we don’t need LNG for the dry year. Meridian has just received approval for more water storage, there is already a strategic coal reserve and demand flexibility agreements for big users.”

Casey says it will be important to explore how these requirements could transition to firm renewable energy contracts. As the Sapere report points out, the dry year shortage could be solved with an 800MW wind farm that is kept separate from the market and only turns on when needed.

“‘Firming’ does not require burning, it just requires enough despatchable renewable energy to help keep our lakes high so we can get through winter. The dry year solution should be the least cost option and this is why the Sapere report proposes a contracts market which could deliver renewables for dry year."

When it comes to providing gas for businesses worried about ongoing supply, Casey says LNG is a bridge to nowhere that just delays the transition, takes the heat of the renewables ambition and is a handbrake on productivity growth.

“LNG is far more expensive than domestic gas and, as the Sapere report says, it may require future governments to subsidise an unknown LNG price for an unknown number of businesses for an unknown time. It’s an uncapped liability.”

The Minister says the LNG terminal is a way to save jobs because it can be used for industry rather than electricity generation. But these jobs are not dependent on gas. They are dependent on the businesses continuing to operate and many of them can switch to electricity.

“These businesses will struggle to be competitive with LNG prices so this just locks businesses into an unproductive future. The smart play is to help them get off gas and ration our remaining stocks for those who have no option to switch.”

The Government-backed loan scheme is a good start, but it’s too small, says Casey.

“Getting businesses off gas and onto cheaper renewables needs to be seen as part of our energy strategy, not as corporate welfare. The Sapere report shows what would be required there - and it’s cheaper than the LNG terminal.”

The Government’s Securing Affordable Energy plan sounds good in theory.

“But you cannot secure affordable energy with expensive fuel like LNG. And you cannot expect businesses to electrify when electricity is too expensive. As the OECD said, it would be unwise to tie ourselves to that global market if we don’t need to.”

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