Issues confronting energy markets

2009-04-11T15:53:00.000-07:00

There are a number of vexing issues in the electricity market which largely depend on government policy. It comes as no surprise that government policy is going to hold back power generating investment over the next 2 years. You might think this is reason to pause and wait for clarification from the government so that you (as a prospective generator) might be in a better position with respect to risk to move forward. There are a number of reasons for thinking it might be better to act sooner rather than later. These reasons include:
1. The availability and cost of securing plant: When the market regulatory framework is more certain, there will be more prospective generators looking at the market.
2. The availability of sites for power generation: Clearly for generating technologies like wind, location is important. We can expect good locations to become critical to the future profitability of some forms of generation.
3. Current indecision about developing new thermal plant could result in tighter electricity demand in the medium term. Thermal generators are wary of commissioning new plants when they don't know the cost of buying carbon credits.

The types of issues that are stopping prospective generators from moving forward are:
1. Tradability of rights: Some generators want to be able to trade rights in foreign countries. The idea is that it would be more efficient if you could produce carbon credits in NZ because the cost of earning them in NZ is lower.
2. The high bureaucratic barriers to obtaining resource contents in some countries. Whether its consent from local government, neighbouring land owners, or other vested interests. In some countries processes need to be streamlined to lower the cost of approving projects, otherwise smaller renewable projects are not competitive.
3. Doubts about the plausibility of high renewable capacity penetration. There is uncertainty about the technical feasibility of managing intermittent wind generating capacity, particularly in countries like NZ. Such fears often fail to appreciate the technology options.
4. Uncertainty over fuel supply: In some countries like NZ there are concerns about fuel supply risk. It is not just an issue of whether there will be enough fuel (say gas), but whether it will be competitive in an emissions trading environment. Some ludicrous suggestions have been put forward such as an LNG importing facility for NZ. It will never be built. Never is a very long time, so let me tighten that remark. Its not going to happen in the next 20 years.

This is just a sampling of issues I want to consider inn my next report on Renewable Energy. The report is targeted at small to large investors in renewable energy, as well as stakeholders. This report will be offered on a multi-client basis.

Renewable energy

Issues confronting energy markets