Vic Crockford analyses the government’s response to the Frontier Economics report
The release of the Frontier Economics report into the performance of our energy sector set my emails and phone alight this morning. The lightning bolt reaction came not so much from any bold moves on the part of the Government but rather from the fact that it occurs to many I have been talking to as a lukewarm reaction to a political, social, and economically fundamental issue.
All the energy bingo words were in the report:
Lake Onslow
Dry year risk
Gas shortage
Forward contract prices
Amalgamation
What was seemingly absent in the political response was the depth of recognition that an increasingly energy literate population views all decisions made through the lens of the cost-of-living crisis and a deep-seated skepticism about the function of the system.
Social license will continue to erode.
Oftentimes, the challenge of our energy sector is the structural impetus to rest on our laurels. We have the riches of our hydro schemes and a set of assets that have largely been well-managed.
However, the social license of these facts is quickly eroding in the face of climate change and the rapid pace that consumer prices are outstripping increases in incomes.
The dedicated and smart people working in all facets of the energy sector must operate within market and regulatory structures that provide the rules of the game, and I’m yet to meet one person in any part of the sector who wishes higher bills on anyone – they are part of households too.
But we cannot escape the fact that electricity bills are forcing people to go hungry and businesses to close. In unrelated research on women’s experiences of homelessness, I heard firsthand that power comes second only to rent in terms of financial stressors that push people over the edge.
Throw in the reliance on imported LNG and stockpiling coal to the Government’s list of actions this morning and the optics start to look murky when it comes to how ambitious we are in terms of innovation and decarbonisation, as well as social license. Those that blame the previous government’s ban on gas exploration – and the report certainly pointed to this as a factor – will be reveling in an “I told you so” moment, but the fact of our commitments under the Climate Change Response Act remains.
Green shoots emerge.
Despite the reliance on carbon intensive thermal fuels and a tepid mandate for change, there were green shoots of hope amongst the announcements for those employing horizon thinking and working on the energy system of the future.
A strengthened Electricity Authority seemed to be the response to many of the Frontier team’s recommendations. If this means more budget and mandate to monitor and enforce, this is a positive.
An RFI that seeks to understand where Government purchasing power can rev up investment in development via AOG contracts or an underwrite. The promising words being: “the full range of scale of project is in scope, including grid-scale, locational supply, and/or site-specific projects.”
On the latter, there is ripe opportunity for a marriage of capital, tech, and local projects to create generation opportunities close to people who will use the power, with the benefit of reducing cost to serve and reducing demand on the central grid. Such “community energy” projects are already in motion around the country, with iwi and community-governed organisations leading the way.
What does it mean for leadership in the sector?
For energy sector leaders, three imperatives emerge:
Proactive stakeholder engagement that acknowledges social license erosion and addresses it transparently
Strategic positioning for opportunities in the government's RFI process, particularly around repeatable, locational solutions
Regulatory readiness for an Electricity Authority with a stronger mandate