Source: Radio New Zealand
The government says a Liquefied Natural Gas import facility in Taranaki will save New Zealanders about $265 million a year.
Energy Minister Simon Watts on Monday announced a contract was expected to be signed by the middle of the year, with construction finishing next year or early 2028.
Watts told media the facility would provide Kiwi’s “greater security and peace of mind”.
“As a government we are taking swift and decisive action”.
While Luxon said it would “provide a reliable back-up source.”
“I’m sorry, we are going to be investing in energy and electricity in this country.
“We need to get rid of the dry risk,” Luxon told reporters on Monday.
Watts would not confirm whether power prices would be cheaper next winter.
“I’m not going to guarantee, based on the advice I’ve been given the benefits outweigh the costs.”
The opposition party was briefed on the decision, Watts said.
A factsheet supplied by the government said the infrastructure costs would be paid for through a levy on electricity of between $2 and $4 /MWh.
The facility was expected to cut future prices by at least $10/MWh, and curb an expected 1.25 percent reduction in Gross Domestic Product from higher energy prices.
While an exact location for the import facility was yet to be determined, all the shortlisted submissions were in Taranaki, Watts said.
Procurement started in October in response to the independent Frontier report, which the government largely rejected.
The report said developing an import facility would make no economic sense if it was used only for firming, when generation is low.
Watts said the government would design an import model bringing in “large shipments only when needed”, and would later become a “fuel source for industrial, commercial and residential users”.
The factsheet said modelling from MBIE had shown the LNG import facility would “effectively cap gas prices”.
MBIE also modelled four other options for cost, timeliness, impact on energy prices, flexibility and wider impacts – but LNG imports were found to achieve lower electricity prices at relatively low capital cost.
Options modelled included a new thermal generation plant to run on coal or biomass; a combination of new and converted ‘peaking’ plant, that would run on diesel; a combination of a new unit at the Huntly power station, new and converted peaking plants, and a demand response; or a combination of LNG importation and refurbishing the Taranaki Combined Cycle plant.
“Other options, including renewable projects, were considered but not advanced due to a range of factors such as expected time to construct, feasibility of generating power reliably on the required scale, and effects on electricity market incentives.”
How did we get here?
Luxon in August 2024 said New Zealand was in an “energy security crisis”, with Winstone and Oji Fibre mills blaming power prices as they began consulting on closures, and NZ First’s Shane Jones accused the gen-tailers of profiteering.
He announced “urgent” actions including an independent review of the sector and removing regulatory barriers for an LNG import facility, which Cabinet agreed to consent.
At that time, a timeframe of winter 2026 was expected.
The government largely rejected the recommendations of the review carried out by Frontier Economics, with sector players including Simon Bridges criticising a lack of bold action.
“It would make no economic sense to develop an LNG import terminal to meet just dry year risk as the large fixed costs would be spread over a relatively small amount of output,” the Frontier report said.
“If an LNG terminal is contemplated as a last resort to provide NZ with a secure energy system, this should be considered as part of a wider gas supply strategy for communities and industrial users where gas is the most economic source of energy.”
Watts at the time said the government would begin procurement the following week and expected to have the facility up and running by winter 2027.
An earlier report in July for the four major gen-tailers Contact, Meridian, Genesis and Mercury – as well as gas company Clarus – found it could take three to four years to set up an import facility at costs ranging from $200m to $1b.
RNZ In-Depth’s Kirsty Johnston in November reported the response from “almost every corner – other than the gas industry itself – was a collective groan”, with sector commentators calling it a “band-aid” solution that “doesn’t make logical sense”.
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– Published by EveningReport.nz and AsiaPacificReport.nz, see: MIL OSI in partnership with Radio New Zealand