Electricity prices will keep rising

I just saw a talk by  Carl Hansen, the Chief Executive for the NZ Electricity Authority. He made a comment which is retrospectively obvious.

Electricity is a natural resource, and follows natural resource economics. So investors in electrical generation will build the the lowest price solutions first, and as time goes on the cost of delivering a power plant in c/unit terms will increase. So sadly, baring another gas discovery, we will rising real costs of electricity supply in the future. He estimated the marginal cost will be $90/MWh (9 cents per unit) by 2020, based on the prices to build and fuel the next up stream of power generation projects.

The Electricity Authority has 3 mandates – to increase competition (and thus reduce the chance of excessive margins), to promote reliability of supply (no blackouts) and to push for lower transaction and regulatory costs and thus increase efficiency. I asked Carl about feed in tariffs after he spoke – for now they are off the agenda, but it seems that making it easy for small businesses to get a fair price for their generated power is part of their mandate.

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One Response to Electricity prices will keep rising

  1. Simon Lyall says:

    An way things could work out differently would be if cheaper electricity sources became available. So 20 years ago nobody was building wind-farms because the technology was at a stage where it couldn’t compete on price.

    Today wind-farms compete on price but the technology isn’t getting better as fast and some of the best locations are taken. So the price of wind-delivered power may increase.

    12 years is a pretty short period away ( especially with the RMA ) but there are a few other technologies getting close to commercial levels of efficiency and with potential to reduce the average price 20 years down the track.

    Obvious candidates would be offshore wind-power, Solar updraft, Photovoltaic and wave.

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