Wednesday, August 6, 2014

A Distributed Electricity Company (The Future of the Modern Electricity Network) - PART 1 of 3

Now that the NZ government has sold off a decent chunk of our generation assets, it's probably OK to let the cat out of the bag (releasing this cat is a double edged sword, read on for an explanation).
Mountains, water and electricity
(much of New Zealand's electricity is hydro generated).
Photo: courtesy Martin Stewart
To date, all of the arguments used to justify the sale of the assets fail logical reasoning. When it can be shown that the ROI of these assets vastly out strips the cost of money, it's hard to argue that selling these assets was a wise choice (the partial sale of these electricity generation asset has returned about 4.3 Billion dollars to the government).

Having said that, the government has left a key piece of information out of the story, a piece of information that can change this logical argument.  The fact is that the commercial value of these assets will be much less in the future (something the industry already knows). This will happen due to technology and market price changes on the horizon, changes that are already under way now.

What is happening is a slow but steadily increasing uptake of distributed renewable generation and this has a big effect on the electricity market.  An example of this can be seen in Australia, where the electricity spot market has recently gone negative in the middle of the day (yes, that means people are being paid to consume power!).

To be specific, the "Key Information" the government has left out of the public debate is: "As the cost of equipment for generating renewable energy continues to plummet, the value of the old industrial scale generation assets will drop."

From my perspective, this key information is the only "logical" way the government could internally justify the sale of these assets, because it means the country gets out while the capital value is high.  Of course there is also the ideological based reasoning that government ownership should be minimised, I don't think this simple reasoning can be considered logical though.  I'm also not sure what would hold more sway in the government caucus, ideology or logic?

Of course being honest about this information wouldn't have been a wise move from the governments perspective.  If you are trying to maximise the sale price of these assets (and your determined to sell), this is the last thing you want being discussed in the media...

In the next post, I'll be discussing how these changes will affect us all.

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