Electricity Commission Chairman David Caygill dismisses as “bizarre” calls for NZ to replace the current wholesale electricity market with a single centralised purchaser. He says changing the industry’s structure would make no difference to the overall level of risk in a dry year. Caygill set out his views on the current electricity outlook in an exclusive statement to NZ Energy and Environment Business Week:

2008 is proving a very dry year. Certainly it’s the driest since 1992. Perhaps it will prove to be the driest since we started keeping records in the 1930s. It is inevitable some would describe this uncertainty as a crisis. And as with any “crisis” there are some who focus on the future and ask what will happen? Some look to the past and ask should we have done more already? And some want to redesign the system. The repeated risk of dry years leads some to conclude that the market system of competing generators and retailers isn’t working.

The oddest suggestion recently has been that we should replace the current wholesale market with a single, centralised purchaser. This idea is bizarre for at least two reasons: first, we would lose the very price signals that have put us in a better position than in 1992 despite worse hydro inflows. (It also helps that we are less hydro dependent now than then). But there is also no reason to suppose that a central purchaser would have any more information on which to contract for electricity than the Commission and the generators do now. In other words there is no reason to suppose that a single purchaser would have bought more capacity than the current system did this year.

How much to produce (or purchase) is essentially a question of how one assesses the various risks involved: of rainfall, plant failure and so on. Changing the industry’s structure yet again would make no necessary difference to the overall level of risk. It is essential to remember that greater security can only be purchased at greater cost. We will soon enough be concerned once again to minimise the price of electricity rather than maximise security. The Commission, of course, is charged with doing both.

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