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Leyland Solution Damaging for the Economy

Federated Farmers of New Zealand (Inc) is alarmed the Government is still considering the Leyland approach as an option for fixing the electricity sector.

"The Minister of Energy, Hon Pete Hodgson, announced on the Holmes Show last week that the Government has narrowed its options for the electricity sector to three, with the Leyland approach being one of them," said Federated Farmers President Tom Lambie.

"Farmers want a better functioning electricity market, but replacing the wholesale electricity market with central purchasing of generation capacity and energy would take New Zealand right back to the 1970s when generation investment decisions were made for political rather than commercial reasons.

"The Leyland proposal envisages competitive tendering for building and operating power plants, but there would be one body deciding which proposals go ahead. In effect, there would be only one body deciding what, where, and when new generation capacity would be built.

"This approach is inimical to innovation and economic growth, and will result in intense lobbying of politicians and decision-makers. It will lead to over investment in generation capacity, little development of demand response capacity, and over emphasis on popular environmental projects".

"Volatile electricity prices are new for large consumers, but farmers face volatile prices every day competing in world agricultural markets. Farmers know intimately the consequences of drought conditions, and like the electricity industry, have strategies to deal with the situation, for example carrying reserve feed, buying supplements or destocking.

"The reality is that heavy energy users were enticed to New Zealand to use our cheap hydro and Maui gas supplies, but the energy situation for New Zealand has now moved on.

"Large users have to face the reality that electricity prices must rise with fuel costs, and they must buy forward contracts if they wish to secure supplies at competitive prices. A properly functioning forward or hedge market is the key to ensuring generators invest in reserve capacity to cover dry year situations," Mr Lambie said.

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