9. What Will Be the Impact on the Environment?
(a) Better Use of Thermal Fuels
At present, thermal power stations sometimes operate when the hydro lakes are full if they are required to "take or pay" for their fuel. Splitting ECNZ will not alter current fuel arrangements. However, over time the influence of take or pay contracts entered into prior to the implementation of the new market structures will gradually decrease, and there will be more pressure to renegotiate existing arrangements. More effective competition between generators will result in lower electricity prices. Older thermal stations which are less efficient will have reduced incentives to generate than is presently the case.
(b) Long Term Environmental Effects
One of the key benefits of the split is that new investments and the retirement of older less efficient stations should be more timely because prices will be more responsive to supply and demand. In the long term, the competitive market structure will produce more efficient pricing which will reduce the risk of environmental harm through inappropriate investment. Accordingly, CO2 emissions and hydro spill are expected to be less.
(c) Short Term Environmental Effects
It is possible that there may be short term environmental effects due to the current level of oversupply as the market settles down. For example, some hydro spill may result if the competition between generators is particularly intense. However, this needs to be considered in the context of:
- current commercial incentives of ECNZ intact to support prices which tends to result in more baseload thermal generation and hydro spill;
- spill occurring from time to time anyway as a result of above average rainfall;
- longer term gains as a result of more efficient pricing and better timed new investments; and
- temporary nature of this issue as the market gains more knowledge and experience.
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