National spent $30m of our money to save (some of) the 800 jobs at Tiwai Point (for an extra year). People have reasonably pointed out that’s the a lot of money for not much – especially when government agencies are routinely destroying jobs by sending work overseas over contract prices that save far less. But what about the broader picture: did the Nats consider the opportunity cost?
Let’s say Rio Tinto didn’t get its paper bag full of our money. Let’s say it then decided to close Tiwai Point as soon as possible (about 2 years under the old contract). That would obviously mean large job losses in Bluff and Invercargill. It would also mean that the transmission lines would be installed so that all Manapouri’s power could flow into the national grid.
Once Tiwai closes, the cheapest power in the country would flood the market (Tiwai currently demands about 14% of our total electricity but at the lowest demand periods, it’s closer to a third). The expensive fossil fuel baseload plants like Huntly would close. Because the current market power price is set by the price of the most expensive unit and because most of our power is quite cheap apart from that fossil fuel shit, it would mean a dramatic reduction in wholesale electricity prices. By the time that flows into retail and commercial prices, you would expect it to be on the order of a 10-20% reduction.
Consider that the country currently spends nearly $6 billion a year on electricity (and Tiwai only $250m of that despite consuming 1/6th of the power). Knock 10% off the price of power, effectively what NZ Power aims to do, and you save power consumers about $600m a year. That’s $600m that businesses can spend on plant and employing people rather than on electricity, and that households can spend on other things or invest in businesses.
And, as a nice bonus, you’ve turned off the most greenhouse polluting power stations and the smelter, which is also a major greenhouse polluter.
So, what does that all add up to? How many jobs get created in the wider economy if Tiwai closes? How much does households’ health benefit from cheaper power? These are all beyond my ability to calculate but they’re the kind of considerations you damn well hope the Government took into account before it cut a cheque for $30m.
Unfortunately, I suspect they didn’t work up the opportunity cost to the country of not caving to Tiwai’s blackmail. Why? Because the country’s interests don’t enter into it. For National, this was all about putting a band-aid in place so the Meridian sale could go ahead – ‘stabilising the electricity market’ Bill English called it without mentioning he was stabilising electricity prices higher than they would otherwise be.