Energy: incentivising the market

One of the questions raised by our adoption of a market structure for electricity is how we can discourage the market from taking the cheapest, dirtiest option and instead encourage generators to use clean, renewable technologies. Our current government has chosen to do this by handing out Kyoto credits. And it seems to be working - last year's allocation has spurred plans for 240 MW of new generation, which must be active and generating by 2008 in order to claim the full amount of credits (all but 5 MW of this is in addition to the 685 MW announced earlier in the week).

This year's budget will apparently include a further allocation of carbon credits to spur new projects. If there's a similar response, New Zealand will be well on the way towards meeting our demand growth from purely renewable sources. This doesn't solve the problem of Maui running out - only finding a large new gas field in the North Island or the commisioning of new, non-gas generating capacity will do that - but it does help.