Friday, August 14, 2009

An inconvenient truth about electricity prices

One of the basic assumptions around the debate on energy policy in this country is that electricity is too expensive. However, the recent Ministerial Review of Electricity Market Performance has highlighted an inconvenient truth: the opposite is the case. The graph below compares the breakeven costs of various power plants built between 1950 and 1992 with current prices (which are higher than they have been in the past):


(Source: Improving Electricity Market Performance: Volume Two - Appendices [PDF], p. 58)

Basically, a lot of generation we built in the past was simply uneconomic; we've been (and still are) receiving government subsidised electricity. The review points out that this has changed significantly since 1992, and now we build generation that is in fact profitable. But there's still a long tail of generators which will never pay for themselves at current or likely future prices.

Unfortunately, the graph excludes Manapouri. I'd love to see a figure for that - have we been subsidising Rio Tinto's profits as well...?