Misguided good intentions paved the way for this winter’s energy crisis.

Fortunately, the country has avoided blackouts. But we came perilously close. Transpower’s decision last week to allow greater use of hydro reserves eased immediate concerns. Meridian Energy is now “very confident” we will avoid an energy-saving campaign. But while this year’s crisis has passed, our energy security remains fragile.

The Government’s decision this week to reverse the offshore exploration ban and ease regulatory barriers to LNG imports offers some longer-term hope. But it provides no quick fix for avoiding another crisis next year.

An exceptionally dry winter pushed our power system to the brink. But the roots of the crisis lie in past policy mistakes.
 
The Ardern-Government’s ban on offshore gas exploration scared off further investment. In effect, it capped our offshore gas reserves. Yet, the exploration ban did nothing to reduce our climate footprint. The Emissions Trading Scheme already caps New Zealand’s net emissions. The ban merely shifted emissions between sectors.

The result? This winter’s sharply higher energy prices and a less resilient energy sector. The fall-out is painfully clear. Winstone Pulp International’s closure, with 230 job losses, is just one casualty. It is a stark reminder of the human cost of poor policy decisions.

Despite these lessons, some politicians seem eager to repeat past mistakes. The recent electricity price spike triggered calls for government action. Associate Energy Minister Shane Jones said he would not rule out price controls.

But regulating wholesale prices would be another bad mistake. Price signals play a crucial role in solving shortages. They direct scarce resources to those who value them most. They encourage new supply. And they highlight areas needing investment.

When prices are kept artificially low, demand outstrips supply. This leads to rationing. But no central planner can know all the factors affecting supply and demand. This ‘knowledge problem’ means top-down rationing risks harming our economy more than temporary high prices would.

In our complex electricity system, hasty, virtue-signalling interventions risk long-lasting, harmful effects. Prices must be able to signal scarcity and guide investment and consumption decisions.

The illusion that price controls will bring cheaper energy might soothe short-term public anger. But that comes at the cost of long-term energy security and economic stability.

Politicians must learn from past mistakes. Otherwise, their noble aspirations will keep steering us toward energy insecurity.

The country needs sound policies, not just good intentions, to ensure a reliable and sustainable energy future.