Published in the National Business Review on 28 March 2008

Legislation implementing the government's ten year ban on the use of fossil fuels in new power generation offers an opt out in its preamble "except to the extent necessary to ensure the security of New Zealand's electricity supply".

But the phrase 'security of supply" is not in the Bill itself. Clause 62G of the Climate Change (Emissions Trading and Renewable Preferences) Bill provides for eight grounds for exemption from the ban, but none of them will actually lead to an exemption being granted.

For example, an exemption can be granted if the proposed new plant is not base load, but base load is not defined in the Bill. That will come in regulations later, but this might be set as low as 10MW, which would make virtually all but the smallest stations base load.

A generator can also get an exemption "for the purposes of mitigating the effects of an emergency." As no generator is going to be standing about with resource consents obtained, land purchased, equipment ordered and a contractor to build the plant selected before an emergency occurs, any new plant that might be given an exemption will only be operating long after any emergency is over.

There is no relief to a shortage of electricity in this clause.

The same applies for another ground, "for the purpose of providing reserve energy", although some have argued that reserve energy could mean a station that operates only in emergencies.

A "small isolated community that does not have a reasonable non fossil fuel alternative" can seek an exemption for a new fossil fuel plant, but the plant would be small and would likely be under the 10MW base load provision.

Building new plant for co-generation is grounds for an exemption, but the overall energy efficiency of the process has to be improved above a (yet to be prescribed) level. Again the plant would likely be small.

Retiring an existing thermal plant and replacing it with a more efficient one is another ground for an exemption, but that move has to "significantly decrease emissions of greenhouse gases, and not reduce security of supply margins."

There are only two scenarios that might qualify - both are unlikely. One is that Genesis retires Huntly to build its proposed new plant at Rodney. Rodney is more efficient, but much smaller than Huntly whose output is often pivotal to rebuilding lake levels in the South Island during dry spells.

The other is that Genesis retires Huntly to allow Contact to build Otahuhu C, a 400 MW combined cycle plant. Contact has resource consents but has deferred construction. Why one company would gift another a huge commercial reward isn't clear, so that doesn't look like a starter either.

There are two other grounds; where a new plant is based on waste material or where it uses both renewable energy resources and fossil fuels "in an acceptable combination".

But there's a catch, "as prescribed in regulations". They don't yet exist.

So if the ban looks tight, what is its effect? Ralph Matthes of the Major Electricity Users Group says there would be no new investment in exploration and a loss of confidence in the gas industry because one use for gas (electricity generation) had been blocked off.

Matthes refers to the Minister of Energy's belief that if there is any thermal plant built in the early years of the emission trading scheme (ETS), public confidence in the climate change policy would be undermined.

"If the ETS is not robust, its loss of credibility will be because it is flawed, but that's not a reason to ban thermal stations."