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Recent key developments in MAKE│NZ
Back to our regularly scheduled material…
Our friends at Hardware Meetup NZ will be holding an event on the 15th of April in Wellington, showcasing several companies leading the way in innovation in Wellington. Making sure Christchurch (as well as Auckland and Queenstown) stay in the loop, they’ll be hosting watch parties to live stream the meet up- they’ll be an opportunity for local networking, drinks, food, watching the live stream and participating in the Q&A sessions. If you attended their last meeting in Christchurch then you will be familiar with how their events are run, and if not, then attending is a great way to find out!
Their speakers include:
-Bradley Leuw – the head of HTS Subsystems at OpenStar
-Terry Miller – the founder and CEO of the hardware startup Eight360
-And a third speaker yet to be announced….
If this sounds like a bit of you, make sure to register over at this link (and let them know the MAKE│NZ community sent you!)
Have you heard of our Manufacturing Industry Conference? The one that’ll be happening at SouthMACH? May 28th? Surely you have by now!
We’ll be offering anecdotes, case studies, and workshops for you and your team to get as much knowledge as possible from our line up of expert presenters- many coming straight from the coal-face themselves!
Make sure to get your tickets here, and see if you’re eligible for discounted tickets as a community member!
Recent key developments in New Zealand
• I attended a consultation meeting last Friday in which the Electricity Authority [EA] presented its proposal to introduce “Level playing field measures … to prepare for virtual disaggregation of the flexible generation base”. You can find a copy of the Options Paper on which the consultation is based here. All quotes in this article are from that paper.
The problem the EA is trying to address is “…hedge contract related competition risks arising from control of the New Zealand’s flexible generation base by, and vertical integration of, the four large generator-retailers.” What they mean: independent electricity retailers aren’t able to access the same wholesale prices as retailers owned by generators. Energy retailers have price commitments to their customers and when wholesale prices spike, owing to a shortage of generating capacity, the independent retailers are exposed. And their ability to protect against those spikes through hedging is constrained by their limited ability to access hedge contracts in a market that is dominated by the Gentailers.
By way of background:
– Demand for electricity in New Zealand is predicted to grow substantially – MBIE’s estimates for 2050 expect a growth in demand between now and then by between 35% and 82%
– According to Transpower, there is a pipeline of planned investments in generation, predominantly wind and solar, that would meet that increase in demand
– Without those planned investments, or delays in new generation coming online, average electricity prices are destined to increase, aggravated by extra-ordinary spikes due to more frequent deviations from long-term trends in precipitation to feed hydro generation and dwindling domestic supplies of natural gas
– However, the current structure of New Zealand’s electricity market creates a barrier for new entrants to the business of generating electricity from renewable resources (wind or solar). In short, their business models carry risk, because they don’t have secure access to hedge contracts that will allow them to buy electricity from base load suppliers at times when their own generation is low due to a lack of sunlight or wind. That risk means they struggle to secure the finance required to build new generation capacity.
– The four big gentailers together have a near-monopoly on the supply of hedge contracts in New Zealand. They control that market and can preferentially supply hedge contracts to their own retail operations at prices that do not reflect the actual market: “The underlying issue with Gentailers’ ITPs [Internal Transfer Prices] is that they are not currently set on a basis that would allow the Authority (EA) to make a meaningful comparison between how the Gentailers treat themselves compared to how they treat third parties.” – and “Gentailers’ ITPs are effectively the price at which their generation arms ‘sell’ electricity to their retail arms.”
– For a more detailed description of the problem, see the Options Paper above.
To address the issue, but short of an actual splitting up of the four big gentailers, the EA proposes a ‘virtual split-up’ by introducing “Mandatory non-discrimination obligations [that] are the most appropriate response to these competition risks, giving non-integrated retailers and generators access to products (such as hedge contracts) on substantially the same terms as Gentailers supply themselves internally.”; and
“All hedges sold by the four large Gentailers [including those sold internally] would be mandated to be traded through a designated market on defined trading terms. This creates a deeper and more comprehensive market for hedges with supply and demand for all participants, including independent generators, to sell into and buy from.”
The meeting I attended was a small gathering, and I was the only one in the room not directly linked to an organisation involved in the generation, sale and distribution of electricity. Comments from the other participants indicated support in principle of the EA’s proposal, but doubts whether the measures proposed would solve the problem. To me, it didn’t sound like such a bad idea: (much) lower political and transaction costs than a physical break-up of the gentailers, and hence able to be completed (much) more quickly.
I had, and asked, a couple of more basic questions, like:
Why does the aim of the EA not include looking after the interests of all business consumers? – The EA’s aim is stated as “to achieve a secure and resilient, efficient and affordable energy system that protects domestic and small business consumers and improves long-term outcomes for all consumers and New Zealand”
Also, the EA says it wants to “…put downward pressures on electricity prices.” Not before time, given where prices are at right now, and, more importantly, where they are heading:
My direct question was down to what level the EA wanted to see those prices pushed, and what was their rationale behind setting that as a target. The answer, as expected, was that they didn’t have a particular target. To which I responded that, as manufacturers, we did indeed have a particular target: to retain and build manufacturing capacity in New Zealand, energy costs must be at a comparative level to those for our major competitors internationally.
The Government itself is apparently aware that we are not competitive currently. In its Electricity Market Performance Review of Nov. 6, 2024, it says: “New Zealand’s electricity system ranks well when considered against many comparable countries in terms of reliability, prices and sustainability. However, comparative performance is mixed and falling in some important respects, including international price competitiveness and public confidence in security of supply.” We’ll ignore the inherent contradiction even in this short statement – “ranks well” vs “performance is mixed and falling”
For me, the most disturbing message from the meeting, however, was the response to my question what the situation was in terms of the government’s (MBIE’s) work on a long-term energy strategy. Remember, we had one – a ten-year energy strategy – from 2011 to 2020, and since then, MBIE and others have been working on a new strategy: “MBIE is continuing to progress work on an energy strategy that will set out the Government’s role in creating an energy system that is fit for the future. … The strategy will be published by the end of 2024.” That is what you still find on MBIE’s website. The reality is – as confirmed by the MBIE representative in the meeting – that the national-led government – has instructed MBIE to stop working on that strategy. The ‘strategic approach’ pursued by this government appears to consist of importing coal like there is no tomorrow and ‘encouraging’ generators to burn more coal earlier to maintain the still-much-lower-than-normal hydro lake levels.
This is now becoming a familiar pattern – we’ve seen exactly the same approach in vocational education, for example: To nix whatever the previous Labour government had put in place, without a plan for what to replace it by, other than ‘building the plane while flying it’ – except flying it ain’t …
Recent key developments in the World
• It is a common perception that, at least in their early stages of growth, East-Asian manufacturing economies copied, reverse-engineered and / or adapted ‘Western’ technologies, sometimes [often?] breaching existing Intellectual Property [IP] rights in the process. There is justification to that perception to some extent at least, noting that violations of industrial IP rights is not a prerogative of actors those countries.
• As it happens, over the weekend I came across two newspaper articles that put a different perspective on that, especially as far as China is concerned. The first one appeared in the FAZ (Frankfurter Allgemeine Zeitung) – an interview with the leaders of well-known large family-owned manufacturers: Festo, Flender and Kaeser. Festo and Kaeser will be well-know to most of us; Flender manufactures industrial couplings and gearboxes, among others for wind turbines. It was part of the Siemens Group between 2005 and 2020 and has 8,500 employees, operating in 33 locations around the world (https://www.flender.com/en/company ).
The people interviewed were their respective CEs: Thomas Böck, Andreas Evertz and Thomas Kaeser. The interviews mentioned the key themes that now come up almost daily in Germany – wage, energy and compliance costs are too high, regulatory regimes impose unacceptable constraints, those imposed by the EU, and by Germany on top of that.
But the topic that took up most space in their answers was China – more specifically, the rate of innovation coming out of China. Two of the three companies have significant operations in China; Kaser still manufactures in Germany only. Thomas Böck (Festo) says that in their field “the dynamics are the same as in the car industry – serious competitors have entered the market recently that had never been heard of a few years ago” – and “In the past, Chinese manufacturers have always watched their German counterparts very closely and happily copied them. But those days are gone”, Böck said.
According to Andreas Evertz, Flender is “facing the competition in the Chinese market (where wind turbine manufacturing is almost completely in domestic hands) full on, and we are on the same level as our Chinese competitors … but when it comes to speed and the ability to innovate, we need to watch the Chinese – and copy them if need be.”
According to Thomas Kaeser “our technological lead over our Chinese competitors used to be huge, but it’s now disappearing rapidly. We have to improve all the time to stay in the race.” And, he says “maintaining the current supply of engineers and IT specialists from German universities won’t be enough. We need more to be able to stay level with the Chinese.”
We all know that filing a patent doesn’t guarantee commercial success, but still …
• Le Monde is France’s leading newspaper by circulation. On Saturday, it published the text of an interview under the headline of China – could it be an economic model for Europe? The interview was with Nicolas Dufourcq, CEO of Bpifrance, a French public sector investment bank specifically tasked with providing capital to start-ups, SMEs and mid-cap companies. Also interviewed was Dr Alice Ekman, an expert on the Chinese economy and the research director for the European Union Institute for Security Studies (EUISS), the EU’s foreign and security policy think tank.
Mr Dufourcq’s answer to the question posed in the headline is a straight “No”. “China’s manufacturing sector contributes 40% to the country’s GDP; in France the figure is 10% and even raising that to 12% is estimated to take more than a dozen years,” he says. “For example, China right now is in the process of building 55 huge semi-conductor factories – it would be impossible for us to do that. Moreover, their system is quite unique: China works like a single integrated enterprise, guided by a centralise planning process that if extraordinarily successful. We had a similar model in Europe in the 1950s, but that’s long gone. Thus, imitating China is impossible”, he continues, “except for one thing: We should model our approach to them based on how they treated us in the 1990s in order to overcome their technological disadvantages. They restricted our companies to minority shareholdings only in their companies, they demanded that we transfer important technologies to them, and they imposed on us elevated tariff barriers. Now the shoe is on the other foot – in many areas China is the developed country, and we are the emerging economies.” says Mr Dufourcq.
And Ms Ekman adds: “One cannot be but impressed by the capacity to innovate in certain Chinese companies. In the early 2000s, many of the big companies in Europe repeatedly assured us that the Chinese will never be able to close the technology gap with us. They played down the importance of the technology transfers that occurred: when Airbus opened its factory in Tianjin, at the time it was said that they’re already working on a more advanced model in Toulouse [Airbus headquarters in Europe]. When I was a young researcher, I often heard this comment: ‘China will never be able to catch up with us when it comes to innovation, because it is an authoritarian country with a one-party system – the Chinese Communist Party, which suppresses the freedom necessary to invent.’ What a mistake!”
• In another matter, and entirely without any Schadenfreude: Yesterday saw the first private launch of a space rocket from European soil, Isar Aerospace’s Spectrum rocket (https://isaraerospace.com/spectrum ) from a launch site in northern Norway.
Unfortunately for them, they had to abandon the flight after a few seconds: https://youtu.be/LlAgenP2RxM . We mention this as one little pointer to help with our difficulty, at times, to realistically position New Zealand’s technological capabilities and capacity between ‘doom & gloom’ and “punching above our weight”. There are quite a few areas and manufacturing industries where we are doing quite well by international comparison. Aerospace is one of them, and probably the most spectacular, but certainly not the only one …
Note from the DEMS/Editor (Sabine)-
The inspiration behind todays earlier issue was stemmed from this mental image when looking at robots used in distribution warehouses by a certain rainforest-named company:
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