Power shortages cost economy $3b

Good for relaxing, tough for energy generators. Photo / Paul Estcourt

Business is licking its wounds as the country emerges from the winter of tight power supplies.

Lost production and the cost to some generators exposed to high wholesale prices to meet customer obligations will, according to previous dry year precedents, total hundreds of millions of dollars.

At the extreme end of calculations the Manufacturers and Exporters Association says the impact of power savings is around a $3 billion loss to the economy.

The $2 million power industry-run advertising campaign to encourage reduced power use ended yesterday after savings of around 3.6 per cent by domestic users had been achieved during the past six weeks. Some major users, including Rio Tinto's aluminium smelter at Bluff and PanPac pulp shut down a chunk of production due to sky-high spot prices.

For much of the year the Electricity Commission has been forced to crank up its diesel-fired Whirinaki back-up power station, burning through $31 million by the end of June.

In the depths of the shortage in June the commission sought approval to charge users - invariably consumers via their suppliers - an additional security of supply levy of between $55 million and $165 million in addition to an annual charge of $94 million for the 2008/9 year.

An additional $80 million was approved by Cabinet for security of supply, although a commission spokesman said it would levy half of this.

"The commission has not chosen to the levy the industry the full $80 million for as time has passed the risk has reduced with the lakes filling, and the immediate need for the costs to be incurred has decreased. We don't want to levy the industry for costs that we may not incur."

Most of the additional levy would be spent on fuel for Whirinaki if necessary but the $40 million would be reviewed in the next two months and adjusted as necessary, he said.

Winter power group convenor and Transpower chief executive Patrick Strange said South Island lake levels were still low but the weather outlook was better and loads have been lower.

"The view is it's still tight but industry should be able to manage it."

Transpower will be hit by millions of dollars for the additional costs of contingency power it had to buy to supply to the market if part of its vulnerable interisland link broke down.

"It's had an impact on us financially because of the reserves market," he said.

Work on two major substations had also been spun out over weeks rather than in a shorter, less expensive block.