By FIONA ROTHERHAM
Increased coal-fired electricity generation is likely as a result of uncertainties in the gas market and Resource Management Act restrictions.
A report on electricity supply and demand is produced every two years by consultant Sinclair Knight Merz and Canterbury University's Centre for Advanced Engineering.
Their latest report says inflexible gas
contracts and dwindling supply make more coal-fired generation necessary to cover load growth, expected to be 1.8 per cent a year to 2015. New coal-fired stations may also have to be built to supplement Huntly.
As coal-fired stations emit more carbon dioxide, the Government may intervene or risk jeopardising its commitment to reduce greenhouse gas emissions under the Kyoto Protocol by 2008.
The Budget provided an extra $2.3 million a year for developing policy measures to meet those commitments.
The Ministry of Economic Development has said any ban on coal-fired generation would raise electricity prices by up to 25 per cent.
A carbon tax is being considered to reduce fossil fuel generation.
The report said this would increase power prices in the competitive spot market to about 6c/kWh, providing large windfalls to hydro generators.
An alternative would be to require electricity generators to supply a small percentage of their load from renewable resources, as has happened in Australia.
The report said extra generation would be required by 2009-10 with normal hydro flows.
If recent gas finds were as good as predicted, that timeframe was pushed out another two years.
Planning for new hydro stations should start soon to meet future demand because of the long lead times required to get through the Resource Management Act process, the report said.
When dry-year requirements were factored in, new capacity would be needed from 2007.
The 1992 drought dropped output from hydro stations by 35 per cent for three months.
Industry reforms have left competing generators with little incentive to cater for a dry year as this ties up capital and conflicts with maximising short-term profits.
Sinclair Knight Merz principal Bryan Leyland said New Zealand could be in trouble before 2007 in dry years if the South Island hydro storage was not managed carefully.
