Ralph Matthes: Wind generation no panacea

Suddenly wind farms are a hot topic.

The launch of Meridian Energy's Project West Wind, to build the Southern Hemisphere's largest wind farm, near Makara, south-west of Wellington, brought forth the predictable dichotomy of views.

Those locally affected said no way. The general public in Wellington said well, it's not going to bother us, it's in a part of Wellington we can't see, and so, why not.

Harnessing New Zealand's wind resources needs to be part of our ongoing national strategy to have a secure, sustainable and lowest possible cost energy supply future. If a commercially viable wind farm cannot be built in Wellington then that will signal a policy failure somewhere.

Odds are that if the project has to be radically altered, or delays occur, the problem will be with the RMA process. Meridian, led by chief executive Keith Turner, has taken steps already to modify plans by reducing the number of turbines required for the farm's economic viability from 107 to 70. The decrease of 37 turbines is in response to mainly localised concerns from very vocal objectors.

But are wind farms part of the solution or part of the problem?

They do have their problems. Well documented overseas is the problem of migratory birds flying into the turbine blades, although that fortunately does not appear to be an issue with the wind farm sites in New Zealand to date.

It's in the detail of the operation of the electricity market that problems emerge.

Every second of every minute of every hour of every day, the system operator dispatches available generation, ranked in price order, to match actual real-time demand, subject to the constraints of the grid.

If the system operator is uncertain of whether a generator will actually be available if called upon, that uncertainty must be covered by other higher cost standby generation.

That standby generation doesn't come free - in effect, an option cost is incurred. As intermittent generation, wind creates more of this additional risk and cost than thermal generation. Over and above that second-by-second standby is the question of what back-up supply is available when the wind doesn't blow for several hours.

The Government rushed in during winter 2003 to build the Whirinaki power station in response to its view that the market would not manage dry-year risk in future years.

That decision was widely criticised. Hopefully, the Government will not "solve" the problem of having back-up for long periods when the wind doesn't blow by building more Whirinaki power stations. That problem should be managed by wind farm developers' either building or contracting sufficient back-up generation.

A significant problem with wind farm developments is the bias by Government in supporting sustainable projects. In plain language, these are subsidies.

The largest subsidy is the recently announced carbon tax.

That tax will cost power consumers, apart from those that get dispensation through a negotiated greenhouse agreement, about $400 million a year.

The tax raises the cost of thermal generation. This is a huge win for wind farm developers but will not materially affect overall greenhouse gas emissions because the problem sectors for New Zealand are agriculture and transport.

Furthermore, by tilting the ground in favour of wind, the Government has penalised the otherwise lowest-cost long-term source of power - that from coal-fired power stations, and any new large natural gas discoveries.

The recent awarding of carbon credits to Meridian Energy for a proposed wind farm at White Hills in Southland illustrates another type of subsidy risk.

Carbon credits, that can be sold on a fledgling international carbon market, are awarded by the Government to projects that reduce greenhouse gas emissions, but would not be commercially viable.

The White Hills wind farm looks to be what could be described as a business-as-usual commercial venture.

However, the Government has granted Meridian Energy credits worth $10 million for the project.

It is questionable whether the White Hills proposal should have been awarded credits, given that it is probably commercially viable in its own right. If that turns out to be the case, Meridian's $10 million of credits represents another form of subsidy for wind energy.

The first commercial wind farm in New Zealand started in 1997 at Hau Nui in the Wairarapa.

Since then larger wind farms with increasingly large turbines, reflecting the rapid technological improvement in turbine design, have begun.

There have been some setbacks for developers, mainly due to RMA issues.

But by and large, progress has been very good, especially as power price rises have made investment increasingly attractive.

Having some of the windiest sites in the world close to power lines and population centres makes wind an important mix in future supplies.

Wind will not meet all our needs. Even the excellent siting and scale of the West Wind project will only cover peak demand growth in New Zealand for just over one year.

More base load thermal stations will be needed as will special thermal stations to supplement supply in windless days.

Wind is not a panacea for secure and lowest-possible power prices. Government subsidies to the wind industry and penalties on non-wind generation sources are distortionary and need to be removed.

* Ralph Matthes is executive director of the Major Electricity Users' Group.