KEY POINTS:
The global economic crisis is having a mixed impact on one of the country's biggest infrastructure spend-ups - Transpower's $3.8 billion upgrade of the national grid.
Dozens of projects are under way or have been approved to reinforce the existing system, which is unreliable in places, or to
provide new transmission.
The falling value of the New Zealand dollar against the euro and the United States dollar is forcing up the cost of imported components - mainly copper, aluminium and steel - but this is partly offset by the collapse in metal prices in the past six months.
Falling demand for electricity in this country, as big users cut back, is also giving the grid operator some breathing space.
Transpower chief executive Patrick Strange said it was a case of swings and roundabouts for projects such as the HVDC or Pole One replacement project, where effectively only three European firms are capable of doing the job.
"Forex has moved a long way against us. I do wish we'd been putting it [Pole One] in 2005 but there you go."
Counteracting the kiwi's slide are commodity price falls that have pushed copper to its 2005 level of US$3000 ($5902) a tonne, down from a peak of US$9000 a tonne last year. Aluminium has fallen to around 2005 levels as well.
"All we can do is make a very competitive bid - they're very attractive projects and do not have roadblocks and we hope competition will keep the price down," said Strange.
The HVDC (high voltage direct current) upgrade is a two-stage project that will involve the construction of new converter station facilities at Haywards Hill in the Hutt Valley and Benmore in the Mackenzie Country and the decommissioning of equipment nearly half a century old.
Contact Energy last month partly blamed interisland transmission constraints for crimping earnings.
Strange said he didn't disagree with Contact. "Many of us in the industry wish it had been replaced earlier, we can't revisit the past. The reality is that it impacts on us now."
Transpower would struggle to get the job done before the 2012 target as it was on a 30-month to 36-month contract-to-commissioning timetable, Strange said.
"That's a pretty tight frame. To accelerate it you'd have to bring it virtually a year forward. When we put it in place is governed by seasons."
The economic downturn here had cut use significantly and given Transpower as much as a year's breathing space in overall demand growth across the entire grid.
"We see 1 or 2 per cent [reduction] as being significant.
"We may have bought a year there but what really drives transmission is demand or peak usage and unfortunately when you get a cold winter at the end of June the fact we're in an economic recession won't [stop] people from turning on their heaters."
A decision on the $824 million 220kV-400kV North Island project, including 70m tall pylons through the Waikato - was expected in March or April.
The new corridor was aimed at securing supply to Auckland and planning delays to the project were "manageable", Strange said.
Transpower had forecast that demand for electricity in the North Auckland and Northland area could rise by as much as 21 per cent over the next six years.
Power prices will go up to pay for the grid upgrade. The Commerce Commission has calculated how much Transpower can recover from expenditure and as a return on capital.
"In real terms transmission has decreased in the last decade - there's been no spending and the assets are being depreciated," Strange said.
The Transpower levy will rise over the next two years from about 8 per cent to 10 per cent of power bills.
"Fundamentally energy prices are growing faster than we can but there will be an increase, there's no doubt about it."
The state-owned enterprise was not expected to pay a dividend to the Government until 2011 or 2012 and it was taking on more debt, which will double from around $1 billion to $2 billion during the next five years.
"We're reasonably highly geared but a key thing is to keep our credit rating [AA-], that's hugely important to keep the cost of our borrowing down."
While debt would double so would the value to the company's assets.
TrustPower spokesman Graeme Purches said Transpower had "grabbed the bull by the horns" to make up for years of underinvestment.
There was clearly a need for some significant investment but generators needed to do their bit.
"Instead of more transmission lines over long distances they should be building generation closer to the demand. That's the long-term answer."
