Pete Hodgson: Spoilt generation must tighten up

By PETE HODGSON*

As the New Zealand economy grows, so does our demand for electricity. At current growth rates, New Zealand needs to build new electricity-generation capacity averaging about 150 megawatts a year to meet demand and maintain an adequate dry-year reserve.

That's a little over a third of a Clyde dam, and well within the industry's capability. Between 1996 and 1999 more than 1250 megawatts of new capacity came onstream, an average of about 300MW a year.

Dry-year risk is the crucial factor in determining when new capacity is needed, considering our high reliance on hydro generation.

We need reserve generation capacity we can draw on when the lakes are low. Ideally we should always have just enough, just in time: excessive caution means building a lot of very expensive generation capacity that lies idle much more often than it runs.

Modelling by Transpower, the national grid operator, suggests that by about 2005 the current system might have difficulty meeting demand in a seriously dry year, assuming high growth in demand and no new generation capacity.

Recently issued forecasts by industry consultant Bryan Leyland and Canterbury University's Centre for Advanced Engineering are more pessimistic, suggesting problems sooner. Both will be inaccurate, like all forecasting: the truth may lie somewhere in the middle, but it will be changing.

Should New Zealanders be worried, then, about running out of power in the near future?

I have been taking expert advice on the supply/demand models, investigating the industry's plans for new generation and examining the other key factors, such as the availability of gas for power stations.

Although the risk of problems in exceptionally dry years is always with us, unless we over-invest heavily, I am satisfied that there is no cause for high anxiety.

Announced plans for new generation include a Genesis gas-fired plant at Huntly, Contact's proposed Otahuhu C gas-fired plant, Meridian's Project Aqua hydro system along the lower Waitaki and a 39MW upgrade to the Mokai geothermal station.

Also, officials have gathered confidential information on serious investigations and planning for more than 2000MW of additional capacity over the next decade, including some in the next two to three years. There will be still more proposals, such as industrial co-generation plans and small distributed-generation developments.

Not all this planned capacity will be built, because not all of it is needed. We will not see both Genesis and Contact's gas-fired stations built, for example. But a reasonable assessment is that the industry is unlikely to fall short of building new capacity at the level required.

The likely depletion of the Maui gas field by about 2007 marks a new era for New Zealand's energy sector, but not a crisis. New Zealand has been spoilt by its good fortune with Maui gas, which has been cheap and easily "turned up" to supply more gas-fired generation in a dry year. As Maui tails off, many smaller gas fields will become economic. New Zealand will revert to a more typical supply situation in which gas is drawn from a larger number of smaller fields. We will get used to having known gas reserves stretch forward a decade or so, rather than Maui's 30 years, backed up by active exploration for more.

More gas and generation capacity are not the only answers, however. We must pay more attention to making our resources go further.

With some exceptions, New Zealand's energy efficiency record to date is poor. Most New Zealand businesses could cut their energy costs by 20 to 30 per cent. Just under half of the average household power bill is for water heating, but hot water cylinders waste on average 40 per cent of the energy they consume.

Poor insulation means New Zealand homes are often colder than the World Health Organisation recommends.

Where electricity is concerned, improving our efficiency and conservation makes supply more secure in two respects. First, reducing demand growth reduces the pressure for increased generation capacity, delaying the need for new plant and fuel supplies. Second, improving our energy management capability improves our ability to adjust our energy requirements in response to unusual circumstances.

That is why we now have a National Energy Efficiency and Conservation Strategy and why the Government is working with the electricity industry to improve management of demand.

In the long run, a sustainable energy future requires us to break the link between economic growth and growth in demand for energy.

* Pete Hodgson is Minister of Energy.

Further reading
Feature: Electricity

Energy Efficiency and Conservation Authority