Lines upgrade 'waste of cash'

By RICHARD BRADDELL

National grid operator Transpower yesterday defended its reluctance to embark on large-scale upgrades of its North Island transmission network, saying its prime concern was to maintain security of electricity supply.

Chief executive Bob Thomson outlined the position as he defended the SOE's resistance to spending $1 billion on removing central North Island capacity constraints that limit electricity transfers from the South Island.

South Island hydro generator Meridian Energy is a leading critic of Transpower's refusal to do significant upgrades, contending that it is excluded from the Auckland market by central North Island transmission constraints.

But Transpower fears that substantial investment could be wasted as alternative small-scale generation technologies emerge that can do the job as cheaply as large plants .

"Everybody will argue about how long it is going to take for the small-scale stuff to come in, but it is coming in," Mr Thomson said.

The $300 million Otahuhu B power station was economically more efficient than embarking on a capacity upgrade which might begin at the much publicised constraint at Taupo, but would inevitably become more widespread as other limitations in the upper North Island network were exposed, he said.

While the market was providing the right signals for an investment such as Otahuhu B to go ahead, he conceded that it may not be providing all the signals.

Even if there was a case for a generator such as Meridian to pay for additional transmission capacity, the lower electricity costs resulting would be spread across the market, meaning it would simply share the benefits of lower transmission costs with other operators who would then free-load on its investment.

Such issues would be addressed by the Electricity Governance Board that is being established under the Government's electricity reforms announced late last year.

Mr Thomson said the case for new hydro capacity was poor, since its cost of 7c to 9c a kWh compared with 5.5c for thermal generation.

If market criteria had been applied, hydro projects such as the Clyde dam would never have gone ahead.

Transpower executives seemed to sidestep a question about how much surplus capacity already exists in the South Island that could not be shipped north due to constraints.

However, Mr Thomson said market forces had done a much better job in ensuring security of supply than the old central planning of the NZ Electricity Department, which was focused on limiting the amount of hydro capacity that was spilled.

As a result of that policy, there had been power crises in 1978, 1985 and 1992.