'Modest investment' in power generation needed to shore up supply

New Zealand's power system will need some "modest investment" to shore up the security of supply.

New Zealand's power system will need some "modest investment" from next year to shore up the security of supply with the closure of several thermal energy plants, and will need to step up from 2022 once Genesis Energy's coal-fuelled power stations in Huntly are decommissioned, says national grid operator Transpower.

The state-owned enterprise sees the country's security of supply measures staying above forecast until at least 2018, but some investment will be needed after that to replace closed plants in 2015 such as Mercury Energy's gas-fired Southdown station and Contact Energy's Otahuhu site. Transpower says barring the closure of the Tiwai Point aluminium smelter, investment in new generation will need to step up from 2022 to replace Genesis Energy's coal-powered station in Huntly.

"Our latest assessment confirms a slight risk in meeting the energy needs of the country from 2018 onwards if no further generation is commissioned," Transpower general manager system operations John Clarke said in a statement. "This would be mitigated by a modest investment in generation to meet potential demand growth."

New Zealand power companies have scaled back their investment in new generation and boosted their returns to shareholders as demand remained relatively flat in recent years, reducing the need for more capital spending.

Among the companies, Mercury's capital spending programme this year will be about $115 million, with investment focused on the Whakamaru and Aratia hydro stations, while Meridian Energy plans to spend $41m over the next seven years refurbishing its three Ohau hydro stations. Genesis recently spent $168m increasing its stake in the Kupe oil and gas field, while Contact anticipates annual capex of $70m to $80m from 2018, largely on plant maintenance.

Transpower said new generation options were comparable to what was reported last year, with a small increase in generation over that time.

The latest operating reports show generation across the four dominant electricity generator-retailers was up 2.5 per cent to 18,219 GWh in the six months ended December 31 from a year earlier, due largely to a 7.5 per cent increase in Meridian's generation to 7,029 GWh, reflecting ample water supplies in hydro storage lakes. Genesis's total generation shrank 7.9 per cent to 3,110 GWh in the half as coal-fired generation was scaled back almost completely, while Contact's generation dropped 7.7 per cent to 4,310 GWh on lower thermal and geothermal generation. Mercury's generation dipped 0.2 per cent to 2,367 GWh. Over the same period retail sales fell 2.8 per cent to 12,109 GWh.

Transpower is working with the Electricity Authority to figure out what changes to the industry code and the proposed transmission pricing methodology would have on winter capacity from 2019, and whether that needs to be taken into account in assessing the security of supply measures.