Power price surges spark row

By CHRIS DANIELS energy writer

Fresh debate over possible flaws in the wholesale electricity market has broken out after huge price surges followed a cut in the power line connecting the North and South Islands.

High winds blew down three 40m pylons about 60km north of Hanmer Springs on Friday morning, effectively dividing the wholesale electricity market in two.

Prices in the upper North Island soared yesterday from less than 10c a kilowatt hour to 108c a kilowatt hour.

Once the North-South link was restored yesterday afternoon, indicative prices fell rapidly. At 5.10 pm, prices at Haywards, near Wellington, were 102.3c a kilowatt hour.

Just 10 minutes later, once the link was restored, prices fell to 4.1c a kilowatt hour.

Big North Island power users, particularly pulp and paper makers, were forced to cut production after the pylons were knocked down, since wholesale prices became too expensive.

Market operator M-Co says the market worked just fine, with price signals sending the message that cheap power was no longer available to big North Island electricity users.

These users, however, say that price volatility over the past few days indicates an unstable market.

The chairman of the Major Electricity Users Group (MEUG), Terrence Currie, said someone needed to work out whether this volatility was because inherent flaws in the market, or the behaviour of the big power generators.

"It is completely unrealistic to expect end users, or for that matter prospective new entrant generators or retailers, to operate in such an unstable wholesale market," he said.

Energy intensive industries had lost confidence in the ability of the sector to provide secure supplies of electricity at competitive prices. MEUG believes that there is not enough competition in the market, which is dominated by five big generator-retailers, three of which are state-owned.

M-Co acting general manager of market operations Shane Dinnan said the electricity market behaved as expected when the link went down, as the Otahuhu and Southdown power stations, along with one unit at Huntly, were out for maintenance. North Island prices increased, "signalling a shortage of low-priced generation."

This did not mean that there was a shortage of electricity, just a drop in the amount of cheaper "baseload capacity" available.

"Only those consumers on spot price contracts will be affected by the wholesale electricity price. Many consumers, including domestic consumers, have fixed price contracts or take out hedges to manage their exposure to the wholesale electricity price," he said.

The spike in prices would most likely have no effect on retail prices, which most businesses and households pay.

As power use is particularly low during the summer holiday season, generators often close plants for maintenance.

Transpower also does a lot of maintenance on the grid during the quiet summer season.

Spokesman Chris Roberts said that some planned maintenance in the North Island was delayed until the link was restored, so as not to constrict supply in the north.

Known as the HVDC (high-voltage, direct current), the 575km link runs between the Benmore dam and the Haywards station near Wellington. Usually used to transport power from the South to the North, in times of low hydro inflows, it also takes power from North Island stations to the South Island.

Transpower admits that some of the national grid is approaching the end of its life and some fairly large-scale investment is needed. One line of the HVDC link is so old that it is the last of its type still in use in the world.

Roberts said the towers blown down last week were part of the original HVDC link built in 1965 and 1966.

This was not considered particularly old and they were not to be replaced.

Work planned for the link was due to be finished by 2010.

POWER SURGE

Wholesale power prices at Otahuhu:

Noon, Thursday: 9c kw/h.

5am, Friday: north-south power line fails.

Noon, Friday: 57c kw/h.

Noon, Saturday: 9.1c kw/h.

Noon, Sunday: 10.4c kw/h.

Noon, yesterday: 48.5c per kw/h (estimate).

5pm, yesterday: power line restored.

5.20pm, yesterday: 4.5c kw/h (estimate).