Underpowered for winter

By CHRIS DANIEL

The electricity industry is in crisis, whether there is a winter power shortage or not.

The Government has told the generators and retailers - with their arcane rule books, governance structures, price curves, forward pricing and spot markets - that whatever their calculations indicate, they have a problem.

A bit of heavy rain earlier in the year and those in the industry would have been able to quietly go about their business.

The rain did not come, and the industry now finds itself facing another bruising and expensive round of unwelcome restructuring, reform and uncertainty.

But is a power shortage imminent? Not yet is the easy answer, but the potential for trouble is certainly greater this year than it was.

The southern hydro lakes that everyone became familiar with less than two years ago are not empty - far from it.

But concern over the risk of another dry winter has sent prices on the wholesale electricity market soaring.

Complaints about this, and fears of another bout of enforced electricity savings, reached a politically unacceptable level this week.

On Monday, Prime Minister Helen Clark announced that some unspecified but potentially significant electricity reform was on the way.

Until now, the Government has left largely intact the free-market structures it inherited from the National Party.

Energy Minister Pete Hodgson has frequently said he is not the sort to sit back and leave it to the market to provide solutions.

But so far he has been noticeably reluctant to intervene.

Is intervention necessary this time?

Brian Leyland, an energy consultant and long time critic of the energy industry's structure, says there is a 20 to 30 per cent chance of power shortages this winter, depending on the weather.

Leyland says the market is working as its designers intended.

But the way it works - by forcing big industries that draw at least some of their power from the spot market to pay sometimes crippling short-term prices - is becoming increasingly unacceptable.

New Zealand's water storage situation is not dire.

Around 2500 gigawatt hours of power are stored as water in hydro lakes, 78 per cent of the average for this time of the year.

Inflows have been low, but can fluctuate wildly - a week of heavy rain in the South Island can quickly send storage levels soaring above average.

Lakes Tekapo and Pukaki, which account for 55 per cent of New Zealand's energy storage, were yesterday at 86 per cent and 81 per cent of their averages.

But the lakes are like baths with water constantly running down the plughole. The tap needs to be kept on, or the bath will run dry within a couple of months.

If that rainfall tap is turned off over the next two or three months, the big hydro generators, particularly Meridian, will cut power production to conserve fuel.

Several factors, especially the decline of the Maui gas field, mean watching those lake levels is more important this winter than before.

Everyone knows how much rain falls and how much water is in the lakes.

Less clear is the amount of fuel the thermal generators have for their power stations.

No new electricity generating plants have been built since the dry winter of 2001, when the nation was urged to save power, turn off the lights and pull together to save New Zealand from power blackouts.

That winter, thermal generators such as Contact and Genesis were able to open the pipe on Maui gas, enabling them to generate much more power than normal.

Water-powered electricity generation dropped by 12 per cent that year. Coal-fired generating increased by more than 50 per cent, gas-fired by 27 per cent.

But the gas option is not available this year, as access to Maui gas has been limited by a battle over how much gas each buyer is entitled to take from the depleting field.

It has less gas in it than first thought, so how much Contact, Genesis and methanol maker Methanex can now take out of it each day is unclear.

Some reports put the daily draw from the field at half what it was in 2001.

To add an element of farce, Genesis is importing coal from Indonesia and Australia to fuel the boilers of its Huntly station this winter - even though the station is built on one of New Zealand's largest coal fields.

The state-owned generator has been unable to reach agreement on buying enough coal from the nearby field's owner - the state-owned Solid Energy.

As the two SOEs sought to maximise their profits and return big dividends to the Crown by out-toughing eachother in contract negotiations, the time needed to stockpile coal for winter slipped by.

And all the while demand for power increases is growing annually at a rate of more than 4 per cent.

Contact, the largest non-state owned power generator, has raised the risk of further "significant constraints" this winter.

Its new station at Taranaki will be down for maintenance for at least one month, possibly more, from April 11.

This maintenance, which Contact says is needed to keep the station operating reliably through winter, could put pressure on wholesale prices - especially if there still has not been much rain in the South Island.

Contact is re-tooling its ageing New Plymouth power station so it can burn fuel oil in its boilers. This should be finished by mid-June, allowing the station to be brought into use in an emergency.

Had the Maui field not been running down, at least one, possibly two new power stations could be under construction now.

But that is not happening mainly because of uncertainty about natural gas supplies.

Two of the big power generators have resource consents to build gas-fired combined cycle power stations at four locations around the country.

Contact has consent to build one station at its Otahuhu site, another at its recently acquired station in Taranaki and another at Whirinaki.

Genesis has planning permission to build a gas-fired station next to the Huntly station.

This is likely to be the first to start generating power, although its commissioning date has been put back from late next year to the end of 2005.

Genesis and Contact say they are waiting to sign gas contracts with the owners of the newly developed Pohokura gas field before they start building their new power stations.

This, too, is being held up by legal complexities.

The field's owners, Preussag Energie, Shell Exploration and Todd Petroleum Mining, are applying to the Commerce Commission for permission to jointly market the gas.

Pohokura customers, such as Genesis and Contact, oppose the plan, saying the field's owners will be able to hold the country's electricity generators to ransom.

A dry winter could mean that ransom demand may need to be paid.

Herald Feature: Electricity

Energy Efficiency and Conservation Authority