Meridian this year took delivery of a new 108-tonne transformer for its Manapōuri Power Station. The transformer had to travel from Bluff to Supply Bay, where it was barged across Lake Manapōuri to the station, where it was reversed down a 2km tunnel.
Neal Barclay, Meridian Energy’s departing chief executive, says the electricity market should be left alone despite last year’s big price spike.
The company — 51% owned by the Government — this week reported a $121 million loss for the first half to December after “taking a hit for New Zealand” during last winter’s energy shortage.
The loss was driven by expensive hedge contracts taken out during the price spike and its deal with NZAS’s Tiwai Point Smelter, which allows for NZAS to be compensated for consuming less power when the system is stretched.
Prices went over $800 per megawatt hour last August, as the weather and a gas shortage conspired to put the system under pressure.
Critics used the event to push the idea that the sector, which is dominated by the big four — Meridian, Mercury, Contact and Genesis — needs more competition.
Another complaint was that more investment is required to increase supply and to bring down prices.
Barclay, who steps down at the end of June, refutes it all.
He says the system needs to be free to operate as it’s designed to.
“The free market principles that underpin the market will deliver fantastic results,” he told the Herald.
“We will continue to develop renewables and the price of energy will come down.”
Barclay says New Zealand already “stacks up comparatively well” compared with most other economies and energy systems around the globe, with cost at the lower end.
“We’ve got a secure system and from a sustainability perspective, we’re an out-and-out leader.
“So I think the message I’d have for politicians and regulators is: don’t mess with it.”
While last year’s power price spike was put down to the winter drought, what caught everyone out was a lack of gas to back up the system.
Barclay says the gas shortage was partly due to the previous Labour Government’s ban on offshore exploration.
Gas is seen as a transition fuel – its lower carbon footprint, relative to coal – providing back-up while renewable energy projects are built.
Had it not been for the ban, New Zealand would be further down the track in its bid to become net carbon neutral by 2050, Barclay says.
“If we hadn’t done that, you wouldn’t be experiencing these sort of high prices that we’re seeing right now, and the transition of New Zealand to a 100% renewable grid would be happening even faster.
“Understand what we’ve got, appreciate it, understand how it stacks up compared to other systems around the world, and then stay the course and continue to support investment in new renewables and, and Bob’s your uncle – New Zealand will come out a winner on top of this.”
Barclay also balks at the claim that not enough money is going into renewables.
Meridian, and the industry as a whole, has a raft of new projects in the pipeline.
The company has five consented development options in front of it.
Barclay says at least four will be put to the board this year for final investment decisions.
“We think they’ll all get approved because the economics are really strong, and we expect to commit to about a billion dollars with new renewable investment this calendar year and up to at least $3 billion by the end of the decade,” Barclay said.
“And that will produce about two-and-a-bit terawatt hours, which is about 5% of current system capacity.
“When you put the rest of the market together, there’s a lot of renewables coming online.”
Barclay says it’s “simply false” to say not enough investment is going into the system.
“The level of renewables investment has increased dramatically.
“There’s been $10 billion invested ... a lot of it in geothermal, which has been quite helpful, and some wind.
“What that’s done is take an electricity system – that hasn’t grown – from less than 65% to 88% renewable.
“It’s an untold story and it flies in the face of the rhetoric from various parties around the place.”
Earlier this month, the big four power companies teamed up to look at ways of extending the life of Genesis Energy’s coal and gas-fired Rankines at Huntly to improve security of power supply.
The medium-term outlook for gas supply was a key factor behind the move.
Barclay said the Huntly initiative was a reasonable response to what happened last year, and would put the system in a better position in future winters.
But Meridian – the country’s biggest renewable energy generator, thanks mostly to its big southern hydro lakes –says the bigger opportunity is in what it calls contingent hydro storage.
“We believe that New Zealand’s security of supply regime is not fit for purpose, as it doesn’t give participants confidence that contingent storage will be available when it is needed,” the company said in a letter to shareholders.
Barclay said contingent storage was about making the lakes ”bigger” – having water at the bottom of the lake to access if the country runs into a drought.
“If you make those lakes bigger, then generators on the whole will hold their average lake levels a bit lower, which means we will avoid spilling water when we have these big inflow events, which we always have done.
“That water would then be used for generation – so we actually increase hydro generation as a result.
“Hydro generation is the lowest form of generation in the system and it will drive prices lower as a result.”
More renewables coming on stream would, over time, mean the lakes will become more like batteries – to be called upon when necessary, he said.
Barclay said he had loved his time in the sector.
“It’s been fascinating being part of something that is fundamentally important to New Zealand’s economic wellbeing,” he said.
On life after Meridian, he said: “I want to spend a bit more time on my ride-on mower, on my boat and potentially out in the bush, and also supporting my wife [Nancy] and her business.”
Barclay, who was appointed to Meridian in 2018, has accepted an appointment on the Chorus board, effective from August, and will join the Air New Zealand board on May 1.
Mike Roan, Meridian’s chief financial officer, takes over from Barclay at the end of June.
Jamie Gray is an Auckland-based journalist covering the financial markets, the primary sector and energy. He joined the Herald in 2011.