Norske Skog Tasman feels squeeze of trebling power bill, fears worse to come

Norske Skog Tasman's paper mill in Kawerau. Photo / Supplied

A Kawerau paper mill already feeling the crunch of power prices which have trebled is questioning the timing of a planned outage over the weekend by national grid operator Transpower.

Allan Holden, energy manager at Norske Skog Tasman, says Transpower needed to be more flexible with maintenance work on its HVDC link, a six-day undertaking that will likely result in higher prices in the North Island.

"They [Transpower] have not been flexible enough to say 'is this the right time to be doing it?'" Holden said.

Since the beginning of October prices have been extremely high, the highest on record for that month.

"It's highly likely that with no generation support from the South Island [as a result of the HVDC maintenance work], the North Island will be severely impacted in terms of price."

Transpower's maintenance of the HVDC link, which began this morning and is expected to be completed late Tuesday, will mean two poles (Pole 2 and Pole 3) of the HVDC link across Cook Strait will be out of action from early Saturday until late Sunday, meaning there will be reduced capacity over the week-days and a shut down over the weekend.

"The cost of that is tiny compared to the economic cost to the country if businesses can't afford to run. That's sort of a bit silly really," Holden said.

But Transpower defended the outage, citing the need to ensure reliability is maintained throughout the year, and to avoid unexpected outages.

"This annual work is important maintenance on one of the most critical parts of our power system. We are taking the opportunity to do extra work, involving a large team of people, some of who are overseas, to service this complex equipment," a spokesperson for the company said.

"The plan has been thoroughly tested and well-thought through over a period of six months."

Holden said Norske Skog Tasman have already seen their monthly power bill treble in the October month, up from their normal monthly power bill of about $2 million.

As a result of the rising prices, Holden says the company has already had to reduce production by about 50 per cent.

"We consume a lot of energy to convert wood chips to pulp, and we are usually purchasing on the spot market, so we don't normally hedge. And so if they [energy prices] go too high, then we can't afford to operate because it just makes the pulp produced unprofitable," Holden said.

Holden said the question needs to be asked of the market regulator, the Electricity Authority, why common sense isn't prevailing around scheduled outages going ahead on top of un-planned outages.

Earlier in the week a massive power cut in Taupō saw nearly 16,000 customers affected and a cost to local businesses of around $1m in lost revenue.

"Why are people allowed to behave in a way that's just not sensible," Holden said.

This morning, Transpower shut one of the two poles of the link from 5am to start work, however, a shortage of generation on the North Island prompted Transpower to request the pole be brought back into service until 9am – after the morning peak demand period had passed.

The system operator had issued a formal warning to the electricity market at 5.08am that there was insufficient generation on the North Island to meet both the demand forecast in the hour from 7.30am and have sufficient back-up capacity in case any plant failed.

Transpower said the situation this morning was considered "tight but manageable" so the outage started as planned.

Transpower said they will be managing the power through the network to ensure that security is maintained.

"If security of supply becomes an issue again, then Transpower will once again take steps to ensure security of supply is maintained over the shutdown," a Transpower spokesperson said.

Power prices Q+A

What's caused the rise in power prices?

While the market has become a lot more competitive, which some people are benefiting from, many others aren't. A discussion document for the first phase of the Electricity Pricing Review pointed to a two-tier market forming where those who actively shop around for better deals benefit from competition, while those who don't, end up paying higher prices.

Who is affected?

Kiwi households are the biggest losers when it comes to the increasing cost of electric power. Prices are almost 80 per cent higher today than in 1990 – after adjusting for inflation. But they're not alone. Commercial businesses are paying 24 per cent more than almost three decades ago.

What's the reason behind the shutdown this weekend?

The HVDC link requires an annual shutdown for maintenance, which is held in November each year. The national grid operator says the shutdown will ensure reliability is maintained throughout the year, and to avoid unexpected outages.

How does the shutdown impact power prices?

Power prices may be higher in the North Island over the outage period due to the restriction of gas in the market.

- With BusinessDesk