Transpower opts against freeing up hydro storage amid dry start to 2025

Transpower has clarified what hydro generators can do when the system is stretched, saying its decision not to allow generators to take more water now puts New Zealand’s security of supply first. Photo / Getty Images

Transpower has opted to not free up electricity generators’ access to contingent storage in the country’s hydro lakes this winter, but says it has provided more clarity about what can be done when the system becomes stretched.

The sector is still smarting from last August’s shortage, which saw wholesale prices hit $820 per megawatt hour (MWh) due to constrained gas supply, low hydro lake levels and calm wind conditions.

The August peak compared with an average winter price between 2018 and 2023 of just $180/MWh.

Transpower finally allowed generators to take more water during last winter’s shortage, but generators said permission came too late to make a difference.

As winter approaches, New Zealand’s controlled hydro catchments have had the driest start to the year in 93 years of historical records, despite heavy rain over much of the country over the last week.

Transpower said today that it had clarified its process for triggering access to hydro lake water below normal operating levels for electricity generation before winter.

This followed feedback on a paper released last month about the information it publishes to help the electricity sector manage security of supply risks.

Transpower executive general manager operations, Chantelle Bramley, said the company had received a range of views from the electricity industry and major users of electricity, consent authorities and community groups about actions that can be taken for winter 2025.

“We’ve listened and it’s clear from feedback that there are complex issues to be addressed in the review to ensure any permanent change doesn’t inadvertently have an adverse impact on security of supply,” Bramley said.

“In the meantime, stakeholders have confirmed that the system operator [Transpower] should retain discretion under the rules to trigger earlier access to additional water, known as contingent hydro storage, if it becomes necessary this winter.

“So, we’ve provided a great deal more clarity to participants around how access to contingent hydro storage could be triggered this winter in advance of the full review.”

Mike Roan, chief financial officer for Meridian – the country’s biggest power generator – noted that Transpower had decided not to free up electricity generators’ access to contingent storage.

Roan said he looked forward to further consideration of the issue later this year.

Contingent storage refers to water below a level set out in the relevant resource consents held by generators that, due to environmental and community requirements, can only be used to avoid shortages of electricity supply.

“It [Transpower] says, given the feedback it received, it will not be freeing up access to contingent storage for winter 2025 but will instead consider these issues in its Security of Supply Forecasting and Information Policy review, which starts in September 2025,” Roan said.

He said Meridian would consider Transpower’s decision before deciding on its next steps.

Bramley said Transpower would look at contingent storage again as it progressed through a complete review of the policy ahead of next winter.

In terms of security of supply, she said there were no easy answers.

“New Zealand is leading the world in addressing these questions due to our extraordinarily high level of renewable electricity and the challenges brought about by the rapid decline in natural gas availability for back-up generation.

“Making it easier to use contingent hydro storage to reduce gas and coal burn may feel like a no-brainer, but it isn’t.

“It is our fuel of last resort. If we use our contingent hydro storage early and it doesn’t rain, we can run out of energy later in winter.

“Our decision puts New Zealand’s security of supply first, while giving hydro generators much greater clarity about the process for accessing contingent hydro for winter 2025,” she said.

Bramley noted New Zealand is reliant on an ageing fleet of thermal generation assets to provide back-up to renewables generation.

“Even if alternative fuel such as gas or coal are secured to run these thermal units, if one or more fails later in winter then we will need spare water in the system so that hydro generation output can be increased while the back-up power station is fixed.”

Transpower noted the dry start to 2025.

“While recent inflows have helped arrest the decline, national controlled storage is sitting at just 82% of average for this time of year, which is in the bottom 10% of historic[al] levels for this stage in April,” it said.

At the same time, security of supply risk was elevated with gas supply constrained and some of New Zealand’s thermal generators nearing end-of-life and therefore more prone to faults.

Transpower said there was a need for the market to continue to co-ordinate early to increase the energy buffer heading into winter.

“This is essential for diversifying risk away from reliance on hydro storage and to insure against other factors such as unplanned outages to key generation assets,” Bramley said.

The large hydro schemes have storage lakes to capture rain and snow melt to save water for future use.

Lake Pūkaki, in the South Island, stores water for the Waitaki scheme and water in Lake Taupō flows into the Waikato scheme.

In recent years, hydro generation has contributed over 50% of the country’s total energy, with the remaining energy coming from geothermal, wind, solar, co-generation and thermal.

Jamie Gray is an Auckland-based journalist, covering the financial markets, the primary sector and energy. He joined the Herald in 2011.