New Zealand is heavily reliant on hydro generation but there is relatively small storage capacity in the dams, which makes the country susceptible to extended dry spells depleting hydro storage levels, Transpower chief executive Alison Andrew says.
Energy, or dry year risk, is typically at its highest in winter.
This latest summer-autumn period has been relatively dry.
Earlier this month, hydro storage levels reduced to around 80 per cent of average for this time of year.
But the heavy rain on April 12 and 13 in the southwest of the South Island, where most of the country’s hydro storage is located, provided the equivalent to one and a half months of storage and brought lake levels back to average.
Greg Sise, managing director at Energy Link, an energy consultancy, said last week’s rain had taken the pressure off the system.
“We had about 700 gigawatt hours’ worth in two days last week, and the total would have been more than that,” he said.
“We are still getting quite a lot of uncontrollable inflows coming through, so lakes like Manapouri, Te Anau, Wakatipu and Wānaka all had a lot of water come in over last week.
“As a result, a lot of the power out of the South Island has pushed that price down.”
When conditions are dry, the market typically responds to conserve lake levels by reducing hydro generation and increasing the contribution from thermal plants that burn gas, coal or diesel.
In the lead-up to last week’s downpour, the thermal generators were supplying around 20 per cent of total electricity generation - well above the average for this time of year.
With thermal generation typically being more expensive than renewable generation, wholesale electricity prices increased from an average of around $200 per megawatt hour earlier in the year to around $250/MWh in recent weeks.
Transpower chief executive Alison Andrew.
Hydro generators have increased output again since the recent rain and some thermal generators have switched off, and wholesale prices have come back accordingly.
Andrew said the peak capacity challenge is common across the world, but it’s a particular issue in New Zealand as the country transitions to increasing amounts of intermittent renewable energy, like wind and solar.
To support the transition, thermal or fossil fuel-powered generation is needed on the coldest mornings and evenings to provide security of supply when wind generation drops or if faults happen on the system.
However, much of New Zealand’s coal and gas-fired thermal generation fleet is slow-start and not suited to “firming” up supply, unless it is already running.
Andrew said this posed a co-ordination challenge for the industry to make sure all available generation is turned on and ready to be dispatched when demand is at its highest.
Transpower’s latest Winter Outlook paper said a step-change in investment was needed in flexible resources that can quickly adjust output closer to real-time to compensate for changing supply-demand conditions.
“This can include flexible generation like fast-start gas turbines that can be fired up at short notice,” Andrew said in a statement supplied to the Herald.
“It can also come from grid-scale batteries, which can charge up when supply is plentiful and be used during demand peaks or when wind and solar generation is low.”
Andrew said demand response - where industrial customers or electricity retailers working with their customers scale back demand during peak periods in response to higher prices - would be important.
Transpower said it had worked hard with the industry to get ready for last winter - when key thermal assets were out of action through long-term outages.
When Transpower calls a “grid emergency”, it works with lines companies and major industrial customers connected to the grid to reduce load on the system.
In most situations, turning off hot water systems is enough to deal with a shortage.
Transpower said it would also work with major industrial customers connected directly to the grid to lower their demand.
“In a severe shortage, we may need to work with lines companies to turn power off to some consumers for a short time to prevent the risk of more widespread uncontrolled outages lasting a lot longer,” Andrew said.
“If a tight electricity situation happens this winter, we will ask Kiwis to be mindful of their electricity use during the tight spot so we can have the best chance of avoiding power cuts or getting people connected again as quickly as possible,” she said.
Energy Link’s Sise said the system looks better, for now, after last week’s rain.
“The peak of winter in July is still three months away, and everything can be completely different by then,” he said.
“But on average, we are looking better than we were a week ago.”
Jamie Gray is an Auckland-based journalist, covering the financial markets and the primary sector. He joined the Herald in 2011.
