Next year will be worse say power pundits

By VERNON SMALL

The country is facing even worse power shortages next winter because predicted spring rains may not refill the South Island's emptying hydro lakes.

A series of predictions in the past 48 hours have revealed the extent of the problem:

* The Treasury has sent the Government a blunt warning that there could be a power crisis if the hydro lakes are not replenished.

* The country's biggest power generator has said that with below average or even average inflows lake storage would be "tight". But the long-range weather forecast suggests rainfall will be average or below average.

A Treasury paper, obtained by the Herald, says power problems next year will be worse if high wholesale electricity prices are not passed on to consumers.

It warns the Government of the consequences of persistent low hydro lake levels.

"If storage levels start off low and rainfall is below average, this year's situation will only worsen, as we will not start next year with an above average 'buffer' like they did this year," officials warn in the paper, which was prepared on Wednesday.

On Monday, Energy Minister Pete Hodgson said it was possible the looming crisis could flow through to next year, because the previous crisis in 1992 incorporated a "legacy" of low lakes levels from 1991.

Water was being spilled from key South Island hydro lakes in January. But storage levels have consistently declined since then as inflows reach their lowest level for 70 years.

In the Treasury paper, officials warn that the situation next year could be exacerbated "if wholesale prices are not faced by end users".

Retailers have so far been reluctant to pass on the extra cost of wholesale power for fear of losing customers.

The National Institute of Water and Atmospheric Research is forecasting average to below average rainfall and average early spring temperatures in the South Island hydro lakes area during August, September and October.

With no El Nino or La Nina forecast for later in the year, no heavy rain is expected.

Alan Seay, a spokesman for Meridian, which manages 70 per cent of the country's hydro storage, agrees that the Treasury's warning is a real concern.

"If we get below average or even average inflows the likelihood is that we could go into the next winter with the lakes less than full and we could be in a tight storage situation."

Officials estimate the present power shortage will shave $225 million off the economy if target savings of 10 per cent are achieved, but see only short-lived economic damage.

They say lower power output and a switch from hydro to thermal generation are already having a direct impact on the economy. There will also be indirect effects from higher power prices, a potential drop in business and consumer confidence and a fall in production.

"On the whole we estimate that these developments could plausibly reduce GDP by around 0.2 percentage points."

They stress that these are initial estimates and the situation could worsen if rain does not fall over coming months.

The Treasury's estimate is the same as the Reserve Bank's, released yesterday, and compares with a cut to GDP of 0.6 percentage points from the 1992 crisis.

The report says key lakes are well above 1992 lows. But this year the dry weather could persist into October, whereas in 1992 the rains came earlier.

If the private sector saves 10 per cent and the public sector 15 per cent and there is no major failure in any thermal power station, then a crisis similar to 1992 is likely to be averted.

The report says lower hydro generation has already hit March-quarter growth figures with a 2.2 per cent fall in the electricity, gas and water component of the economy.

Partial indicators suggest a 3.2 per cent contraction in activity for the sector in the June quarter, shaving around 0.05 to 0.1 percentage points off GDP.

The biggest impact is likely in the September quarter and could slice between 0.1 and 0.2 percentage points off GDP.

A rebound in December and March could offset the weakness in the first nine months of this year.

But if there are power cuts greater than the voluntary savings the Government has called for, the impact on the economy will be greater and last longer.

Power savings fell nationally to just over 5 per cent yesterday with no savings recorded in the southern half of the North Island as it was hit by high winds and cold temperatures.

Average savings for the past week have fallen to 7.85 per cent.

Figures from national electricity monitoring company M-co show electricity savings slipped again to 5.1 per cent on Wednesday, down from 5.6 per cent on Tuesday.

The seven-day average tumbled to 7.9 per cent, from 9.3 per cent on Tuesday, following the cold snap that affected much of the country.

Taranaki, Hawkes Bay, Manawatu and Wellington made no savings. Waikato, Bay of Plenty and King Country made the highest savings on Wednesday - 9.6 per cent. Auckland and Northland made a 4.6 per cent saving.

Feature: Electricity

Energy Efficiency and Conservation Authority