Power outages: The perfect storm that broke the network - and what we can do to fix it

Energy Minister Megan Woods on the causes of last night's power outages. Video / Mark Mitchell

OPINION:

Last night's blackouts happened because we did not have enough generating capacity and we were unable to shed enough non-essential load.

The spot price reached $300,000 per MWh and that, according to market theory, should have substantially reduced demand. It didn't.

The immediate cause was that the Tokaanu hydro station shut down because the intake screens got blocked by weed and starved the turbines of water. If it had an automatic screen cleaner – and it should have – it wasn't up to the job.

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Huntly power station also had problems. Not all the gas-fired generators were running – presumably because they didn't have enough gas. In addition, wind power dropped rapidly and substantially as peak demand approached.

So all of this, combined with unusually miserable weather conditions, left the system operator with no option but to demand load reduction. Several lines companies were forced to shed load.

Huntly Power Station. Photo / Doug Sherring

Sadly, electricity reforms have reduced our once world-leading and comprehensive water heater control system, meaning many water heaters that could and should have been shed were not connected to load control. So people lost their power supply because many water heaters couldn't be switched off.

The Government's ban on new gas exploration and consequent destruction of the gas industry was a major contributor to the lack of gas. This will only get worse as fields rapidly run down. We should be enthusiastically drilling for gas, including shale gas in the North Island and the South Island.

Taking a wider review, the lack of planning and lack of any mechanism that could ensure that needed generation is commissioned on time meant that we didn't have the reserve capacity needed to keep the lights on.

The present market leaves the choice and timing of new generation to the generators and fails to provide a reward for those who hold capacity in reserve for dry years or emergencies. It also fails to recognise the value of reliable generation over wind and solar generation that are intermittent and unpredictable.

As two CEOs pointed out when they retired, the market is designed so that generators maximise their profits by keeping the system on the edge of a shortage. So that is what they do. The problem lies with the market design, not the generators.

The underlying cause of the failure was the decision of the Wholesale Market Electricity Development Group to choose a market design based on buying and selling short-term kilowatt hours rather than the recommended option of a single buyer market.

Several lines companies were forced to shed load on Monday night. Photo / Christine Cornege

The existing market concentrates the minds of the generators and energy traders on maximising short-term profits rather than providing a long-term reliable and economic supply.

It also has a major problem that, to provide a price that will encourage new generation, the price that the market pays has to be lifted well above the actual cost of generation at our old but efficient hydropower stations.

So every time the price increases to encourage new generation, the market provides the hydro generators with huge windfall profits. The market design is simply not suited to the New Zealand situation.

The alternative of a single buyer market would result in international competition among generators to build new generation of the type needed, when needed. Any new generator would be selected on the basis that it best contributed to providing a long-term economic and reliable supply. If it had been adopted, the country would be billions of dollars better off.

Unfortunately, the Electricity Authority refuses to contemplate the possibility that a better market design exists and will not contemplate investigating alternatives.

The Climate Commission advises that we should immediately move to restrict gas and coal-fired generation while rapidly increasing the number of electric cars on the road and converting gas heating to electric.

Any rational analysis of this reveals that it cannot be achieved technically or economically in the timeframe the commission recommended. The inevitable result would be even more blackouts and huge price spikes.

Where to from here?

So what should we do? There are at least two options.

One is to delay electric cars and electric heat until the system is substantially fossil fuel-free. This is likely to need thousands of MW of wind and solar power, which will take time to get through the RMA and to build, and also needs large quantities of energy storage to keep the lights on when the wind is not blowing and the sun is not shining.

Nobody knows how to provide the storage. Building storage at Lake Onslow is not a solution for many technical and economic reasons.

I believe that we should concentrate on increasing geothermal and gas generation to reduce coal consumption and we should also contemplate adopting nuclear power using small modular reactors that have virtually no emissions, are safer than any other major form of power generation and are less expensive than wind and solar power once the need for backup capacity is taken into account.

• Bryan Leyland is a power systems engineer with 60 years' experience in New Zealand and overseas.